Since the on-set of demonetization, I have been enthusiastically reading articles about the way in which behavioral economics could help in public policy decision-making.
The reason is fairly simple. At the heart of demonetization, there is an enormous challenge to bring about drastic changes to transacting behavior of Indian public. And it is in this context, I chanced upon the tool called as “Nudging”.
Nudging is a concept in behavioral economics and is imported from cybernetics – the term loosely used to denote gaining control of any system using technology. In its truest form, it’s a trans-disciplinary study drawing references from biology and engineering.
Simply put, nudge is any aspect of choice architecture that aims at altering people’s behavior in a predictable way. The aim is to bring about change in the behavior without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to adopt. Nudges are not mandates. In the words of Richard Thaler and Cass Sunstein, “putting fruit at eye level counts as a nudge – banning junk food does not”.
Now linking back this tool to the attempt of bringing about changes to transaction behavior of Indian public. On one hand, there can be regulatory attempts to impose restrictions – direct or indirect – on cash-withdrawals. But on the other hand, there can be a systematic way to influence the payment behavior by using cultural events and gifting traditions.
The tradition of Hóng Bāo during the Chinese New Year is a case in point. Literally translated, Hóng Bāo is a “Red Envelope” through which the elderly people gift cash to younger ones on the eve of the Chinese New Year. The excitement around this event is so visible with several Red Packets drawing attention at any of the local stores, malls and public places during this season.
The red color of the envelope symbolizes “good luck” and is a symbol to ward off evil spirits. The amount of money stuffed in the envelope usually ends with an even digit. Care is taken to ensure that the amount does not contain 4 (like 4 or 40 or 444) as the Chinese pronunciation of four is homophonous to the word death.
During the Chinese New Year holiday in 2014, the local mobile instant messaging service WeChat introduced a new feature to its electronic wallet function in the mobile app. It digitized the concept of “Red Envelope” by creating virtual red envelopes of money via the wallet platform. One can load the Wallet with some random amount and send it as a New Year wish to the contacts in the phone. The system distributes the amount randomly to the contacts who keep opening the message. It’s fun to watch this during the festive season as an additional amusement to the traditional way of wishing each other.
The popularity turned to be a business warfare between WeChat and its competitor Alipay which also added similar messaging service later. Analysts estimate that over 100 billion digital red envelopes would have been sent over the New Year holiday in 2017.
On one hand, it’s a tradition that is made out to be more fun by adoption of technology. But at the heart of it, it has led to discouraging the use of Cash even at the eve of traditional social gifting occasions like a New Year holiday. A behavioral change was slowly introduced, without any change in economic incentives to the public. It was easy and cheap to adopt and avoid as the way public would choose to. It’s not a mandate but a psychological tuning of the peoples mind to remain contemporary in technology usage.
India is a land of similar customs and traditions. It will not be a bad idea to explore how these can be technologically leveraged for promoting digital transaction behavior amongst the common public.
Image Courtesy: www.money.cnn.com
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