BETA conference

Ever get the feeling someone else is pulling the strings? It may just be the Australian government. A group called BETA sits inside the Department of the Prime Minister and Cabinet, and they’re setting out to change the way you live your life.

BETA stands for the Behavioural Economics Team of the Australian Government, and they’re experts in the “nudge”. Nudges are tiny little ways the government exploits quirks in human cognition to try to change our behaviour. BETA was established in 2016 and they are now ramping up. You may not have been nudged yet, but soon, you surely will be.

Some of the most famous nudges of all time include making retirement savings plans opt-out instead of opt-in to encourage saving, or sending people an SMS reminding them how much money the hospital will lose if they miss their appointment, to encourage attendance. Neither of these compel anyone to do anything, but rely on predictable human motivations to get people to behave better.

Beta testing

I learned all this at the big BETA Exchange Conference in Sydney last week. The conference was a big deal; many hundreds of people present in some seriously fancy surroundings. BETA booked an entire floor at the newly-built International Conference Centre, with impressive harbour views. The group picked up $12.3 million in last year’s budget and I’d guess a little chunk of that went to making this conference impressive. If the quality of the catering is any sign of how seriously the government is taking behavioural economics, then the scallop ceviche I was munching suggested a tsunami of nudges coming our way.

The conference was packed with experts — most of whom seemed to be from Harvard. The star speaker was Cass Sunstein who, alongside economics Nobel Prize winner Richard Thaler, wrote the 2008 book Nudge that popularised this whole field. Sunstein is from the University of Chicago, where the economics practised is hardcore. “Chicago School” implies the assumption that humans are rational and markets work best. But Sunstein disagrees. He catalogues a litany of ways in which human cognition is biased and limited.

Sunstein says he nearly named Nudge “Libertarian Paternalism” and one of his favourite features of nudge theory is that it leaves people their freedom. Unlike a law, which is one-size-fits-all, under a nudge, people who don’t want to act as the government prefers retain their ability to do so. In this sense, the nudge represents a compromise between those who would prefer big government, and those who would prefer government power be circumscribed.

Tax nudges

One of the first ways nudges might come into your life is this tax time. The ATO has a behavioural insights team and it is working hard to encourage payment and stamp out dodgy behaviour. Behavioural economics says that even small tweaks that make doing the wrong thing harder will encourage a lot of people to choose the easiest option. That is one rationale for the government pre-filling the MyTax system with your personal information.

“We are taking away the opportunity for people to fill in a blank space with inaccurate information,” says Catherine Griffin, assistant director of the ATO Behavioural Insights Unit. “If you have something that is pre-filled it really takes a conscious decision to go and say I’m going to change what is already there.”

Behavioural economics is also permitting the ATO to crack down on dodgy deductions. If people start listing deductions that seem high, they get an automated message letting them know they are claiming more than similar people in similar jobs.

“About 170,000 clients got a nudge message like that at tax time last year,” says Griffin. “That led to deductions being adjusted down to the tune of about $80 million.”

From a nudge to a shove

The concept of the nudge has been so far quite small-scale, as the above examples imply. But the behavioural economics experts want to go bigger. Much bigger.

Kate Phillips of the Victorian Behavioural Insights Unit, wants to use the insights of behavioural economics to not only help deliver existing policies a bit better, but to revolutionise what policies are delivered. The crowning example of such an approach is plain packaging for cigarettes. Rather than assuming that a rational consumer will be affected only by the product, its risk and the price, behavioural approach embraces the fact that marketing matters.

“From a customer perspective, plain packaging shouldn’t make a difference. It is a supposedly irrelevant factor. It doesn’t affect the cigarettes that are contained within the package,” says Phillips. But it seems to have worked. Smoking prevalence dropped by 0.55% — a sharp break in the series.

Thinkers like Phillips have a long way to go to remake the whole policy-making edifice. But if the micro-level nudges that are coming our way are successful, it will give impetus for behavioural economics to get a lot more consideration as a higher-order decision tool. I can’t imagine how fancy the catering will be at the conferences if that happens.