Putting humans at the heart of economic policy

Author: Nida Broughton, Stefanie Schultheis

Date: 26/11/2020

2020 saw the world’s economies rocked by the coronavirus pandemic.


The IMF expects a long, uneven and uncertain recovery from what is the worst crisis since  the Great Depression. Governments and central banks have been forced to do things differently. Not only did we witness unprecedented spending on stimulus packages around the world, with some countries spending as much as 40% of their GDP, but we have also started to see fundamental innovation in the design and delivery of economic policy.


In China, municipal authorities are working with the Chinese mobile and online payment platform Alipay to send out digital coupons instead of a cash stimulus, in an effort to get money to people faster, and encourage consumers to spend rather than save. Digital coupons also give authorities the ability to track coupon usage and quickly adjust payments over time. Additionally, the Chinese authorities added some behavioural twists to their coupon scheme: rolling it out as a competitive real-time lottery and making it conditional on consumers hitting a  certain level of spending to redeem their coupons, taking advantage of classic behavioural concepts like loss framing. Early evidence suggests that the stimulus programmeme was more effective in driving marginal propensity to consume than previous tax rebates, cash payments and paper coupons.


The Canadian Government created a new grant for students and recent graduates, which enabled students to earn a one-time payment of up to $5,000 towards their student costs by completing volunteer hours for a national or community service during their summer break. The grant encouraged students to remain enrolled in their programmemes despite the financial hardships they and their families were experiencing. It enabled them to gain valuable experience when many of the usual opportunities like internships or going abroad evaporated. Not least, it mobilised additional support for communities to respond to the challenges posed by COVID-19.


Examples like these illustrate how the impact of COVID-19 is forcing governments to rethink their economic policy making, with human behaviour at its heart.


When previous economic shocks hit us, our understanding of how behavioural science can help design better public policy was still in its infancy. Today, however, we have the knowledge and evidence to truly take advantage of behavioural insights for the very first time and bring them right into our economic policy making processes.


The opportunities if we do so are immense. Even before the COVID-19 crisis, developed economies were struggling with other challenges: how to improve productivity; how to help people thrive through technology change such as automation; and how to shape economies to tackle climate change and share economic gains fairly across society.


Funded by the Friends Provident Foundation, the Behavioural Insights Team developed a 10-point plan to upgrade economic policy with a deep understanding of human behaviour at its core. A deep understanding of people’s incentives, motivations and behaviours can improve the design of traditional policy levers and open up new categories of policy tools based on influencing sentiment and behaviour. It has the potential to help governments and regulators design more effective policy, improve the way our economy works, and address issues of low productivity, exclusion and unfairness, benefiting businesses and citizens right across society.


The 10-point plan covers ideas on a wider range of economic policy: from improving household resilience to making markets work better, to planning for the next economic shock.


We see this report just the starting point to provoke discussion and debate. Enacting this agenda requires effective collaboration between policymakers, regulators, researchers and funders. If you would like to work with us to turn this vision into reality, please get in touch.


Read more and a summary of the 10-point plan on the Behavioural Insights Team website


Contact Nida Broughton, Director of Economic Policy at the Behavioural Insights Team