What I am Studying and Why

Let's take a shot at a simple puzzle.

You are the manager of a Day Care Centre. You notice that every week, around 6-7 parents arrive late to pick up their kids. Which means, you have to stay extra and look after them. You have to do something to change this habit.

So, what do you do?

An obvious answer is to introduce a Fine for late comers.

A couple of researchers (Gneezy and Rustichini) did this in Israel to see if the introduction of a fine reduces the number of people coming late for pick-ups.

And guess what they observed:

(Source: Gneezy, et al, 2000)

In short, the number of people who were coming late increased. And worse, even when the removed the fine in Week 17, the number of parents coming late never came down to the original level without fines.

Quite a bazinga, isn't it?

I mean, when you introduce a fine, you assume people are going to behave rationally and think, oh this is unwanted behaviour, so we should not be doing this.

But what really happened is - human beings are not rational. The introduction of a fine just made it legitimate for the parents to come late. Earlier, they did not know what would happen if they come late. Now, they know that they will be charged, and that, in return, their kids will be looked after. In other words, the fine is a price to pay, for a few minutes of relaxed arrival.

What I just told you is a small, minuscule bit of information about how irrational people can be. There is a whole subject that deals with this, called Behavioural Economics and that is what I am trying to pursue now.

Daniel Kahneman was one of the scientists who brought this subject to the forefront with his book Thinking Fast and Slow. If you have to pick one non-fiction to read, I would strongly recommend that. So, I read that book and 10 others and I fell head over heels in love with this subject.

So, I ended up starting a Masters in this from London School of Economics. And I am loving it!

You will be surprised to know how poor are judgments can be. We are effected by biases - Confirmation bias (always trying to look for information that confirms what we already believe), Representativeness bias (stereotyping) and a hundred more biases, which make our decision making look poor, to say the least.

So far, when we assumed people are rational, we thought giving them information and facts is the best way to convince them to change behaviour. How has that worked out, huh? Why don't people follow rules? Why do people cross train tracks? We told them not to!

That's where this subject becomes amazing. Because we learn that while we are irrational, our irrationality can actually be used to nudge us to better things. Economist Richard Thaler who won the Nobel Prize this year, proposed exactly this. For instance, people do what others do, so use that to get them to do the right thing. 

I am convinced that there's so much we can do better than what we are doing now, with minor tweaks. How our policies are designed, how our marketing is done, how our organizations are structured.

Here are a few more examples of things that other countries have tried:

• How do you get people to pay taxes on time? You sent warning mails and that worked like shit. So, what do you do now? How about using social norms - people always want to do what others are doing. "85% of people in your city have already paid." Similar experiment tried and tested in UK, US, Ireland and super-successful
• How do you get people to not litter the roads? 
• How do you get people to not park illegally?
• How do you get people to stop jay-walking?
• How do get people to stop spitting on roads?

There are so many implications to this in India, it boggles my mind.

The problem is how do you get people to accept they are irrational?

I had an amusing Twitter conversation yesterday with someone quite famous in the public policy space. He said that introduction of fines was the best way to get people to stop parking illegally in Delhi and hence, reduce the pollution. I countered him with the exact same example as above. If introduction of fines means people thinking, "Oh great, now I can park on the road, without worrying about the car being towed away", then it looks like we have legitimized illegal parking, without solving the real problem.

Of course, he didn't like my argument and said these are unconnected cases and that the day care incident cannot be used for this.

I gave up. Because I realized, by getting into this subject, I am going to cross a lot of people like this. Experts who have been doing their subjects for years together, with or without great results, who are never going to accept that the reason why something they did, didn't work was because people are irrational.

I think my job is now going to be to open up as many people as I know, to this simple fact - We are irrationals beings.

It's a hard ask, but hey, I jumped into this headlong, so I got to do what I got to do! :D

Anyway, so that's what I have been up to. And I will probably write more about this as and when I learn.

If any of you are interested about something specific, drop me a comment, I'll get back! :)

Cheers

Preeti

Acknowledgements: I had a 24 hour long exam on Saturday, for which I ended up reading around 60 academic papers and 3 books. Most of what I am saying now is a direct result of that. I will probably forget all of this in a few days, so better write when I still remember.