State to use behavioural economics in policy making

Pranita Roy
Friday, 22 March 2019

Check this! Shopping malls advertise discounts up to 50-60 per cent, but when the customer goes to shop, he/she finds that the products which they like, have minimum discounts. 

Pune: Check this! Shopping malls advertise discounts up to 50-60 per cent, but when the customer goes to shop, he/she finds that the products which they like, have minimum discounts. 

According to standard economics concept of choosing marginal benefit offers, the customer should have left the mall without purchasing anything. However, he/she ends up buying products which are in discounted offer as well as those which they have liked but have only 5 per cent or 10 per cent discounts. Here, the behavioural economics has played a role, wherein the retailers attract customers by advertising huge offers and they know that they will not leave without buying 

This is behavioural economics. Maharashtra is the pioneer state to propose inculcating  behavioural economics in the policy making. Mumbai-based Meghnad Desai Academy of Economics Professor Shagata Mukherjee, who is an expert in microeconomics, behavioural economics and public policy, is working on it. He is also working with the State government in formulating it. Recently, he visited the Symbiosis School of Economics and Fergusson College for a session in economics.

““Maharashtra is the first State to propose a ‘Nudge Unit’. It will be the first behavioural policy unit in India. This is after the famous book Nudge which talks about how can you nudge people in taking better policy decisions,”” said Mukherjee. 

“Last year in January, I was approached by Maharashtra Chief Minister’s office as a behavioural economic expert. Few of the Chief Minister's fellows are currently working on the implementation of the unit which is waiting for bureaucratic clearance. Other state governments have also expressed a desire to have such a unit. Niti Aayog has also proposed a central behavioral unit in policy making which was suggested in the Economic Survey of 2016-17,” he added.

Emerging Trend
Speaking about the emerging trend of behavioural economics in India and its wide scope, he said, “The subject has been popular and practiced in western countries. However, it is now emerging in India. After Richard Thaler won the nobel prize in October 2017 for his contribution to behavioural, it got promulgated.”

Explaining it further, he said, “For example, few leading school of economics in the country are imparting behavioural economics as part of their syllabus at the post graduation level. But a dedicated programme hasn’t been introduced yet at graduation and post graduation level. Our academy is one of its kind to offer the course to economics students at the graduation level. The reason is most of the economics schools are unable to find experts in this field. Those who are currently teaching the subject have come from western countries after pursuing it there,” said Mukherjee.
“But this field has a huge scope considering the Central and state government as well as various industries are including the concept in their policy making,” he added.

Helpful in policy making
Mukherjee stated that behavioural economics play a significant role in policy making. “When the State government was planning to impose a ban on plastic, it knew that only imposition of the ban will not be effective but if the behaviour of people is changed towards usage of plastic, then the implementation will be fruitful. So, it started campaigning about harmful effects of plastic. Similarly, in case of sanitation, while promoting no open defecation, it tried to inculcate the concept of behavioural economics,” he told Sakal Times.

In one of the recent studies undertaken by Mukherjee, a preliminary report reflected that after Pradhan Mantri Jan Dhan Yojana (PMJDY) was introduced and bank accounts of several women in rural areas were opened under it, the women were got a platform to make or suggest opinions while taking decisions.
“The initial report has revealed that around 14 per cent of women are independently making decision on usage of money, in 22 per cent cases, men (husband) are seen to have actively using the bank account and 64 per cent is where both men and women are jointly taking decisions on expenses, utilities etc. Therefore, it can be observed that creating bank accounts of women has led to bringing them in the mainstream economy,” he said.

What is behavioural economics?
It studies the effects of psychological, cognitive, emotional, cultural and social factors on the economic decisions of individuals and institutions and how those decisions vary from those implied by classical theory.

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