Behavioural Economics and Public Policy

The assumption within the standard or mainstream economics, that individuals act to maximize their long-term best interest, have stable preferences, and are consistent rational actors has served as a useful benchmark for predicting behavior. This model of human behavior has influenced the design of public policy. 

Yet, these traditional economic incentives sometimes prove ineffective. The field of behavioral economics differs from neoclassical economics in that it focuses on the ways in which rationality may be limited or bounded, and influenced by factors such as impulsiveness, limited willpower or lack of self control, social norms, and the context in which choices are made. The behavioral economics approach is heavily based on and informed by related literature in fields like psychology and neuroscience.

Behavioural economics increases the explanatory power of economics by providing it with more realistic psychological foundation. It is not seeking to replace the standard framework of analysis but add to this framework. Behavioural Economics approach extends rational choice and equilibrium models and does not advocate abandoning these models entirely.

The focus of the behavioral economics approach is to better predict and understand people’s actions, with the goal of designing more effective public policy. Three types of popular behavioural intervention recommended by the Nobel Prize Winner of Behavioural Economist Richard. H Thaler include changing the default option, requiring an active choice and simplification can facilitate decision making that better aligns outcomes with individuals preferences. For instance, in some countries, individuals must opt out if they do not wish to be organ donors compared to countries where individuals sign at their death for organ donation. Therefore countries in which individuals must opt out have a higher rate of organ donation. This is one example of incorporating behavioural economics that is default option in policy making.

“Behavioural economics is a cost effective way to nudge individual’s behaviour towards polices.” – Dr. Reuben NG, behavioural scientist at Oxford and Yale University.

Dr. Reuben NG trained as a behavioural scientist at Oxford and Yale. He spent 15 years in government of Singapore, consulting and research. Within government of Singapore, he was in the Prime Minister’s office driving evidence-based policy making through data analytics and Smart Nations Strategies. Dr. Reuben is an expert in preventive health care of older adults, population health analytics, psychometrics, resilience and culture. He is credited with creating innovative techniques to measure societal perceptions/stereotypes that are applied to social policy, and program evaluation. He is also the first Singaporean to receive the International Fulbright Science and Technology Award. [Interview at 3.35]

“You need a wider repertoire of tools that combines incentives, nudges, changes to the social context, and working with industry to set different defaults. Over time norms and behaviours will change in the desired direction.” – Mr. Donald Low, Associate Dean (Research and Executive Education) at the Lee Kuan Yew School of Public Policy, National University of Singapore.

Mr. Donald Low is an Associate Dean (Research and Executive Education) at the Lee Kuan Yew School of Public Policy, National University of Singapore. Besides leading the School’s executive education efforts, he also heads its case study unit. His research interests include economics in public policy, behavioural economics,  inequality and social spending, public finance, organisational change, and governance and politics in Singapore. Prior to his current appointment at Lee Kuan Yew School, Donald served fifteen years in the Singapore government. He held various senior positions, including the director of fiscal policy at the Ministry of Finance and the director of the Strategic Policy Office at the Public Service Division. He also established the Centre for Public Economics at the Civil Service College of Singapore to advance economics literacy in the Singapore government. He is the editor of the book called Behavioural Economics and Policy Design: Examples from Singapore (2011), a pioneering book which details how the Singapore government has applied ideas from behavioural economics alongside standard economics in the design of public policies. [Interview at 33.55]



Tayyaba Mohsin, Host, Senior Producer
Amanda Lane, Technical Producer
Ian T. D. Thomson, Executive Producer
Leanna Mora, Executive Producer

Special thanks to the management of Yong Siew Toh Conservatory of Music recording studio of National University of Singapore and Ritu Bhandari, Master of Public Policy Student at Lee Kuan Yew School of Public Policy.

Music Credits
Not Dead 
by Fine Times
Lost Together 
by Blue Rodeo

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