Every policy makes assumptions about human behaviour. Public policy typically subsidises and publicises activities worth encouraging and taxes those to be discouraged. Underlying this approach is the notion that human behaviour arises from “rational” choice: individuals carefully weigh their choices, consider all readily available information, and make decisions on their own. Policies arising from this perspective focus on changing the benefits and costs of individual actions, and have proven very effective in many domains.
In recent decades, however, research on decision making has cast doubt on the extent to which people make choices in these ways. Novel policies based on a more accurate understanding of how people actually think and behave have shown great promise, especially for addressing some of the most difficult development challenges, such as increasing productivity, breaking the cycle of poverty from one generation to the next, and acting on climate change.
Three principles of human decision making
To understand and apply recent findings on human decision making, this year’s World Development Report presents a framework that relies on three principles:
- Thinking automatically. Much of our thinking is automatic and based on what comes to mind effortlessly. Deliberative thinking, in which we weigh the value of all available choices, is less common. We use mental shortcuts much of the time. Thus minor changes in the immediate context in which decisions are made can have disproportionate effects on behaviour.
- Thinking socially. Human beings are deeply social. We like to cooperate—as long as others are doing their share. Institutions and interventions can be designed to support cooperative behaviour. Social networks and social norms can serve as the basis of new kinds of policies and interventions.
- Thinking with mental models. When people think, they generally do not invent concepts. Instead, they use mental models drawn from their societies and their shared histories. Societies provide people with multiple and often conflicting mental models; which one is invoked depends on contextual cues. Policies and interventions to activate favourable mental models can make people better off.
Psychological and social perspectives on policy
- These three principles have major implications for development policies and interventions. Interventions need to take into account the specific psychological and social influences that guide decision making and behaviour in a particular setting. That means that the process of designing and implementing effective interventions needs to become a more iterative process of discovery, learning, and adaptation. What matters is not only which policy to implement, but also how it is implemented.
- In addition, experts, policy makers, and development professionals must recognize that they, too, are subject to social and cultural influences, and think automatically. They need to become aware of their own biases, and development organizations should implement procedures to mitigate the adverse effects of these biases.
- Seen under a psychological and social lens, poverty is more than a deprivation in material resources. The stresses and strains of poverty impose “taxes” on cognitive resources. Policy makers should try to move crucial decisions out of time periods when mental resources are especially scarce. They can, for example, shift school enrolment decisions to periods when poor farmers’ seasonal income is higher. They can also target assistance to important decisions that require a lot of cognitive resources, such as applying to a higher education program.
- Poverty early in life also affects psychological resources. High stress and insufficient socio-emotional and cognitive stimulation in the earliest years can impair cognitive development. Programs that provide very early childhood stimulation can have a large impact on adult success.
- Adopting a psychological and social perspective enlarges policy makers’ toolkits. For example, simplifying decisions can help people make choices that better serve their interests. It is easier for consumers to determine which loans and savings products are best when they are presented with succinct summaries of savings rates and loan costs. Using reminders is another new tool to help individuals execute their plans. Weekly text message reminders can help patients take their medicine regularly.
- Social incentives can be as effective as economic ones. Many programs are more effective when they are channelled through peers and networks.
- Entertaining educational narratives can drive key development choices. Television and radio shows that incorporate social messages can reduce teenage pregnancy, improve savings rates, and increase women’s autonomy. Aspirational messages can increase parents’ investments in their children’s education and school performance.
