On Monday May 4th I attended a keynote on the latest report of the World Bank on economics and behavior in context of public policy development in Latin America. The director of the World Bank for Argentina, the economist Anna Fruttero of the same bank and Dr. Facundo Manes were present in this presentation. Read ahead the summary of this interesting dissertation on how to apply more efficient public policies.

Anna Fruttero, co-author of the World Development Report 2015: Mind, Society, and Behavior explained that paying attention to how the human beings think and how the environment affects their decisions allows the improvement of the design and the application of development policies in the world.

“The message of this report is that having a better understanding of the basis of human behavior can lead to more effective public policies. Behind every policy there is an assumption on why people do what they do”, says Anna Fruttero, “I we have the wrong assumption, we will get an inefficient policy that standard economics can’t explain.”

One of the main findings of this report is that more effective public policies can be designed if we pay attention to the way in which people make decisions. People turn immediately to the information of the environment or information previously acquired; the way in which we act often depends on how the people that surround us think and act.

Studying how to influence people’s decisions is not new, what’s new is to investigate how we can use these concepts to design development policies.

The World Development Report 2015 is based on three principles:

  1. ** Automatic Thinking.** A great portion of our thoughts are automatic and are based on what comes to mind without effort. We use mental shortcuts most of the time.
  2. ** Social Thinking.** Human beings are deeply social. We like to cooperate, provided others also do their part.
  3. ** Thinking Based on Mental Models.** The way in which people interpret is influenced by mental models extracted from the society to which they belong and their shared stories.

Policies to overcome poverty are created assuming people act based on reasoned decisions, i.e., thinking carefullyA black and white drawing of a man making a buying decision at the cashier counter about their options before choosing. Policies under this assumption subsidize and promote activities they consider valuable and impose fines on those they seek to discourage.

However, in the last decades many researches investigate and question the process people follow when taking a decision or making a choice. These studies, which formerly were almost exclusive for publicists and marketing experts, have begun to influence the public and development policy fields.

These discoveries will influence the creation of policies against poverty in the region if we have a better understanding on how people act and think, thus modifying them and making them more efficient.

Those in poverty are constantly thinking on what will they eat that they, how can they help a sick family member or how much they have to walk to get water. In this world of concerns, it if not much the time spent on being productive. Looking for a job or collecting money for a certain objective is much harder in this context.

Good Examples

A water emergency in Bogotá as a result of the collapse of a tunnel shows how people’s decision-making power and its impact can improve their life quality.

The first thing the local government did was to alert the people of the coming crisis, encouraging the savings and good use of water. However, the effect was opposite, causing the increase of consumption and hoarding. After recognizing the problem, the government modified the communication strategy. The mayor appeared on television taking a shower with his wife and explaining why the faucet had to be closed when soaping themselves.

On top of the TV ad, volunteers were sent all over the city to explain the most efficients techniques used to save water. Finally, the consumption figures were published daily, and they people who cooperated and who didn’t were publicly mentioned.

The strategy was so good that the lower water consumption persisted after the damaged tunnel was repaired. This is a good example that shows the importance of considering the social thinking (I do my part provided everybody cooperates) to obtain better focused strategies and results, strengthening the community cooperation.

librasAnother important example can be found in the collection of taxes in England. The main problem was that people delayed their payments, increases the costs for the government (reminder letters, collection efforts, etc.). To face this problem, on the letter sent for taxes collection, this phrase was added,”9 of every 10 English pay their taxes on time”. With this action, the number of debtors was reduced.

Helping filling the gap between the intentions and the actions is very important. using these findings in aspects related to developments requires an iterative process of discovery and learning.

The Public Policies

The report also mentioned that social incentives can be as powerful as economic incentives. Social rewards, as gifts, non-monetary awards and recognition can make people change their behavior and can lead to very interesting results.

During the last years, several governments have tried to include these findings on their public policies. We must take into account that any policy can be re-diagnosed at any time. What must be done is to review the current programs and analyze in which part of the process exists behaviors that prevent achieving the expected results. We must stop looking only at the numbers and we should start analyzing the behavior and the factors that influence decisions.

Dr. Facundo Manes expressed how science can transform public policies. “The main wealth of a country is the mental or intellectual capital of the people living on it, This report puts the brain on a special place: Today we know that context and experiences can change our brain, i.e., the way in which we think. Emotion affects our decisions. Trying to understand human history in a rational way is a mistake.