Everyone misbehaves: Putting the 2017 Economics Nobel Prize to work for development

The World Bank
eMBeD Team



Monday’s announcement of the 2017 Nobel Prize for economics, to Richard Thaler, for his groundbreaking work incorporating psychology into economic theory, was a victory not only for the University of Chicago Professor and co-author of Nudge: Improving Decisions about Health, Wealth, and Happiness, but for behaviorally-informed policy worldwide.

Daniel Kahneman’s research (with Amos Tversky) into judgement and decision making won him the Prize in 2002. If the 2002 Nobel Prize was for behavioral economics, or the use of psychology in economic theory and research, one might say that this year’s 2017 award is for behavioral public policy. Thaler’s body of work extended Tversky and Kahneman’s, but as notably, it extended that work into policy making. Thanks to Thaler, behavioral economics has become useful for everyone. As one writer put it, “We are all behavioral economists now.”

Thaler’s imprint is clear at every level of policy making. In the UK, Canada, United States, Netherlands, Israel, and elsewhere, government “nudge” units deploy and test behaviorally informed policies. At the World Bank, Thaler’s research laid the groundwork for the Mind, Behavior, and Development Unit (eMBeD). eMBeD works with World Bank teams, external partners, and governments to take this revolutionary idea - that human behavior departs from rationality in systematic ways – to create truly effective development policy by reframing the diagnosis, design, and evaluation of policy solutions with an eye towards realistic human behavior.

The World Bank has long been a proponent of the integration of psychology into policy design. As the World Development Report 2015: Mind, Society, and Behavior emphasized, for policy makers in developing countries, the behavioral sciences are a crucial part of the toolkit. eMBeD uses a behavioral science lens when solving some of development policy’s most intractable problems. The emerging field of behavioral public policy: emphasizes the importance of context for decision making and behavior - a behaviorally informed diagnosis looks at a wide set of determinants of behavior, paying attention to the social, psychological, and economic factors that affect decision making;

• addresses details in bureaucracies, technologies, and service delivery that are often overlooked in standard policy design but that dramatically influence the effectiveness of development policies and projects, especially in low-income contexts;
• helps policy makers themselves avoid the decision traps and biases that sway all individuals;
• provides innovative solutions to intractable policy challenges, often at low cost.

Since its inception, eMBeD has worked in more than 100 countries on behaviorally informed projects aimed at improving outcomes in education, finance, health, and more. We work in big policy areas, like social cohesion for refugees and climate change, and at the micro level. From using goal-setting to improve employment rates for young people and women in Turkey, to creating information interventions to increase breastfeeding rates in Indonesia and increase take-up of long-acting reversible contraceptives in Cameroon, each of eMBeD’s projects aims to make tangible improvements in the lives of often vulnerable individuals through behaviorally informed policy.

In Peru, eMBeD worked to reframe beliefs and perceptions of middle-school students by showing them that intelligence is malleable. The intervention dramatically increased test scores at less than $0.20 per student, reaching 250,000 students. In Indonesia, a similar intervention is reaching 168,000 students, and in Guatemala, an education intervention aims to reach every middle schooler enrolled in every public school in the country. In Poland, a trial aimed at using behaviorally informed letters to increase tax payment increased tax compliance by 20.8. In that intervention, if the best- performing letter had been sent to all taxpayers covered by the trial, the Polish Tax Authority would have generated 56% more (PLN 39,328,742) in revenues.

For the eMBeD team, and all those working to apply behavioral science to policy, Monday’s announcement is confirmation of what we already know – that we need to think about the realities of behavior and context when we design policy. Thanks to Richard Thaler, now the world knows it, too.