Behavioural Economics and Policymaking: Learning from the Early Adopters

Abstract

This paper critically examines initial applications of Behavioural Economics (BE) to policymaking. It focuses primarily but not exclusively on what can be learnt from the early adopters of policies inspired by BE, notably America and Britain. BE is defined by its inductive scientific approach to economics, which results in empirical demonstrations that are persuasive to policymakers facing practical problems. The analysis identifies three routes via which BE has influenced policy: (1) the theory of libertarian paternalism ("nudges"), (2) the provision of toolkits for policymakers seeking behavioural change, and (3) the expansion of the skill-set of applied economists (and scientists in related disciplines). The effectiveness of each route is assessed, in terms of the likelihood of successfully integrating scientific advances with policy development. The analysis concludes that route (3) is the only one that can adapt to the ongoing and rapid evolution of what is a young science. Successful policy applications are most likely where there is expert input to policy development and the capacity to engage in applied experimentation and piloting of policy ideas. The implication is that countries, including Ireland, are more likely to reap the benefits of BE if they create an effective interface between applied economists and policymakers.