Nobel winner shows way to better consumer choices

NEW TOOLS borrowed from behavioural economics could help Thailand achieve economic and social goals including business management, household savings, climate change and even traffic behaviour, according to a local economist speaking about Richard Thaler, the winner of the latest Nobel Prize in economics science. 
“I’m quite surprised that economists who did research on behavioural economics again won this year’s Nobel prize in economic science,” said Sittidaj Pongkijvorasin, economics lecturer at Chulalongkorn University. He was referring to Thaler, who bagged the top prize this year after some of his predecessors in the behavioural economics field had recently won the prize.
Behavioural economics provides insight into how people make decisions not based solely on the price level of goods and services as mainstream economics has traditionally theorised, said Sittidaj. 
In explaining their choice, the Nobel committee praised Thaler for “incorporat[ing] psychologically-realistic assumptions into analyses of economic decision-making. By exploring the consequences of limited rationality, social preferences, and lack of self-control, he has shown how these human traits systematically affect individual decisions as well as market outcomes”.
Thaler’s famous work is related to “nudge theory”, an idea being applied effectively in finance, health and other fields. 
Sittidaj cites the example used by some major employers in the West. To help their employees save sufficient money for their retirement, those corporations tell employees in advance that if their salary is increased to a certain level, their own contributing portion to the fund will increase automatically. Providing advance notice as the default approach helps employees to save more than they would if they were told only after their income rises, said Sittidaj.
Another example involves campaigns for organ donations. Authorities in some European countries, try to encourage people to donate their organs by suggesting that “if they want to donate” they should tick a box in an official document that people must fill in when they renew their expired ID cards. In contrast, authorities in some other countries tell people they must tick a box “if they do not want to donate” organs. The first approach has encouraged 10-20 per cent of people to donate their organs But the second approach, a default option, increases donations to a surprising 80-90 per cent of people.
“In Thailand, we have rarely seen the application of Thaler’s idea, even though there are vast opportunities to do so,” said Sittidaj.
There are three levels of tools that could be implemented in order to push or encourage people do what was best for themselves and society as a whole. “First, there is coercion by law, second is to provide incentives, and third is a default option, or ‘choice architecture’ as it was coined by Thaler,” said Sittidaj. 
The default option neither forces, nor gives incentives to people, but instead advances an indirect suggestion that could influence their behaviour. 
Thailand already draws on the first two influences, using law and providing tax measures, including incentives. Tax incentives, for example, encourage people to save for retirement via a retirement mutual fund. Similarly, taxes are imposed on cigarettes and alcohol to discourage people from consuming harmful products. 
In the West, the default option is more widely applied, including in a successful experimental campaign to save energy. When a campaign urged households to reduce electricity consumption by relating the issue to climate change and loss of forest, the results were unimpressive. But a camฌpaign involving a short message placed on electricity bills told some homeowners that they were consuming more energy than average, it produced better results in persuading consumers to save energy, said Sittidaj.
Traffic safety is a major issue of concern in Thailand, and authorities fine violators or put signs warning them to drive slower.
But clever road design could better change motorist behaviour, said Sittidaj. A row of white lines that narrow as they approach a sharp curve would cause drivers to automatically slow their car speed as they interpret the narrowing as an indicator that they are driving too fast, he said.
Behavioural economics has demonstrated that designing the right approach to encourage people to choose the desired outcome can make a big difference. And that behaviour change can be done at a low cost and without additional law enforcement, said Sittidaj.