What Behavioral Economics Can Do for the G20

An event organized by the IDB will bring insights from behavioral economics to G20 leaders

If you are reading this blog, you are most likely a person with limited rationality. If you doubt that, ask yourself, if you have ever over-snoozed your morning alarm or eaten beyond your point of hunger? Humans, as it turns out, often fail to act in their best self-interest. We fail to follow through on intended goals and undervalue, or discount, the importance of the future.  We take mental shortcuts, instinctively overgeneralizing from events and believing in patterns that don’t exist. In short, we often make judgments and solve problems in ways that are harmful to our long-term welfare.

Because these behaviors usually do not correspond to standard predictions from economic models, economists and psychologists have integrated findings from their two disciplines to increase our understanding of economic decisions. Armed with the tools and insights that psychology offers, behavioral economists now evaluate ways of modifying our beliefs to correct some of our tendencies, or biases, and get us to make choices that maximize our wellbeing.

Advising world leaders on behavioral economics

The IDB has not been foreign to the developments in the field and has understood for many years now the importance of including behavioral insights in its projects and policy designs. On Sept 17, it will further those efforts by bringing together top behavioral economists from around the world to a forum entitled “The Age of Behavioral Economics: Perspectives for the G20” that will be looking at a broad range of behavioral interventions, especially those that are relevant to the Agenda of the G20. The forum, taking place in Buenos Aires, is part of the Think 20 (T20), which brings together leading think tanks, government officials, and representatives from international organizations to develop policy recommendations to G20 world leaders who will meet in the Argentine capital at the end of 2018.

The IDB together with the Institute for the Integration of Latin America and the Caribbean (INTAL) will also be hosting a seminar on Sept 17 entitled “Empujoncitos para Mejorar Vidas” (Nudging to Improve Lives) as part of the effort to encourage policymakers and non-governmental organizations to use behavioral insights.

A Considerable Experience in Behavioral Interventions

The IDB brings vast experience to the table. For nearly a decade,  it has been partnering with local and national governments in Latin America and the Caribbean to advance knowledge related to individual and collective decision-making in the region. Our goal is to address people’s biases to help them make wiser choices, and  we have been working towards that goal in areas ranging from education and savings to health, tax compliance, and labor markets.

In Chile, for example, we have helped less advantaged children by exposing them to information on financial aid for higher education and the financial returns of various professional careers. That, in turn, helped correct information biases that they held which led them to believe that they had to choose less ambitious  careers.

Meanwhile we’ve encouraged people to make better savings and retirement choices. In Brazil, we’ve sent booklets in the mail to nudge  self-employed workers to increase their social security payments so that they will have adequate pensions upon retirement.  We also are experimenting with different methods, including letters, text messages, and in-person visits to increase social security contributions and voluntary savings in Chile and Colombia.

One of our most important endeavors has been helping governments in the region increase voluntary tax compliance. That has involved in Colombia using different methods ranging from letters to in-person visits to convince delinquent taxpayers to pay their tax debts, and, in Argentina, sending letters to explain exactly how much compound interest is charged on late tax payments, an intervention that has been particularly effective in getting delinquent taxpayers to meet their obligations.

We’ve also used a range of behavioral intervention to increase pre-natal visits of low-income women in Guatemala and Peru and vaccination rates among young children in Guatemala.

Continuing efforts to improve decision-making

We will continue to explore ways to use behavioral interventions to improve policymaking and citizen welfare in Latin America and the Caribbean, and we are confident that our considerable experience will be an asset as some of the world’s leading experts in the field gather in Buenos Aires to advise G20 leaders and encourage the use of behavioral economics in the region. Register here and join us!

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The Author

Ana María Rojas

Ana María Rojas

Ana María Rojas Méndez is a research fellow in Behavioral Economics in the Research Department. She received a Master in Public Administration in 2018 from the John F. Kennedy School of Government at Harvard University. She holds a Master and a Bachelor’s degree in Economics from Universidad de los Andes in Bogotá, Colombia. She has six years of work experience in non-profit, intergovernmental and research organizations designing sustainable development policies in South America.

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