Are we still social distancing with Behavioural Economics?
Humans are guided not only by their cognizant and rational minds but also by a plethora of emotions, this lays down the core philosophy of behavioural economics.
According to Sigmund Freud’s theory, human beings are guided by their unconscious minds. Economics portrays the framework of a ‘perfectly rational individual’ but there seem to be many limitations to this one assumption. Human beings can sometimes have quite problematic behaviours. Behavioural economics is the study of how people behave rather than making assumptions about how they should actually behave. Our everyday life choices are a part of what behavioural economics studies. It is quite different from what neo-classical and classical economists have been assuming.
A prime example of this could be your fitness app’s daily notifications about how you are nearing your set target of burning a particular set of calories. This daily reminder through notifications will prompt one to follow their daily exercise routine. This is where the concept of nudge enters into the behavioural picture. Nudge is what it means to predict and manipulate an individual’s behaviour and altering it to one’s benefit.
Corporations and governments around the world have adopted the practices of behavioural economics and nudging to deliver solutions to the challenges faced by them. These corporations even need to keep up with the changing dynamics of their audiences over time. Nudging is often a part of the marketing and promotional toolkit of companies. It is sometimes even a part of the government’s way of making people obey the rules, and is actively used in framing public policies(Saurabh Bhargava, 2015). Policymakers do also have the role of protecting consumers against aggressive behavioural exploitation by firms.
The Covid-19 pandemic is raging with each passing day. People’s lives have now succumbed to just numbers that keep on changing every minute. The only hopeful way out seems to be the potentially life-saving vaccine. But the speculations surrounding it are a roadblock on the path of vaccine acceptance. A vaccine approval is decided by a proficient review panel that collects data based on extensive clinical trials(Jessica Londeree Saleska, 2021). But scientific evidence alone cannot fulfil the beliefs of people. Trust is quite a complex term having different meanings for different people. How can behavioural economics play a role in debunking the air surrounding the mistrust about vaccines?
The following research was limited to the geographical region of the United States of America. Let’s start by taking a look at what have been the most common reasons for the mistrust to arrive? Suspicions regarding their efficacy, lack of trust in the government, and myths surrounding the powerful side-effects of a Covid-19 vaccine. One should know that it is the humans or emotional and reflective beings, not Econs or deliberate choice makers who are going to form their opinions about the vaccine(Jessica Londeree Saleska, 2021). An error of cognitive bias, negative bias or even optimism bias is bound to occur. Breaking down these alien terms one by one.
· When there are errors in judgements then cognitive bias seems to have happened.
· Psychological research has indicated that humans tend to pay more attention to negative information than positive information, and our negative perceptions incline to be ‘stickier. (Jessica Londeree Saleska, 2021) This is what we call negativity bias.
· Optimism bias is when sometimes individuals adopt a tendency of overly optimistic view about themselves or even probabilistic situations of them experiencing an undesirable event.
How can we counter them with the help of behavioural economics? Empathizing is the most common form of showing people that you care. Instead of providing them with corrective information we should try to explain and empathize with reactogenicity, in this case. Stressing on the prosocial reasons, that is framing decisions in terms of their effect on others. This may condense people’s tendency to vindicate their denial of the vaccine.
Individuals are less probable to make self-interested choices when faced with indistinctness about the extent that their decision will unpleasantly impact other people (Jessica Londeree Saleska, 2021). It is in our best interest if we understand when to be proactive and when to be reactive towards the new vaccine developments.
This was just an illustration wherein a successful adoption of behavioural economics would help achieve greater outcomes. But public policies in the fields like health insurance, information disclosure and climate change have failed to understand the impact that behavioural economics can have.
To quote the chairman of the Securities and Exchange Commission
‘The most significant thing that a Board of Directors should do is govern the elements that must be embedded in the company’s moral DNA, as one might call it’ (On Amir, 2008).
Organizational and moral DNA take their roots from the recent behavioural economics literature. He stated this after many corporate scandals and the infamous Enron scam that was reported in the U.S.A.
Humans do stumble and it is not unusual to follow the same suit for decision making as well (On Amir, 2008). A little nudge from the regulatory authority can prevent people from stumbling too much. A harmonized balance of nudging and regulations can lead to improved and modernized civil life.