Better Understanding, Better Interventions

Abstract

Abstract Basing public policy choices and institutional designs on neoclassical assumptions of unbounded rationality can be misleading. A better understanding of how humans think and act will lead to better interventions. Social contexts matter. Thus, policy and institutional prescriptions need to be context-specific and cannot be simply transplanted as ‘best practice’ from elsewhere. The relentless grind of poverty imposes a disproportionately unfair cognitive tax on the poor. It narrows the frame of choices they believe are open to them, and so they often choose inferior options. Encouragingly, better choices result from institutional interventions which alleviate such stresses. Research in psychological and behavioural sciences shows that ‘bounded’ humans could sometimes use help in their complex decision-making process, a nudge. By the very nature of their evolution, norms and mental models have long staying power. They can have the positive effects of the collective knowledge and wisdom of the ancestors being bequeathed to successive generations. But they can also outlive their relevance and become counterproductive. Changing norms need collective actions. Participatory deliberations, empowering the affected people, raising social awareness, or offering a counter norm to anchor the change are some such possible actions. Actions by the government and the deployment of a law can also shift norms. Changing mental models are usually more difficult since they are self-enforced. However, with better understanding of these behavioural aspects, societies can devise better institutional interventions, hopefully leading to a better world.

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