Using Nudge as Entry Points for EBPM!

KOBAYASHI Yohei
Consulting Fellow, RIETI

The Importance of Examining the Effects in EBPM and Barriers in the Administrative Field

Initiatives related to EBPM (evidence-based policy making) have recently spread among national and local government bodies in Japan. The main differences between EBPM and previous policy making have been (1) the use of evidence (scientific basis that demonstrates the causal effects of the policy) and (2) the generation of evidence. The use of evidence means the selection of measures that contribute to the attainment of a policy goal based on the existing causal evidence. The generation of evidence refers to examining the effects of a policy for which the causal effects have not been proven (Note 1).

If causal evidence already exists, we can simply use EBPM for policy making. However, the reality is that there are many cases in which such causal evidence has not been extracted through research because new policy challenges arose, as well as cases in which there are uncertainties regarding whether the same effects can be expected in Japan for policies that were implemented overseas, and for this reason there are not many cases in which it is possible to make political decisions based on the existing evidence.

For this reason, it is important to both generate and accumulate evidence. While there are many methods for generating evidence, one useful tool is a randomized controlled trial (RCT) (Note 2). RCT is a method used to measure the causal effects of a policy by randomly assigning subjects to groups that are eligible or not eligible for a policy. However, several barriers can be faced if we try to use RCT in the field of policy. Frequently encountered barriers are as follows.

"The budget proposal has to be submitted next month, so there is no time to examine the effects of the policy with RCT. The responsible officer will change before the analysis comes out."
"It is difficult to come up with funding to examine the effects."
"Because the budget has already been secured and the structure of the project has been decided on, it would be difficult to implement RCT at this point."
"Because fairness in policy administration is required, it would be difficult to randomly assign people to groups that are eligible for a certain policy, and in the case of a project in which proposals have already been accepted, it would not be possible to eliminate applications from people who want to apply."

Using Nudges as Entry Points for EBPM!

It is obvious that although RCT is a useful tool for generating evidence, there can be many barriers to actually implementing it.

For this reason, I would like to propose the use of nudges as a method of overcoming such obstacles. Nudge theory has also already become quite popular in Japan. The original meaning of a nudge is a gentle push in a specific direction, and by extension, it has been used to mean encouraging better choices by taking human psychology into consideration. A nudge is a tool for encouraging better choices at a low financial cost while respecting the freedom of individual decisions, and it has become recognized around the world as a fourth policy tool that is complementary to the conventional policy tools of subsidies, taxation, and regulations and rules (Note 3). A wide range of research has been conducted on nudge theory. For example, Allcott (2011) presents a U.S. home energy report (HER) that focused on comparing the amount of energy used by a household to its neighboring households and used social comparison nudges to achieve energy conservation of approximately 2%.

I propose that such forms of nudges could be used as entry points for EBPM. The reason for this is that in the case of nudges it is often possible to overcome the barriers to examining the effects that are described above. The table below summarizes the administrative barriers that are frequently faced when examining effects of policy and the advantages of using nudges in these situations.

In response to the barrier of requiring too much time to examine the effects, in many cases, such as the example of the home energy report, it is possible to examine the effects in a relatively short period of time with nudges. Because analysis is easy in the case of a simple RCT, it is possible to examine the effects using only internal administrative resources. In addition, many nudges are often used for operational improvements in the field of policy (e.g. innovations in information provision methods), and in many cases they can be implemented with a decision by the responsible department, without requiring any major changes to the policy structure. This means that nudges can be applied to policy that has already been implemented, without waiting for the budget proposal for the next fiscal year. In many cases, nudges such as information provision or reminders can be implemented at low cost, and it is also highly likely that they can be implemented within the scope of the existing budget. Furthermore, many people have the opinion that the random assignment of policy benefits is inappropriate, because fairness is a requirement of policy administration. Although similar barriers can be faced in the case of nudges, for cases such as creating and separately sending out several versions of a notification document, because the notification document itself is broadly sent out to all people who need it, the implementation hurdles are likely to be lower than the randomly targeted assignment of actual policy.

Table: Administrative obstacles faced when examining the effects of policy and strengths of nudges
Administrative obstacles to examining the policy Advantages of using nudges
It takes too much time to examine the effects. The responsible person will change before the results of the examination become clear. The examination of the effects is possible in a short period of time in many cases.
It is not possible to secure the funding for examining policy effects. The costs for examining effects can be low in the case of a simple nudge.
The budget has been secured and the policy has already been started, so it would be difficult to change how the policy is being implemented in order to examine the policy effects. In many cases nudges are possible through changes on the policy operational level without making major changes to the structure of the policy itself.
Random assignment is difficult because fairness is required for administration. It would not be difficult to eliminate applications from people wanting to apply. In many cases, nudges are possible through means such as the randomization of notification documents. In such a case, there would be no need to eliminate applicants.

Use Practical Nudge Theory Implementation Guides to Accumulate Experience toward EBPM!

Another advantage to using nudges as entry points for EBPM is the wide range of practical implementation guides that are available. For example, the OECD has presented a framework called BASIC (behavior, analysis, strategy, intervention, and change), which summarizes the steps for creating a nudge. In addition, the Behavioural Insights Team in the UK has presented a framework called EAST (easy, attractive, social, and timely), which summarizes the approach to creating effective nudges. Most recently, Osaka University Professor Fumio Ohtake has written a new book called "Kodo keizaigaku no tsukaikata" (Using Behavioral Economics) that describes the approach of behavioral economics, explains how to create nudges, and provides concrete examples, in a manner that is easy to understand in Japanese. Detailed introductions for the BASIC and EAST frameworks are also provided in this book. In this manner, there is a wide range of implementation guides for nudges, and the hurdles for use in the field by administrative officials are getting lower and lower.

Of course, a nudge is not a magic wand. There are many policy challenges that cannot be resolved through nudges, and many cases have been reported of the effects weakening over the long term even if they were demonstrated over the short term. However, in order to implement EBPM, it is extremely important to facilitate the generation of evidence by accumulating cases of examining effects of policy and increasing the level of experience in internal administrative work among relevant personnel. To do so, it is essential to repeatedly implement administrative measures based on evidence, even if they are small, so that people responsible for policy can gain first-hand experience in what EBPM can and cannot do and in what areas it is useful, to enable this experience and know-how to be accumulated and shared. Nudges are an ideal entry point for this process.

December 12, 2019
Footnote(s)
  1. ^ Refer to commentary by the author contained in Duflo et al. (2019) for details on the EBPM approach and examination methods for policy effects.
  2. ^ Refer to Kobayashi (2014), Duflo et al. (2019), and Aoyagi and Kobayashi (2019) for details on randomized controlled trial approaches and implementation methods.
  3. ^ For example, cases of nudging in countries around the world are introduced in OECD (2017).
Reference(s)
  • Keitaro Aoyagi and Yohei Kobayashi (2019) "EBPM no shikouhou: yattemiyou randomuka hikakushiken" (Ways of Thinking for EBPM: Trying Out a Randomized Controlled Trial!), series starting from the April/May 2019 issue of Economy Seminar
  • Fumio Ohtake (2019) "Kodo keizaigaku no tsukaikata" (Using Behavioral Economics), Iwanami Shinsho
  • Kobayashi Yohei (2014) "Seisaku koka bunseki no choryu to randamuka hikaku jikken wo mochiita anketo tokusoku kouka no suitei" (Trends in policy effect analysis and estimation of the effects of questionnaire reminders using randomized controlled trials)" MURC Policy Research Report.
    http://www.murc.jp/thinktank/rc/politics/politics_detail/seiken_141010
  • Esther Duflo, Rachel Glennerster, and Michael Kremer (2019) "Using Randomization in Development Economics Research: A Toolkit" (translation supervision and commentary: Yohei Kobayashi; translation: Takayuki Ishikawa, Ryosuke Inoue, and Jun Natori), Nippon Hyoron Sha
  • Allcott, H. (2011) "Social Norms and Energy Conservation" Journal of Public Economics, Vol.95, pp.1082-1095
  • Behavioural Insights Team (2014) EAST: Four Simple Ways to Apply Behavioural Insights
  • OECD (2017) Behavioural insights and Public Policy: Lessons from around the World
  • OECD (2019) Tools and Ethics for Applied Behavioural Insights: The Basic Toolkit

January 28, 2020