Applying the insights of behavioural economics will mean better – and cheaper – government

The guiding principle is that instead of ordering people around, the state can “nudge” them into making better decisions by framing their choices differently

Shortly after the Coalition came to power, David Cameron brought a team of civil servants into the Cabinet Office to work on a ground-breaking project under his controversial director of strategy, Steve Hilton. And unlike one of the Conservatives’ other big ideas – the Big Society – the “Nudge Unit” is still going strong three years on.

As we report today, the unit is using insights from the emerging field of behavioural economics to subtly change the processes, forms and language used by the Government – saving public money in the process. The team found, for example, that by changing the wording used to encourage organ donation, more than 100,000 extra people would sign up annually. The new phrase – “If you needed an organ transplant, would you have one? If so, please help others” – will now appear alongside every tax disc renewal and driving licence application. Ultimately, it will save hundreds of lives a year.

Such tweaks may sound simple. There are certainly still those in government who are sceptical, unfairly characterising the Nudge Unit as lightweight and ephemeral. Yet over the past two decades in particular behavioural economics and social psychology have established firm grounding, so that the potential  for smarter and cheaper public services is vast and exhilarating.

The guiding principle – articulated by US economists Richard Thaler and Cass Sunstein in their book, Nudge – is that instead of ordering people around or leaving them alone to behave in ways damaging to themselves or others, the state can “nudge” them into making better decisions by framing their choices differently. Organ donation is a case in point.

Finding a successful nudge involves a scientific approach, testing different approaches and forms of words using randomised controls – a principle common in medical research but rare in policy-making. In one instance, where the goal was to increase the proportion of people who pay their taxes on time, some 70,000 citizens received the standard government letter urging them to file their returns on time, while another 70,000 were sent a variation designed by the nudge team. Such large numbers are academically rigorous and provide a very high degree of confidence that the intervention will work on a national scale.
There is still so much more that could be done. So far, the unit has concentrated on the less controversial areas of government activity. Public health and education policy are just two areas where behavioural economics has a significant and beneficial role to play. Rather than be restricted to the Cabinet Office, these insights should be part of the policy-making process across all departments.

Critics who cry “Big Brother” over government attempts to manipulate public behaviour are missing the point. Far from infringing the liberties of citizens, behavioural economics uses our evolving understanding of human nature to liberate us from avoidable errors. It could produce better government and a better society. Indeed, this is about ensuring the state does not need to be Big Brother. The application of behavioural economics is smart, scientific, and liberal, so naturally this newspaper will champion it.