Softly, softly and the debtor may respond
Since it's the summer hols, let me ask you a few personal questions. Do you sometimes fail to read every word of the official letters you get? Do you put off filling in forms or delay paying parking fines or taxes? Are you ever less than scrupulously honest on government forms?
29 Dec 2012 SYDNEY MORNING HERALD - ROSS GRITTINS
If so, I have news: the economists are on to you. Actually, it's the behavioural economists, and their thing isn't to punish you but just make it easier for you to be a good boy or girl.
Behavioural economics is particularly suited to politics and public policy because it's the study of how people make decisions in real life, not how they'd behave if only they were "rational", which they aren't.
When David Cameron became Prime Minister of Britain he did something new, setting up a "behavioural insights team" within his cabinet office. Its job was to apply the insights of behavioural economics (most of which come from psychology) to government operations and see if they improved things.
The team decided to start with the related problems of fraud (people claiming benefits they aren't entitled to), error (people inadvertently giving wrong information) and debt (people not paying what they owe the government).
Earlier this year the team issued a report on how it was getting on. It estimated fraud was costing British taxpayers about $14 billion a year. Error was costing $6 billion and unpaid debt up to $5 billion a year.
Traditional attempts to combat fraud, error and debt have tended to assume people rationally weigh up the personal costs and benefits of non-compliance by comparing the amount they expect to gain with the probability of being caught and the size of the punishment. The usual approach seeks to increase compliance either by increasing the penalties or increasing the chance of being caught.
But humans don't behave like that. The vast majority of people don't commit fraud or avoid paying debts. And they don't because they have a strong sense of moral obligation, justice and fairness, which is shared by those around them.
So maybe you can reduce non-compliance by finding ways to reinforce such social norms. And maybe people give wrong information or end up doing the wrong thing for much less sinister reasons of mere human fallibility.
After scouring the academic literature, the team has come up with seven insights that should help increase compliance, which it is now testing using randomised controlled trials. The seven have one thing in common: rather than ordering people to do things they don't like doing, they seek to go with the grain of how people behave.
Insight one is: make it easy. Make it as straightforward as possible for people to pay tax or debts. For instance, you can spell out in order the steps people need to take to do what's required of them.
Or you can make it easier for people to submit a tax return by pre-filling the form with information the government already knows. With computers and online forms, this is now much easier to do - as our Tax Office has shown. It also reduces error.
Insight two is: highlight key messages. Draw people's attention to important information or actions required of them, for example, by highlighting them upfront in a letter.
Eye-tracking research suggests people generally focus on headings, boxes and images, while detailed text is often ignored, the report says. The front pages of letters receive nearly 2½ times the attention back pages do.
Britain's Inland Revenue has a program offering doctors an opportunity to bring their outstanding tax payments up to date before official action and penalties. When it compared its usual letter with a simplified version using plain language, key messages and required actions highlighted at the top of the letter, the response rate jumped from 21 per cent to more than 35 per cent.
Insight three: use personal language. Personalise language so people understand why a message or process is relevant to them. New technology is making it easier and cheaper to address mass mail-outs to people by name. Giving people a name and number to contact may get a better response than pointing to a general helpline.
Sometimes Inland Revenue needs people to contact it to arrange repayment of tax credits they weren't entitled to. It's been trialling different versions of the letter it sends. People in the control group were sent a letter simply stating the phone number to call, and 13 per cent responded. Others were sent a letter framed as a personal message urging them not to overlook the opportunity to get in touch. That one had a response rate of 24 per cent.
Insight four: prompt honesty at key moments. Ensure people are prompted to be honest at the start of forms rather than the end.
Most people are honest most of the time. Most people, rightly, think of themselves as honest, the report says. And, because we have an inherent desire to be consistent with our self-image, well-placed reminders should encourage greater honesty, the report says.
Insight five: tell people what others are doing. To take advantage of and reinforce social norms, highlight the positive behaviour of others. Provided it's true, for instance, tell people that "nine out of 10 people pay their tax on time". This can correct mistaken perceptions.
Inland Revenue experimented with letters designed to get people to increase their tax debt payments. Compared with the control letter, those quoting the national social norm produced a 5 percentage-point improvement in the response, those quoting the social norm in your postcode got an improvement of more than 11 points and those quoting the norm for your town produced an improvement of more than 15 points.
Insight six: reward desired behaviour. Actively incentivise behaviour that saves time or money. Sometimes just saying thank you helps. Or you can put people's names in a prize draw. Rewarding good behaviour may work better than punishing bad behaviour. But be careful the use of rewards doesn't crowd out intrinsic motivation - doing the right thing because it's the right thing to do.
Finally, insight seven: highlight the risk and impact of dishonesty. Emphasise the risk of getting caught, but also the consequences of my dishonesty for the welfare of others.
You think economists give airy-fairy, impractical advice to governments? Not the new breed of behavioural economists.