18 December 2012

OBPR Research Paper - Influencing Consumer Behaviour: Improving Regulatory Design

The effectiveness of a regulatory intervention may depend on how successful that intervention is in changing consumer behaviour. This paper explores two broad frameworks for considering consumer behaviour: rational choice theory and behavioural economics. The former assumes that choice is the process of maximising utility subject to budget constraints. The latter assumes that choice can be affected by a number of cognitive, social and emotional factors.

The application of behavioural economics to policy design has not been widespread. However, recently a mechanism for translating these findings to public policy has been developed through ‘nudge’. Nudge uses insights of behavioural economics to change choice architecture with a view to influencing behaviour. Research has found that, in some circumstances, small alterations to choice architecture can give effect to disproportionately large behavioural changes.

Under certain conditions, some evidence suggests that nudge interventions can be: cost-effective relative to more direct or traditional forms of government intervention; used alongside existing regulatory approaches; targeted in which decisions are influenced; and easy to implement.

However, it is important that some assessment is made about all of the costs, prices, preferences and constraints that consumers face in making a decision. In the absence of this information, governments may nudge consumers to make sub-optimal decisions which reduce the benefits to the community. Given the inherent difficulties governments face in obtaining this information (such as the decentralised nature of information), fully understanding if a nudge enhances benefits to the community can be difficult to assess.

Nonetheless, insofar as behavioural economics and its application through nudge can be harnessed to improve regulatory design, its advancement is encouraged to be explored.


3 comments to OBPR Research Paper – Influencing Consumer Behaviour: Improving Regulatory Design

  • Paula

    Humans are neither rational in the sense that mainstream economics believes, nor irrational. We are affected by a set of biases imposed by biology (which are increasingly well understood scientifically), plus effects of our culture and relationships.

    In my voluntary work as a sustainable transport advocate, I see people making decisions every day that are rational in terms of the information they have and their inbuilt biases, but that are wrong in terms of what they want to achieve. All those parents taking their kids to school by car because they think they the kids will be safer that way are generally doing the opposite – making them more likely to suffer from a road accident, exposing them to greater amounts of vehicle emissions, reducing the amount of exercise they get, and denying them important developmental experiences (e.g. research shows that kids driven to school do not develop navigational skills to the same extent as those who walk or cycle).

    We are being constantly manipulated by everyone around us – advertisers, the people who decide where to put things on supermaket shelves, urban designers, our friends and relatives. Sometimes it is deliberate. Sometimes it is the unintended effect of changes in our environments. If we build motorways, we get modal shift from other modes to car use and equal or worse congestion in the long term. That generally isn’t the intent of the road builder – in fact they often intend to reduce congestion. If we provide good quality cycle facilities (e.g. Portland USA), more people bike.

    The whole point of governments is to change things – to make people’s lives, community resilience and functioning, and the environment better. Helping people make better choices is surely a more useful way to achieve things like improved public health than some of the other options (e.g. subsidising drugs). Everything government does changes people’s behaviour – the infrastructure they provide, the tax systems they design… Outside an anarchistic societal model that is inevitable. I’d prefer that we all thought a lot more about what the effects of those decisions would be, and that the influence governments had was positive rather than negative.

    • Tony

      You are right about biases. In the Stanford Prison Experiment (http://en.wikipedia.org/wiki/Stanford_prison_experiment) every person given power over other people abused that power; sometimes violently. While these people, if asked, would probably say they do not want to hurt or exploit people, ultimately they did.

      Regarding your second paragraph, firstly you says you are an “advocate”. I presume this means that you want to impose your views on others? Then you say: “…but they [ie “me”] are wrong in terms of what they want to achieve.” This is another bias. You don’t see that you are merely seeking to impose your normative value judgements about how other people should live upon them. “Advocacy” is merely you getting power over other people.

      I agree advertising can change people’s behaviour, but at lest private firms who advertise can only do so while they retain remain profitable. The market will discipline any firm who ultimately does not give consumers what they want (not you think they should have). And contracting with a private firm is not forced on anyone. In the government context, there is no market discipline upon the government because it has a monopoly on coercive force (that’s the power things from before, hey!) and they can merely impose rules and regulations upon people, and raise more taxes to sustain their existence. This is why the Commonwealth Government is now the largest single purchaser of advertising on TV, which it uses to tell us things we don’t want-like the carbon tax-are really things we do want.

      Then you say:

      “The whole point of governments is to change things – to make people’s lives, community resilience and functioning, and the environment better.”

      Wow. What do all the other people do all day? Has Silicone Valley had any impact upon your life?

      Strange.

  • Tony

    In my view behavioural economics is just pseudo-intellectual junk.

    It starts from an unproven assumption that people are not really that rational and make inefficient or irrational decisions, then advocates government intervention in all facets of people’s live in order to “save” people from their own purported irrationality. From there, any government intervention into any aspect of people’s lives is justified to save the lemmings from themselves.

    The problem is that people are not-in fact-irrational, and there is no suggestion that the government could ever be any better at making decisions for people than individuals themselves. This is the same purported emancipatory project that was pursued in communist countries; where everyone would be better off if the government controlled their lives. The problem was that the nature of communist political regimes was that psychopaths gravitated to the top of the political hierarchy and ultimately just oppressed the people.

    Behavioural economics has all the same dangers. For example, where can I obtain a list of all the “nudges” currently being implemented? Or as a lemming am I not allowed to know how I am being manipulated? What if my defective behaviour is not believing in climate change, or not believing in income redistribution? Will my views on those issues be nudged?

    It’s like the OBPR does not know about the fall of communism. And I’m paying taxes to fund this!

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