Behavioural Economics

Central Expenditure Evaluation Unit

The CEEU is a unit of the Irish Government Economic and

Evaluation Service (IGEES)
 Comprehensive Review of Expenditure

October 2014

Summary

This paper underpins some of the themes that have emerged from the Comprehensive Review
of Expenditure and highlights potential methods to improve outcomes given expenditure
parameters. The Governments Public Service Reform Plan 2014-16 makes a commitment to
drive improved outcomes in terms of how citizens engage with and experience the public
services. One of the key objectives of the Public Service Reform Plan is to make it easier
for the citizen to engage with the State, to obtain their entitlements and to understand their
obligations. This paper examines, in a preliminary way, the potential for the growing body of
research and innovative ideas emerging in the area of behavioural economics to improve the
effectiveness and efficiency of policies and of State services and service delivery to the citizen.

Behavioural economics examines why peoples actions deviate from the predictions of
standard economic theory. This paper explains the theoretical and research-based
background to behavioural economics and discusses some practical applications in the area
of public policy making and public service delivery. In doing so, it draws on examples of best
international practices and makes some recommendations for applying these in Ireland. It
also highlights existing good practices and initiatives underway in parts of the Irish public
service. There is scope for behavioural economics across the wide spectrum of public policy
and state services health care, education, pensions, back-to-work initiatives, reducing
reoffending rates, and the collection of taxes, fines and charges. This paper will only touch
on the possibilities but proposes that the concepts and ideas coming from research and proven
successful in this area should become a part of public service reform, policy development and
delivery.

Public policy is, among other things, concerned with influencing peoples decisions to ensure
better outcomes, and by incorporating behavioural insights in policy and service delivery, there
may be opportunities to improve the effectiveness and efficiency of public services.

2
Behavioural insights have many potential policy applications and can be relatively simple,
ranging from changing the language and tone of letters to improve compliance rates for paying
fees to developing more in-depth commitment devices to ensure good health outcomes.

Improving efficiencies and outcomes with limited resources is a central theme of the
Comprehensive Review of Expenditure, and behavioural economics can be used to contribute
to better outcomes given expenditure parameters. This paper proposes that behavioural
economics can improve new policy development, enhance the delivery of existing policy and
interventions, help avoid unintended outcomes and improve productivity. At an operational
level, behavioural economics has application across public services, including in the area of
debt management and revenue collection, and at a policy level it can inform policy
development in areas such as pensions and in health.

Behavioural considerations can be incorporated into the process aspects of the States
interactions with citizens, businesses and organisations to help make compliance easier and
by improving administrative practices. The Revenue Commissioners, for example, have
already seen improved compliance rates in areas where they considered behavioural economic
insights and tested their applications in tax collection and licence renewal. Employing
behavioural insights to process can help contribute to public sector reform and the innovation
of service delivery, improving efficiency and value for money. While the application of
behavioural economics is not a panacea to public expenditure challenges nor necessarily a
substantial source of cashable savings, it does provide the potential to help the system
manage demand pressures and increase throughput, for example, by reducing no-
shows/cancelled appointments for social services.

This paper has been carried out by the Department of Public Expenditure & Reforms Central
Expenditure Evaluation Unit (CEEU), which is a part of the Irish Government Economic & Evaluation
Service, in accordance with the provisions of the Public Spending Code. It does not necessarily reflect
the policy position of the Government or the Minister for Public Expenditure and Reform.

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1. Introduction

This paper underpins some of the themes that are emerging from the Comprehensive Review
of Expenditure and highlights potential methods to improve outcomes given expenditure
parameters. The Governments Public Service Reform Plan 2014-16 makes a commitment to
drive improved outcomes in terms of how citizens engage with and experience the public
services. One of the key objectives of the Public Service Reform Plan is to make it easier
for the citizen to engage with the State, to obtain their entitlements and to understand their
obligations. This paper examines, in a preliminary way, the potential for the growing body of
research and innovative ideas emerging in the area of behavioural economics to improve the
effectiveness and efficiency of policies and of State services and service delivery to the citizen.

The paper explains the theoretical and research-based background to behavioural economics
and discusses some practical applications in the area of public policy making and public service
delivery. In doing so, it draws on examples of best international practices and makes some
recommendations for replicating these across the Irish policy system. It also highlights
existing good practices and initiatives underway in Ireland. There is scope for behavioural
economics across the wide spectrum of public policy and state services health care,
education, pensions, back-to-work initiatives, reducing reoffending rates, and the collection
of taxes, fines and charges. This paper will only touch on the possibilities but proposes that
the concepts and ideas coming from research and proven successful in this area should
become a part of public service reform, policy development and delivery.

2. What Is Behavioural Economics?

All economics is concerned with how people behave. Broadly speaking, standard economic
theory assumes that individuals always make choices that are rational and maximise their
welfare. Furthermore, when choices are made over different time periods, standard
economics assumes that people will choose the option that gives the best outcome over their
lifetime. Even in the absence of perfect information, it is assumed that people will choose the
option that results in the highest welfare based on the available information. Behavioural
economics, on the other hand, recognises that people do not always make choices that
maximise their welfare, despite best intentions; that faced with a myriad of daily choices,

4
some simple and some complex, we do not always have the time to assess all the options
available to us for every given choice. Sometimes there are so many choices that we
procrastinate, and make no change, deferring the decision to a later date. Behavioural
economics does not assume that people are irrational, merely that we are not well described
by the rational-agent model.1

Behavioural economics, therefore, focuses on understanding peoples actions that consistently

deviate from standard economic theory, examining and testing the biases and influences that
impact on our behaviours and choices. It is founded in the analysis of how people respond
to real situations. Its applications are concerned with establishing why policy fails and how
services can be improved.

Below is a selection of biases and influences that have been identified by behavioural
economists (see endnotei). Understanding these and reflecting upon them in policy design
can lead to better outcomes.

Table 1: Selected biases and behavioural influences

Bias & influences Description Examples/Implications for policy

Cognitive limitations We can only process a Tariffs from utility providers are hard to
limited level of information at compare and reduce the likelihood of
a given time and examine switching.
only a few options.
Too much information and too much
choice can lead to confusion and then
procrastination.

Defaults Default choices and settings In countries where there are opt-in
are used as reference points; systems for organ donation the rates of
the status quo matters. donation are far lower than in countries
with opt-out systems.

Present bias / Immediate effects are given Households underspend on energy

too much weight while future efficient measures because pay-back
Time-inconsistency /
impacts are undervalued. periods appear so long.
Hyperbolic
discounting

1
Kahneman (2011) p411 in Lunn, P. (2012) Behavioural Economics and Policymaking: Learning from the Early Adopters in
The Economic and Social Review Vol. 42, No. 3, Autumn, 2012., p426

5
 Bias & influences Description Examples/Implications for policy

Loss aversion Losses are felt more keenly Loss aversion has implications for tax
than gains, even when they collection, actively paying a tax creates
may be equal. more resentment than payment at
source.

Norms Other peoples behaviour Positive norm - Smoking is now less

influences our behaviour. By socially acceptable. Following the
unconsciously learning from introduction of the smoking ban in
the behaviour of other people Ireland, the social proof was reduced,
social norms are established. and now people are less likely to smoke
in other peoples houses even though
there is no legislation against this.

Negative norms - social attitudes

towards alcohol may encourage
excessive drinking.

Anchoring An arbitrary reference point The minimum payment on credit card

can influence peoples bills leads people to pay less than they
beliefs. would otherwise.

2.1 Nudges - an application of behavioural economics

Perhaps the most well-known application of behavioural economics in recent times is the
nudge. Nudges are distinct types of interventions that seek to influence choices through the
design and delivery of policy. Their simplicity is compelling and appealing for policymakers.

Many policy interventions impose restrictions through regulation or influence choices through
taxes and charges; but nudges focus on the design and delivery of policy to influence choices.
The choice architecture is designed to encourage people, or nudge them, to opt for what
policymakers deem to be the better choice.2 The use of nudges are often low-cost to
implement and can lead to reduced public expenditure through better outcomes. Nudges can
increase revenue collection and improve compliance, and in this way can be important to limit
spending on compliance processes.

2
Ibid., p434 & Dolan, P et al Influencing behaviour: the Mindspace Way in Journal of Economic Psychology 33 (2012) p273

6
Applications of behavioural economics through nudges, as well as through regulatory design,
tend to centre on simplicity, convenience and salience3, which are important for all areas of
policy development:

Simplicity: Mandating credit card companies to show when a credit card bill will be paid off
when only minimum payments are made makes it easier for people to understand
the full cost.4
Convenience: Requiring people to opt-out of organ donation, not opt-in, improves the level
of organ donation.5
Salience (striking, attention grabbing): Energy efficiency ratings of electrical goods.6

3. Behavioural Economics Role in Public Services and

Policymaking

Public policy is, among other things, concerned with influencing peoples decisions to ensure
better outcomes, and as such there has been growing interest in behavioural economics and
its applications for policy. The context or situation in which decisions are made impacts on
our behaviour and choices, and this ultimately impacts on outcomes. Incorporating
behavioural concerns in policy and service delivery can improve the effectiveness and
efficiency of public services. Many of the applications to date in other countries have been in
the areas of consumer protection regulation and in pension policy.

3
Lunn, P. (2014) Regulatory Policy and Behavioural Economics OECD Publishing., p10
4
Ibid., p27
5
Lunn, P. (2012) op.cit., p429
6
Kahneman and Thaler (2006) in Dolan P et al. p269

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Figure 1 Behavioural economic insights can add to the policy intervention toolkit

Economic
Instruments
(Expenditure &
Tax)

Behavioural
insights

Public Regulatory
Information Instruments

Most policies try to influence behaviour to some degree. By recognising how behavioural
biases impede desired policy outcomes policymakers can identify ways to overcome
behavioural barriers. Typical policy interventions range from bans and regulatory limitations
to economic instruments such as taxes and public expenditure and to the provision of
information and advice. Behavioural economics can improve new policy development and it
can also be used to enhance the delivery of existing policy and interventions. Unintended
outcomes can also be avoided.

3.1 Improving outcomes

As with all policy, the behavioural focus should be on the desired outcome. For example,
obesity levels are strongly associated with a myriad of poor health outcomes. Ultimately,
preventative measures are vital and reducing obesity levels will improve health outcomes.
Standard economics indicates that information campaigns to inform people of the benefits of
healthy eating and of the measures to reduce weight helps overcome information gaps. Some
jurisdictions are also implementing taxes on fat and sugar to help reduce obesity levels, and
other regulatory instruments may be used. Behavioural economics points to a number of
other issues that could help improve the effectiveness of healthy eating campaigns. Social
norms about food have been heavily distorted by the marketing campaigns of food companies.
People overly discount future impacts in favour of immediate concerns, and underestimate
health risks in the future.7 Being cognisant of behavioural biases and influences that lead to

7
Lunn, P. (2012) op.cit., p435

8
poor outcomes can help to improve outcomes by developing policies that take account of
these biases.

In the area of public health, food and drinks companies employ extensive resources for
marketing and brand activity to exploit consumer behaviour and to understand their target
market. Every aspect of the product, communication and delivery channel is examined to
maximise sales. Why shouldnt the State respond in kind and get to know and understand its
customer, the citizen, better?

3.2 Improving process

Behavioural considerations can also be incorporated into the process aspects of the States
interactions with citizens, businesses and organisations to help make compliance easier and
to improve administrative practices generally.

For example, enforcement authorities in Ireland are increasingly employing risk-based

enforcement techniques to target enforcement resources more efficiently. Complementing
risk-based enforcement with behavioural considerations can help reduce non-compliance and
also mitigate the impact of non-compliance. Making it easier to comply with regulations is
central to risk-based enforcement, and of course improving compliance processes and
outcomes reduces administration costs and increases revenue. Furthermore, by reducing the
likelihood and impact of non-compliance the States exposure to costs resulting from
regulatory failures is reduced, e.g. health costs from food safety breaches or environmental
clean-up costs from water contamination.

The Revenue Commissioners have implemented a number of projects to assess the potential
of behavioural insights to improve taxpayer compliance and increase tax collection. These
have included running randomised controlled trials on day-to-day Revenue operational tasks
to examine the practical impacts of behaviourally influenced changes. As demonstrated by
the examples from the Revenue Commissioners in Sections 4.2 and 4.3 below, behavioural
economics has a clear role in improving compliance outcomes. Examples include testing the
impact of varying letters to taxpayers who are late in filing their tax returns, highlighting social
norms, or examining the potential to improve customer service to taxpayers by pre-populating
tax returns.

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3.3 Trialling and testing behavioural insights

A lot of research is available to draw on that identifies behavioural biases that should be
considered in policy development and delivery. A key pillar of behavioural economics is to
test the application of identified, potential biases. Trialling takes account of the social context
and any nuances in the policy area concerned. Increasingly, the policy development process
requires that policies are underpinned by evidence, and behavioural economics is one avenue
by which empirical evidence can be gathered. Behavioural economics has the potential to
contribute to the evidence base. The principle of proportionality should apply, and the level
of testing and applied research should be linked to the size of the behavioural intervention.
Small changes and tweaks to communications, such as letter styles, require limited additional
resources; larger programmes, such as energy efficiency schemes should employ more
rigorous testing techniques to establish value for money.

3.4 Mental accounting and labelling potential impacts for cash

payments

In standard economic theory, all the money a person possesses is interchangeable. However,
in reality people often engage in mental accounting and allocate their money to different
mental pots or labels. For example, money may be put aside for a rainy day, for Christmas
savings, for household bills or annual insurance payments. This is relevant for design of
transfer payments from government, which are often given labels related to the consumption
they are intended to support. Economic theory assumes that money is interchangeable, and
that a label should have no bearing on an individuals expenditure pattern, but research on
the Winter Fuel Payment in the UK indicates that labelling impacts on how money is spent.8

A study by the UK-based Institute for Fiscal Studies (IFS) showed that unlabelled welfare
increases led to a 3 percent increase in spending on fuel; but labelling a welfare payment as
a Winter Fuel Payment led to a 41 percent increase on fuel-related expenditure. A review
by the IFS of the literature suggests there is mixed evidence on the labelling effect of child
benefit. The concept of mental accounting may explain why labelling transfers may impact
to some degree on outcome. Labelling and its associated impacts are important for
expenditure policy, as it may impact on the intended outcome, and may also influence
perceptions about entitlement that may make adjustments to a scheme more difficult.

8
Institute for Fiscal Studies (2011) Cash by Any Other Name? Evidence on Labelling from the UK Winter Fuel Payment pp1-2

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3.5 Health screening

Medical screening is an important tool for the early detection of cancers, yet high levels of
non-attendance for first screens are evident in the BreastCheck programme, with just under
60 percent of the target population attending first screens in 2012. These first screens
resulted in 262 cancers being detected. Rates of attendance for subsequent screens are
higher, at 86 percent, indicating that it is easier to get those who have attended previously to
attend subsequently.9 Non-attendance at screening appointments reduces the numbers of
early detections and results in spare, underused capacity at screening locations. Later
detections for cancer may require more invasive procedures and may result in poorer
outcomes for the patient. Behavioural economic considerations could be used to improve the
attendance rates for first screens.

Some UK studies have examined the efficacy of offering vouchers or conducting lotteries with
cash prizes to encourage the attendance at screenings, finding that a 5 voucher increased
screening by over 21 percentage points.10 Whether the health service should be paying people
to attend free health checks is another matter, but it can be effective and if the net effect is
to reduce waste then some form of financial reward e.g. donation to a charity may be
worth exploring. So too are other interventions: highlighting the financial cost to the State
(and the tax payer) of non-attendance, or highlighting the impact of early cancer detection
levels on survival.

The key lesson is that by testing different approaches attendance levels may be improved,
and with concomitant early detection rates, can help achieve better use of resources and
reduce health expenditure at a later point. As well as cancer screening, reducing no-shows
could improve throughput and outcomes in a number of health areas, such as primary care
centres and local health centre services such as baby clinics etc. Across all outpatient hospital
appointments over 400,000 patients failed to show up for hospital appointments in 201311.
There is also scope beyond the health sector for improving attendance at appointments.

9
BreastCheck - Programme Report 2012-2013, pp13-14
10
Niza, C., Rusidell, C, and Dolan, P (2013) Vouchers versus lotteries: What works best in Promoting Chlamyida Screening? A
Cluster Randomized Control Trial
11
HSE Monthly Management Data reports
http://www.hse.ie/eng/services/Publications/corporate/performanceassurancereports/2013par.html

11
3.6 Educational progression and attainment

Educational attainment has huge implications for outcomes in later life. Behavioural
economics may have insights to offer in ensuring completion of second level education, as
well as progression and completion of further education. Other educational issues such as the
selection of science, technology, engineering, and mathemathics courses may be influenced
by behavioural biases. Research in the UK highlighted a number of biases in school-going
teenagers, such as present bias and projection bias, whereby they do they not fully anticipate
the impact of current decisions on later choices. Furthermore, social norms may influence
decisions about completing school and also about progressing to third level education.12 There
may also be a strong interaction with socio-economic status and discount rates.

In the US, a number of colleges and enterprises have been engaging in behavioural economic
research and the development of tools employing behavioural insights to assist students in
attending college, making course choices, and completing qualifications successfully. Simple
text messages to remind prospective students of deadlines, or more complex messaging
services that require students to respond with a commitment to complete a particular
assignment by a set time are having some successes. Messages to assist enrolment have
had the most impact for those groups that are most distant physically from colleges, and also
those from lower socio-economic backgrounds.13

Behavioural economic techniques in the education sector could increase efficiency in education
in the short term by reducing and drop-out rates; while in the longer term could impact on
individuals outcomes, as well as the wider benefits of education such as skill supply for the
economy.

3.7 Justice

What other people do - social norms - plays an important role in influencing our behaviour.
Highlighting positive social norms can improve outcomes, as shown in the example relating to
the renewal of licences from the Revenue Commissioners in Section 4.2 below. Negative social
norms need to be overcome. No smoking campaigns and campaigns to reduce drink driving
have been effective in changing the social norms of these behaviours. Social norms are most

12
Institute for Fiscal Studies (2011) Subject and course choices at ages 14 and 16 amongst young people in England: insights
from behavioural economics pp4-5, and 34
13
Wildavsky, B. (2003) Nudge Nation: a new way to prod students into and through college Educationsector.org

12
evident in the justice system, which essentially legislates for what society deems appropriate
behaviour. But can custodial sentences expose offenders to altered social norms? 14

Commitment devices are also used in the Justice area. Clients of the Probation Service sign
contracts when they begin their probation how might these contracts be amended to ensure
greater commitment?

4 Potential areas for further behavioural consideration in Irish

policy

Strong behavioural impacts are likely in areas where there is risk and where the outcomes
occur over long time periods.15 Much of the literature and applications of behavioural insights
to date in other countries have focused on financial products, pension policy and consumer
protection. A number of examples of behavioural economics in an Irish context that are
ongoing are explored below. There is scope for embracing of opportunities to apply new
methods that have been proven in other jurisdictions and within a small number of areas of
the Irish Public Service.

4.1 Applying behavioural insights to pensions and retirement savings

Pensions policy in a number of countries has looked to behavioural economics to identify ways
to encourage saving for retirement. The framework of conventional economics indicates that
people should consider their income and choices over their entire life cycle, but in practice
people tend to underprovide for their own retirement. There are two reasons why people save
less than they should for retirement. Firstly, many people prefer to consume now rather than
the future; and secondly, financial products are confusing so people often procrastinate and
put off making a decision until a later date. Individuals must opt-in to personal pension
schemes, and this requires effort.16 The default option has proven to be a powerful tool for
policymakers to encourage the desired outcome. Changing the default so that people are
automatically enrolled in pensions results in a much higher uptake in pension schemes.

14
UK Cabinet Office & Institute for Government (2010) MINDSPACE: Influencing behaviour through public policy p35
15
Lunn, P. (2012) op.cit., p430
16
John McHale (2006) Perspectives on Retirement Savings Policies in Ireland in ESRI Budget Perspectives 2006

13
The United States and the United Kingdom are countries where auto-enrolment systems have
been implemented. People have the choice to opt-out, but the default option is enrolment. In
the US, employers have the authority to enrol employees in pension schemes. An examination
of a Fortune 500 company shows that auto-enrolment more than doubled the numbers of new
employees that joined pension schemes.17 In the UK, a national auto-enrolment policy is
being phased-in, with larger employers implementing it first. Preliminary data from the UK for
the first phases of the roll-out have shown that by the third month only 11 percent of
employees have opted out of the schemes. 18

In Ireland, the Department of Social Protection is currently examining the design of a

supplementary occupational pension scheme with the aim of encouraging people to save more
for their retirement. As part of the deliberations the issue of auto-enrolment is on the agenda,
which would replicate the approach in the UK. This opens the door for detailed consideration
of how behavioural insights might be applied. For example, behavioural economic insights
may be able to inform the overall simplicity of the policy design, for example the number of
choices, and the default level of contributions. Lessons from elsewhere suggest, for example,
that default levels provide strong anchoring points that people may not alter. If default
payments are set too low then people may not opt to save more; if they are set too high they
may opt out of the scheme entirely.

4.2 Communicating social norms to increase tax compliance

In rational choice theory, deterrence is considered the main rationale for tax compliance:
individuals pay to avoid penalties. Yet, research into the reasons for taxpayers compliance
shows that behavioural considerations such as norms, fairness, and simplicity also influence
compliance rates.

Behavioural economic research by the Office of the Revenue Commissioners used a

randomised control trial to test the impact of altering renewal letters for Publican Licences to
include a message about the social norms of publicans in complying with licence renewal. The
revised letter simplified the wording and included information to show that most publicans
renewed their licence on time that is, paying on time is the norm. In the

17
Madrain and Shea (2000) in Cormac ODea Auto-Enrolment Into Pensions: An Option For Ireland? March 2014
http://www.publicpolicy.ie/auto-enrolment-pensions-option-ireland/
18
Cormac ODea Auto-Enrolment Into Pensions: An Option For Ireland? March 2014 http://www.publicpolicy.ie/auto-
enrolment-pensions-option-ireland/

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treatment/intervention group, 400 publicans received the revised letter. In the control group
7,800 received the standard renewal letter. In the trial, by a certain date, renewal rates from
the treatment group were 6 percentage points higher than renewal rates from the control
group on. By simplifying and changing the renewal letter to reflect the positive social norms
among the target group there was a statistically significant increase in renewal rates. Full-
scale implementation was adopted the following year, and all publicans received the revised
renewal letters. Renewals rates for full scale roll-out were over 8 percent higher than the
previous year. This is a good example of a nudge. It is also simple and low-cost to
implement (based on the existing issue of a letter), but yields measurably better outcomes.
Using low cost but high impact techniques to increase compliance rates reduces enforcement
costs and increases Exchequer revenue.

A number of other projects have been implemented with similarly positive results. One project
assessed the effects of changing the tone of letters about tax debt outstanding. Different
treatment groups received letters with soft and hard wording. The results show that, in the
case of VAT, both treatment letters led to an uplift of about 30 percent in outcomes19
compared to the control group that did not receive a letter. For Income Tax cases, the uplift
in outcomes progresses from the control group (36 percent) to the soft letter (50 percent) to
the hard letter (65 percent). The project emphasises that the type of letter sent to taxpayers
is important and can impact on their subsequent behaviour. But of perhaps equal importance,
the projects also demonstrates the impact of communicating at all.

4.3 The impact of personalisation on survey response rates - Post-

it notes

As part of a regular Revenue survey of small and medium sized enterprises (SMEs), a
randomised experiment was conducted to examine the role of personalisation on survey
responses. From a sample of 2,000 SME taxpayers, 15 percent were randomly assigned to
receive a personalised handwritten Post-it note attached to the survey requesting completion
of the survey (treatment group), while the remaining 85 percent received surveys only with
no personalised note (control group). The results show that, after the first 15 days, the
response rate was 36 percent in the treatment group compared with 19.2 percent in the

19
Outcomes refers to engagement with Revenue that includes payment, part payment, instalment agreements, or the liability
is reduces.

15
control group. The central finding from the experiment is that response rates to survey
questionnaires are significantly higher, and received more quickly, if a personalised note is
attached.20

The results from Revenues analysis of behavioural insights and their application to date have
lessons for areas beyond tax administration. For example, the personalised note experiment
may have more general application if extended to other areas of Governments work
personalisation appears to have a substantial influence on behaviour.

The Revenue experience also shows the benefits from international cooperation with others
working on similar issues. Revenue has learned from the experience in HM Revenue and
Customs in the UK and this is reciprocal Revenue research has been cited internationally.

4.4 Opt-In an Integrated Offender Management Pilot Programme

Opt-In, a multi-agency Integrated Offender Management pilot project is due to commence

later this year. The programme targets those offenders with extensive offending histories,
who are most likely to reoffend and that are likely to cause most harm. Prior to release, and
then when on probation, offenders will engage with a multi-disciplinary team through a single
point of contact. This brings information together making it easier for offenders to access
information. It may also assist with commitment as clearly identified and established personal
relationships make commitment more likely. From a delivery perspective an integrated model
brings shared information and action focus together, which helps prioritise and deliver
services. The project involves the Probation Service, An Garda Sochna, Irish Prison Service,
Local Authorities, HSE/addiction services, the Department of Social Protection, and the
community and voluntary sectors.

Timing is an important aspect to behavioural economics as people are most receptive to

behavioural influences at particular points of time. Given that reoffending is most likely at an
early stage of community sanction or shortly after release from prison, a focus on these crucial
times reduces the risk of reoffending and is a targeted, effective use of resources.

Another aspect of the pilot that can be viewed as a behavioural economics device is the swift
action that will follow after a re-offence. Since offenders may underweight the future

20
SME Survey (2013), Revenue: http://www.revenue.ie/en/about/publications/business-survey-2013.pdf

16
consequences of present action then by making consequences more immediate it will help
overcome this form of present bias.

4.5 Debt Management Project and Alternative Delivery Models

The Department of Public Expenditure and Reform has completed a review of the debts owed
to five public service bodies: Department of Agriculture, Food and the Marine; Department of
Social Protection; the Health Service Executive (HSE); the Courts Service; and Local
Government.

Ninety-eight percent of debts to these organisations fall into the following categories:

- the 100 accident and emergency charge in hospitals,

- 75 in-patient charge in public hospitals;
- overpayments of welfare and recovery of fraudulent welfare claims in the Department
of Social Protection;
- overpayments of the single farm payments and Rural Environment Protection Scheme
(REPS) payments in the Department of Agriculture, Food & the Marine;
- criminal fines in the Courts Service; and
- commercial rates, social housing loans and social housing rents in the Local
Government sector.

For the debts listed above, excluding the Local Government Sector, approximately 56 million
is uncollected annually. Uncollected debt to Local Government in commercial rates and social
housing loans and rents had accumulated arrears of 407 million at the end of 2011.

The processes involved in recovering debt can range from issuing reminders (by phone, email,
letter, visit etc.) to entering into debt repayment agreements to issuing legal proceedings and
enforcing judgement against bad debts. As demonstrated by the examples from the Revenue
Commissioners above, variations in the nature and tone of communications can have
significant impacts on yields. Many behavioural insights could be drawn on in the development
of debt payment agreement such as commitment devices, norms, and defaults. Legal
proceedings are a very expensive method of debt collection and may result in collections that
take place over long time horizons. Improving yields from communication methods and from
agreements will be more cost-effective.

17
Making it easier to pay by using clear steps and language; using personal language and
reminding people about norms helps increase revenue collection. Rewarding desired
behaviour can also be used to improve compliance, for example a number of London Boroughs
held prize draws to encourage people to pay by Direct Debit.21 Reminder text messages for
fines owed to the Court Service in the UK sent 10 days before bailiffs intervene have doubled
the value of payments made before further intervention is required.22

Employing Alternative Delivery Models (ADM) is among the major priorities in the Public
Service Reform Plan. The commitments set out under the Public Service Reform Plan have
parallels with behavioural economic considerations: the focus on outcomes and impacts;
alternative channels for delivery such as joint ventures and social enterprises, and ensuring
service-user involvement.

4.6 Potential application of behavioural insights

The table below sets out potential applications of behavioural insights across a number of
sectors.

Table 2 Selection of potential applications of behavioural economics across a number

of sectors

Social Protection Intreo Centres, the new service from the Department of Social
Protection that provide a single point of contact for all employment and
income supports, helps jobseekers access information. Using social
media may help jobseekers access information easily and quickly also,
and may be particularly effective to target young people.

Personalisation of communication, for example through personalised

notes on letters, improves response rates.

Asking respondents to sign at the top of forms instead of the bottom

has been shown to elicit more honest responses.23

21
Behavioural Insights Team/Cabinet Office (2012) Applying Behavioural Insights to Reduce Fraud, Error, and Debt
22
Behavioural Insights Team (2014) EAST: Four simple ways to apply behavioural insights p6
23
Behavioural Insights Team/Cabinet Office (2012) op.cit., p14

18
Health Commitment devices could be used to help overcome peoples natural
present bias that makes it harder to lose weight, stop smoking or get
fit. Examples of commitment devices include participants losing cash
deposits if they do not meet weight loss targets or fail smoking tests.

Attendance at screening appointments can be improved through

lotteries or similar incentives. Conversely, people could be billed for
non-attendance without cancellation.

Education School attendance, completion of second level, or progression to third

level could all be improved through behavioural insights. Behavioural
economics has shown that people significantly undervalue future
impacts and that what other people do influences ours choices. This
undervaluing is even more pronounced in teenagers. Examples from
the US show that simple text message reminders help college students
apply for courses or complete assignments on time, similar methods
could be used in Ireland to target at risk students.

Classes and schools compete for the Green Boot as part of the Green
Schools Travel Programme to encourage a shift away from car
transport. Similar competitions within and across schools could
encourage other desired social outcomes.

Justice Text message reminders can improve attendance rates for meetings
and Court appearances.

Altering contracts that offenders sign with the Probation Service may
help getting greater commitments.

Improving the Making it easier to pay, for example through deductions at source or
collection of payments setting up Direct Debits, using personal language, and reminding
people about norms help increase collection rates of payments to the
State.

In the UK, local authorities in London pooled resources to set up a prize

to get people to encourage people to sign up to Direct Debit.

Other Civil Service Any communication between the State and citizens/organisations
Departments should be easy to understand.

State bodies should take into account the power that default settings
can have on desired outcomes.

19
 When implementing new payment schemes, loss aversion can make it
very difficult to change schemes after implementation. Setting up-front
sunset clauses signals to people that schemes will not be permanent.

5 Embedding Behavioural Economics in Irish Policy Making

This paper proposes that behavioural considerations should be included in policy design and
delivery to improve effectiveness and to provide low-cost ways of enhancing existing policies.

Having examined the approach in the UK, which is recognised internationally as having
established a track record in this area, it is clear that incorporating behavioural concerns in
policy begins by identifying the types of behavioural influences and biases that may impact
on the desired outcome of a policy. This leads onto an examination of ways to overcome the
biases and behavioural influences, and then the use of a pilot approach to test the efficacy of
different responses to behavioural biases.24 The UK Governments Behavioural Insights Team
developed the following EAST analytical framework for adapting behavioural techniques to
public policy.

Table 3 UK EAST Model

Easy Use defaults Defaults acts as signals that something is the
recommended or most popular behaviour.

Make it easy to adopt Simplifying processes increases uptake and

compliance.

Give simple messages Clarity also increase uptake and compliance.

Attractive Attract attention More likely to do something when it attracts attention.

Incentives Rewards and sanctions should be designed to take

account of behavioural impacts.

Social Show that the desired Illustrating that most people behave in the desired
behaviour is the norm way encourages better outcomes.

24
Behavioural Insights Team (2014) EAST: Four simple ways to apply behavioural insights

20
 Use networks Involving people and encouraging mutual support
helps in reaching better outcomes.

Encourage commitment Commitment devices such as social contracts can help

people maintain desired behaviours.

Timely Encourage behaviour Good habits are easily formed at the beginning of new
change when people are phases in life.
most receptive

Consider the immediate How can immediate costs and benefits be captured.
costs and benefits

Help people plan responses Help people to identify the barriers to change.

SOURCE: ADAPTED FROM BEHAVIOURAL INSIGHTS TEAM (2014) EAST: FOUR SIMPLE WAYS TO APPLY
BEHAVIOURAL INSIGHTS

Behavioural economics can contribute to targeting policies and services more efficiently and
effectively. Much of public policy today is about incremental improvements to existing policies;
there are few, if any, easy policy targets. Many behavioural insights and applications can be
described as common sense25, but this does not always mean that such insights are taken
into account or that sufficient thought is given to unintended outcomes. Using a framework
and empirical methodologies to inform policymakers beliefs on behaviour ensures some
consistency in approach, and clarifies the scale and scope of changes, if any, that should be
employed.

It is a truism to say that making a government website easier to use will help people comply
with a particular regulation or tax. However, what elements of a website make it easier to
use? What sort of language is most effective? By making it easier to comply could there be
adverse consequences that counter the purpose of the regulation? In implementing policies,
behavioural economics can also play a role in identifying potential adverse, or unforeseen,
consequences. Of course policymakers will need to know what to test.

It is already a requirement of the Public Spending Code that pilots of new current expenditure
proposals are conducted before full implementation. Draft guidelines on conducting pilots and

25
Babcock, L., Congdon, W.J., Katz, L.F., and Mullainathan, S. (2010) Notes on Behavioural Economics and Labor Market
Policy p2

21
trials are currently being developed as part of the Public Spending Code, and there will be
formal consultation on these guidelines before they are finalised. One of the principles of the
new guidelines will be that there should be a proper evaluation of the pilot and that it is not
simply a precursor to full-scale rollout. Greater discussion and detail on the use of randomised
control trials will be contained in the guidelines, including discussion of various biases including
selection, publication and information biases.

6 Conclusions

The focus of behavioural economics is on peoples actions that consistently deviate from
standard economic theory. Behavioural influences and biases suggest factors why policy
outcomes are not optimal and, through the testing of applications of behavioural insights, can
identify ways to modify interventions to enhance their impact. Biases stem from our intuitive
processes resulting in systematic errors in decision making. Marketing and brand executives
have exploited the concepts of behavioural biases for decades. By recognising how
behavioural biases impede policy outcomes policymakers can identify ways to overcome
behavioural barriers. Applying behavioural economic frameworks and tools to policies and
government services helps the State know and understand its customer better. These are
key elements of policy development and the Public Sector Reform Plan, and underpins the
themes of the Comprehensive Review of Expenditure by providing opportunities to improve
efficiencies, get better outcomes with limited resources, and improve compliance and revenue
collection.

Nudges have been the most visible application of behavioural economics in policy
development. They are just one element of behavioural economics that apply the findings
observed in behavioural economics experiments by influencing choices through the design
and delivery of policy, without constraining choice. Applications of behavioural economics
through nudges tend to centre on simplicity, convenience and salience, which are important
for all areas of policy development. However, there are times when more than a nudge is
needed to elicit the desired behaviour.

Behavioural considerations can be incorporated into the process aspects of the States
interactions with citizens, businesses and organisations to help make compliance easier and
by improving administrative practices. While the application of behavioural economics is not
a panacea to public expenditure challenges nor necessarily a substantial source of cashable

22
savings, it does provide the potential to help the system manage demand pressures and
increase throughput e.g. avoidance of drop out/cancelled appointments for social services.
The implementation of Alternative Delivery Models as part of the Public Service Reform Plan
may provide opportunities to use behavioural economic techniques. Conducting behavioural
economic experiments may necessitate the use of additional expertise, particularly where
behavioural impacts are not fully identified or discernible. Expertise in behavioural science and
statistical analysis may be needed to identify behavioural considerations and to design and
implement trials.

Complementing risk-based enforcement with behavioural considerations can help reduce non-
compliance and also mitigate the impact of non-compliance. Improving compliance processes
and outcomes reduces administration costs and can also increase revenue collection from
administrative charges/appropriations-in-aid. Further, by reducing the likelihood and impact
of non-compliance the States exposure to costs resulting from regulatory failures is reduced.

Behavioural considerations should be explicitly included in policy design and delivery, through
a behaviour check framework and testing, to increase the effectiveness of a given policy and
to provide low-cost ways to enhance existing policies and to increase efficiencies. Employing
behavioural insights to policy and process can help contribute to public sector reform and the
innovation of service delivery, improving efficiency, value for money, and resulting in better
outcomes.

i
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Copenhagen University Summer Course on Behavioural Economics londecon.co.uk
Walsh, K. (2012) Understanding Taxpayer Behaviour - New Opportunities for Tax Administration in The Economic and Social
Review, Vol. 43, No. 3, Autumn 2012, pp451-475
Lunn, P. (2012) Behavioural Economics and Policymaking: Learning from the Early Adopters in The Economic and Social
Review Vol. 42, No. 3, Autumn, 2012
Report to DG Health and Consumers (2010) Consumer Decision-Making in Retail Investment Services: A Behavioural
Economics Perspective
New Economics Foundation (2005) Behavioural economics: seven principles for policy-makers
Financial Conduct Authority (2013) Occasional Paper Applying behavioural economics at the Financial Conduct Authority
Lunn, P. (2014) Regulatory Policy and Behavioural Economics OECD Publishing
Donal, P. et al, (2012) , Influencing behaviour: the Mindspace Way in Journal of Economic Psychology 33 pp264-277
Government Social Research (2008) Practical Guide: An Overview of Behaviour Change Models and their Uses

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