The need for a behavioural approach in Indian public policy: how it stimulates the economy

Need to understand behavioural economics

The covid-19 pandemic during 2020 has not only resulted in a large number of deaths around the world but also has devastated the economy. The economic activities came to a halt due to the restrictions in movements and not surprisingly, the consumer market and labour market suffered a major downfall which resulted in a sharp squeeze of the economy. Due to the sudden outbreak and with all the things happening in a blink, it was a lot to take in.

On one side, a large amount of information in a short time led to the problem of misinfodemic and distrust among citizens and on the other, the whole situation made people more inclined towards savings in the current period.

behavioural economics and fraud under microscope at idss - behavioural economics and fraud under microscope at idss | actuaries digital


Along with economic indicators that got destructed, there has been a permanent shift in the behavioural aspect of the people and public policy, without considering behavioural economics, would not be able to tackle these changes. With the thriving importance of behavioural economics in current times, which explains how consumers behave and make their choices in real life when faced with real situations as compared to a homo economicus consumer, the government could use this concept for designing the public policies strategically to tackle the hurdles in a more efficient way.

Uncertainties caused by the pandemic changed the way people make their intertemporal decisions. They’ve become more risk averse and thus choose to consume less in the current period. Based on the consumption data by OECD which significantly shows a downward curve and the data given by RBI on weakening consumer confidence in the market, it is crystal clear that the use of behavioural economics may be imperative for Indian public policy to have an impact on people and change the approach of the economy.

Learning from past experiences, we know that bringing the economy back on track would not be an easy task but behavioural economics gives us some aspect with the help of which we can try to bring it close to the pre-pandemic level a little earlier.
WHO, in September 2020, released a report on infodemic- the overabundance of online and offline information.

In India, however, the situation had by then effectively turned into a misinfodemic- an overabundance of misinformation. And like the virus in the country, misinfodemic also took turns in two prominent waves. As per the data published by Boom, an India-based fact-checking organization, wave one was based on medical misinformation, while wave two consisted of communal misinformation.

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Consequences of this were witnessed in terms of the increased sale of ineffective drugs and black marketing, which only grew exponentially during the second wave and had a terrible impact on the economy.

Along with that, the country’s inefficient inoculation drive was also an aftermath of this misinfodemic because people didn’t know what information to trust and resultantly, ended up being way too wary in the beginning and too enthusiastic later in the drive. The prolonged threat of the virus which can be experienced from the perspective advance of the third wave is also ultimately been caused by what we call a misinfodemic.

Solutions using a behavioural approach could alter the way we approach and solve these problems. Let’s have a look at how.

how to use insights from behavioural economics in e commerce

In a report published by Dr Robin C. Vanderpool, the authors have argued how fact-checking efforts are a necessary but significantly inefficient response to health misinformation. Arguably, inculcation of behavioural economics in public policy could have proven useful at the time, here’s how: 

The Messenger effect as a part of behavioural economics explains the phenomenon that we encounter every day- evaluation of the worth of a policy idea, proposal, or political speech based on the impression of the messenger. Data suggests that one of the most prominent reasons for health misinfodemic was distrust amongst the people towards their political leaders.

Unsurprisingly, this held true at the micro level as well. An understanding of this phenomenon would indicate that the citizens would be more likely to listen, interpret and acknowledge information conveyed by scientists, professors, doctors, or experts on matters related to health since they are some of the most trusted professions in the country, more so at the time of a health emergency. Aiding in improving public trust, understanding of this insight could have helped lessen the problem of health misinformation.

Framing effect and Risk Communication also have a significant role to play in how we approach these problems. Risk communication is the branch that addresses the problems raised in the exchange of information about the nature, magnitude, significance, control, and management of risks or emergencies, in this case, the pandemic. It theorises effective ways to communicate during risk, treating the public as a full partner. One of the four models risk communication is based on is The Mental Noise Model, which states that when people are in a state of high concern because they perceive a significant threat, their ability to process information effectively and efficiently is severely impaired.

At such a time, the behavioural economics behind The Framing Effect, which explains how information can be presented in a way to nudge the behaviour of the recipient, could prove useful. Various extant surveys and research conducted around the globe have demonstrated the likeliness of framing on relieving negative emotions and risk perceptions.

A survey was conducted by the authors of a paper on inculcation of behavioural economics in Indian public policy at the micro-level with the aim of attesting the aforementioned conclusive statement of framing effect and reconnoitres the methodology. The survey questioned the impact of a caller tune that talked about how staying home is important to contain the spread of the virus, directly, without any attempt to nudge their behaviours.

As per the survey, 67% found it annoying while only 12% of people were persuaded by it. (The survey questionnaire and response link is attached at the end of the paper). On the other hand, a survey conducted by Carlos, William and Joan in the article named ‘Framing Messages to Deal With the COVID-19 Crisis: The Role of Loss/Gain Frames and Content’ to assess the role of message framing, contrasting health and economy focused messages, revealed that over 91% of participants were able to recognise gain-loss framed messages and results show that gain-frame health messages stimulated people to follow the Covid protocols, and they were hence persuaded by them.

All of this information is supportive of the fact that Indian public policy is in desperate need of behavioural inculcation in it for proper action can be undertaken only by the proper understanding of the situation. Major countries in the world like the United Kingdom have their behavioural teams that act as an effective guide to public policy as an aftermath of economic actions. It is time that the country gets on the bandwagon of change and evolve its strategies in a way that actually have an impact on people primarily because it is designed for the purpose.

The world is a streaming tub of behavioural changes right now, and exploiting prospects and probabilities of behavioural economics at this time would prove to be a very beneficial feat for the country.

Edited by Tanish Sachdev 

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Simerleen Kaur

Talk to me about economics, trade, and all things India.

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