How psychology can help shape policies (1/3): Modelling behaviour

A psychologist can work with individuals, but s(he) can also influence the behaviour of larger groups. Image credit: Inga Külmoja

The word ‘psychologist’ tends to be associated with an image of a psychotherapist working with a patient who has turned to them as a last resort, perhaps even with eyes cast down in shame. There are many things wrong with this picture, some of which fall beyond the scope of this story. For instance, we will not explain why visiting a psychologist should be no more shameful than visiting a general practitioner. Or, that in addition to treating mental illness, psychologists are also well-equipped to improve well-being and productivity.

The misconception addressed here is the idea that psychology is relevant only for work carried out with a single individual at a time. We hope to debunk this myth by showing that psychology is useful for those who create various social systems ­– the tax system, health care system, educational system, and others. In short, we will discuss using psychology in policy making.

Policies – from laws to specific regulations – create frameworks for society to operate in. Many policies are, among other aims, designed to shape behaviour. A policy-maker, for example, may wish for drivers to obey a speed limit or for entrepreneurs to honour their tax obligations.

Authors of such behaviour-shaping policies face at least three challenges that relate to psychology. Firstly, they need to understand the mechanisms underlying the behaviour they wish to influence. Secondly, they benefit from knowing how to influence behaviour without force and coercion. And thirdly, when assessing the impacts of policies, they may want to measure changes on the psychological level. For all of these challenges, psychology and other behavioural sciences are an excellent source of practical models, persuasion techniques, and assessment tools.

Realistic modelling of behaviour

Regulatory errors often reveal policy-makers’ misconceptions about how the human mind works. In Estonia, for example, the ruling coalition that came to power in 2019 intends to give those who have joined the second pension pillar, a private pension back-up fund, a chance to exit the system. 

Disregarding the ideological, public finance, and political pros and cons of this plan, the rhetoric of the proponents of the reform reflects an unrealistic understanding of how people make financial decisions.

Pension reformers in Estonia seem to believe that people regard their pension savings rationally. Image credit: Inga Külmoja

For example, the reformers seem to assume that people regard their pension savings not as available funds but as an investable asset. If that were true, the reform would indeed prompt only a single and useful question in the minds of the people ­­– whether to continue to grow the saved sum in the existing fund or invest it elsewhere.

A psychologist, however, knows that for a normal human money is, after all, money. Thus, the reform invites citizens to ponder not only how to invest their money but also whether to invest it at all or spend it on something useful instead.

This view is supported by the UK’s experience, where in 2015, people aged 55 and over were given access to their pension pots. Within two years, one-quarter of those who opted to exit the system decided, instead of investing, to spend their money on things such as home improvements, holidays, a new car, or supporting children1FINANCIAL CONDUCT AUTHORITY. (2018). Retirement Outcomes Review Final Report. MS16/1.3. –

While consuming one’s pension savings may be a rational choice for some, for most people it would be irrational. For this reason, pension policies do not usually encourage people to spend their savings. A large-scale depletion of pension savings may thus be regarded as a planning error that could be prevented by relying on a more realistic model of how the mind works.

A key part of a realistic psychological model is a tendency to systematically discount the value of future rewards relative to rewards available here and now2BERNS, G. S., LAIBSON, D., LOEWENSTEIN, G. (2007). Intertemporal Choice – Toward an Integrative Framework. – Trends in Cognitive Sciences, 11, 482–488. DOI: 10.1016/j.tics.2007.08.011. UUSBERG, A., VAINIK, U., KREEGIPUU, K. (2019). Can’t Wait or Want It Now? Impulsivity Relates to the Immediacy Rather than the Delay Sensitivity Aspect of Temporal Discounting. – A. Realo (Ed.). In Praise of an Inquisitive Mind: A Festschrift in Honour of Jüri Allik on the Occasion of his 70th Birthday. Tartu: University of Tartu Press, 18.. Or, simply put, a bird in the hand is worth two in the bush! For example, most participants in an experiment did not agree to wait 20 seconds to be rewarded 15 cents, instead choosing an immediate reward of 9 cents3LANE, S. D., CHEREK, D. R., PIETRAS, C. J., TCHEREMISSINE, O. V. (2003). Measurement of Delay Discounting Using Trial-By-Trial Consequences. – Behavioural Processes, 64, 287–303. DOI: 10.1016/S0376-6357(03)00143-8..

Some discounting of future rewards is reasonable because the future is never guaranteed. This tendency, however, although favourable on the evolutionary scale, is a poor guide in the complex maze of modern financial services. It is for this reason that financial behaviour experts have insisted for years that retirement policies should rely on realistic psychological models that account for delay discounting and other decision-making biases4 BENARTZI, S., THALER, R. (2007). Heuristics and Biases in Retirement Savings Behavior. – Journal of Economic Perspectives, 21, 81–104. DOI: 10.1257/jep.21.3.81. RIITSALU, L. (2018). Taking the Path of Least Resistance in Managing Personal Finances for the Longer Term. – Journal of Management and Change, 36/37(1/2), 55–67..

The applicability of realistic psychological models is not only limited to financial behaviour. Over the past decades, a wider paradigm shift in policy making is gradually replacing the idea of an agent – the homo economicus that economists first deemed to be accurate enough – with more realistic models of a more impulsive, emotional, and context-sensitive person5VLAEV, I., CHATER, N., STEWART, N., BROWN, G. D. A. (2011). Does the Brain Calculate Value? – Trends in Cognitive Sciences, 15, 546–554. DOI: 10.1016/j.tics.2011.09.008..

This paradigm shift owes much to the works by psychologist and Nobel Prize winner in economic sciences Daniel Kahneman and his prematurely deceased colleague Amos Tversky, such as Thinking, Fast and Slow. The work by Kahneman, Tversky, and their many successors has equipped modern behavioural sciences with a selection of models that can be applied to policy making across a variety of domains. To choose among the models and, if necessary, fine-tune them for specific purposes, policy-makers are welcome to consult psychologists and other behavioural scientists.

Andero Uusberg is a Senior Research Fellow in Affective Psychology at the University of Tartu. Kariina Laas is the Head of the University of Tartu Institute of Psychology.

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