Gui hangs up his cellphone. An inexorable grin stretches across his face. He has just been told that he had won the lottery. Yet this was no conventional jackpot. He did not defy odds even greater than being struck by lightning. In fact, Gui is one of tens of thousands of people in China that have profited from fapiao, or a receipt lottery, which was first introduced by the government in 1998.
Fapioa’s aim is to encourage consumers to ask for receipts when purchasing a good or service. This has the effect of making complying sellers meet such a request. Income is declared from the sale in the process.
Including a hidden number on a receipt, all in the hope of securing a reward, may seem deceptively simple and futile yet the first ten years of the scheme garnered a 10.4% increase in tax revenue and brought many businesses into the formal economy. This is good news for a country where 13% of GDP is largely off the record. A modest nudge in behavior made stark changes.
In the Philippines, 38% of the total working population is part of the informal sector. Bringing them into the formal economy has proven extremely difficult. No company is incentivized to be the first to start paying taxes, for fear of losing out to competitors. However, taking these people into the formal sector is hugely important to the overall health of a functioning economy. Benefits include providing additional revenue to accelerate infrastructure spending and improving much-needed social protection.
These issues are listed as high priority in the current administration’s socioeconomic and legislative agenda and efforts to tackle them will be chiefly conventional in nature. Traditionally, there have been three main approaches for getting groups or individuals to move from option A to option B (with option B presumably being a more desirable outcome in the aggregate): imposing regulations and restrictions, using incentives, and trying to inform, educate and persuade. Undoubtedly, implementing reforms through traditional means is important. Yet these are often tremendously time-consuming, costly and notoriously difficult to execute. They also often fail.
Another option is the use of nudging. Nudging is the means of subtly swaying people’s behavior with the aim of improving collective outcomes. It has come evermore popular in recent years, helped by the contributions of a wave of psychologists and behavioral economists. Most notable of these is Richard Thaler, the most recent winner of the Nobel Prize in Economics.
Nudging uses positive reinforcement and indirect suggestions, like that found in fapiao, to influence motives and decisions. Understanding how people think and behave creates an opportunity for government and private bodies to generate change and stimulate the transformation of traditionally intractable habits.
The example of fapiao is not in isolation and the idea of nudging is not new. Cass Sunstein, co-author to Thaler’s best-selling book Nudge, quipped, “In Genesis, Satan nudged, and Eve did too”. Comparably imaginative approaches have been applied across all corners of the globe. Similar lotteries have been introduced in Portugal, Greece and Brazil.
Firms have long looked at behavioral science to shape their customers’ behavior, primarily through marketing and sales techniques. Governments have now begun to do the same. In 2010, Thaler advised the British government on the creation of the Behavioral Insights Team. Just one example of their success is in relation to enrolment in pension schemes. Automatically opting people in to contributions, as opposed to requiring people to sign up, caused active membership to rise from 2.7 million in 2012 to 7.7 million in 2016. In the United States, people were directly asked to privately plan the date and time of their appointment to receive a vaccine. This prompted vaccinations to rise by 4.2%, generating 12.8 additional vaccines for every $100 spent on the program. It is estimated that 51 countries now have “centrally directed policy initiatives” influenced by behavioral sciences.
The Philippines should be quick to follow suit. Too many slow-moving regulations and education programs have been tried and failed. The country’s biggest problems can potentially be surmounted, or at least diminished, by paying closer attention to how people think and behave.
The possibilities are vast. Corruption is rife. Follow Nigeria’s direction, where simply changing the way health records are designed has led to less money being pinched. Saving rates are too low. Automatically opt people in to saving schemes, like in the UK. Filipinos are becoming increasingly unhealthy. Encourage companies to change the size of plates and take-out containers. Google has done this to great effect.
Nudging is not suited for all cases and can be used for both good and bad. Ensuring success necessitates careful reflection, experimentation and iteration. Thread carefully. But the potential rewards are worth it.
Andrew Dowd is a graduate of Trinity College Dublin, Ireland. He is a business analyst at First Circle, a fintech startup on a mission to improve business opportunities in the Philippines. To discuss how First Circle can help businesses with financing, visit www.firstcircle.ph or contact Andrew at firstname.lastname@example.org