Can we “nudge” to higher speed economic growth? In a recent speech, David Halpern insisted that at least you should give it a try. Halpern was the founder of the Behavioral Insights Team (BIT), which was enthusiastically defended by British Prime Minister David Cameron, so it’s no surprise to find that policy decisions informed by behavioral science suggest that they could boost UK growth. But is he right?
Public policy of action has come to mean two distinct things. The first is the perception that people do not necessarily follow a simple model of human behavior in economic textbooks. For example, workplace pensions can be set for anyone who decides to opt in or not to opt out. The distinction seems trivial, but in a real world setting filled with false real-world people, changing the default options makes a huge difference to what people actually choose.
Second, the idea of a new policy is worth rigorously testing, ideally through randomized controlled trials. There is nothing particularly “behavioral” about this idea, but such exams tend to provide strong evidence that behavioral economics is worth taking seriously, and therefore supporters of randomized trials often tend to be the same people as advocates who use behavioral economics ideas.
So, is it possible that more psychologically realistic and rigorously assessed policies lead to higher economic growth? That may be true. The problem is that the policy for the type of problem tends to be fairly small in scope. For example, a decade ago, Bit revealed that he tends to run experiments and miss out on NHS schedules.
Taking the bit count at face value, such a modest text can save around £202 million a year by missing out on more than one million bookings. No one could oppose it, but saving about £3.25 per UK residents is not a growth strategy.
Therefore, one approach is to focus on expanding such experiments to find endless ways for schools, hospitals, police and prisons to find improved methods and bring about fewer better results. It would be nice to discover new hacks like these text messages. It would be better to discover one a month. If you discover one a week, your growth count may actually begin to improve.
Minister Pat McFadden may have kept this in mind when he announced a small fund to support the government’s “testing and learning culture.” It’s a good idea, but it’s not new. While ubiquitous and evidence-based learning and improvement are essential, it would have been good to hear McFadden explain how to advance the 2012 Cabinet Office’s approach to “test, learning, adaptation”;
So far, behavioral insights and rapid experiments have been solution producers looking for problems. If one growth strategy is to find and solve thousands of small problems, the alternative is to start with the biggest problems and ask if behavioral science is useful.
In the UK, these issues include: Poor education in skills education, especially for those who are not bound by universities. Bad infrastructure. Low business investments; long tails of unproductive companies; and burdensome planning restrictions.
A behavioral approach may offer some hope here. Halpern, for example, praises apprenticeship collection. This effectively collects taxes on businesses to fund their training subjects, but provides tax refunds to those who spend money on their training schemes.
This is more tedious than a simple tax cut for training, but it is configured to take advantage of the trend of compartmenting money into any category, depending on the plan of use. The technical term for this is “mental accounting.” A typical example is someone who holds one jar for rent money, another jar for food, another jar for savings, and a fourth to enjoy. Apprentice utilised mental accounting by suggesting to businesses that they were sitting in bottles and training money. (The Treasury Department was surprised at how effective the scheme is, according to Halpern.)
A similar approach may be used to encourage companies to invest in capital. Or, to exploit the old ideas of Nobel Prize winner Paul Romer, the government could write laws that would allow industries to vote for forced collection across sectors that fund relevant research and development. The widget industry can collectively vote for 1% collection for all widget companies that fund a selected research project by each company.
Romer’s Ideas is a clever part of economic engineering, but it has psychological implications. It gives each company a sense of money ownership, and at the same time funds the public goods of innovation while truly controlling where it goes.
More widely, Halpern wants to use this mental jam jar idea to build support for your investment. Perhaps new taxes, or reductions in daily spending, do not seem so painful, if profits were explicitly allocated as investments for the country’s future.
I don’t know about infrastructure and planning. What is needed here is not behavioral science, but leadership.
However, when it comes to leadership subjects, Halpern suggests another interesting approach. Maybe the government should be a little more cheerful? There is far more to economic performance than Keynes’ “animal spirit,” but there is ample evidence to suggest that the animal spirit is important.
Companies are likely to invest with confidence, and part of their trust depends on harsh facts about policy and the economy, but part of that is truly just an atmosphere. It would probably be good politics if Keir Starmer and his team could sound a little more hilarious about the UK outlook. That could be good economics.
Written for and first published Financial Times May 30th, 2025.
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