Behavioral Economics is fast becoming relevant to develop Sustainable Development Goals

by Dr Fawad Kaiser 29 August 2019

There is a new commitment to develop Sustainable Development Goals (SDGs) and we are witnessing a shift in paradigm in the conceptualization of development, from seeing it mainly as economic growth, to conceptualizing it as healthy, human centered sustainable development. Civil society is contributing to this new way of thinking, drawing on grassroots movements and research from academic disciplines, the social sciences.

As a result, sustainable development (SD) is conceptualized as three overlapping dimensions, environmental, economic and social sustainability, with human welfare and well-being at its heart. A society cannot be sustainable unless it has incorporated social justice, economic welfare, as well as environmental protection, into its guiding principles. This conceptualization of development is possibly the most important thing happening on the planet right now that will affect the future for a long time to come, and psychology has an integral role to play in this process.

An emerging trend in public administration is the use of behavioral science and industrial-organizational psychology. Psychology is stereotypically seen as being about mental health. Little is known by the public about other branches of psychology such as behavioral economics and how its use can encourage better choices and decision making in line with sustainable development. Behavioral economics is the study of how psychological, social, cognitive, and emotional factors influence the behaviour of individuals and institutions. It recognizes that your choice of which car to buy is not simply the product of a rational cost-benefit analysis but also relies on things such as your mood, what car your best friend drives, and which metric the salesman used to describe the car’s fuel efficiency.

The complexity of household energy consumption and conservation behaviour has drawn together the utility of applying key principles from psychology and behavioral economics to explain, predict and change such behaviour. Consumers are far from the purely rational decision-makers assumed by traditional economic models, and there is often a wide gap between peoples׳ values and material interests, and their actual behaviour. Put simply, people often act in ways that both fail to align with their knowledge, values, attitudes and intentions, and fall short of maximising their material interests.

A growing body of research indicates that consumer choices and behaviour are, to a large extent, driven by cognitive biases, heuristics and other ׳predictably irrational׳ tendencies—for example, people use mental shortcuts to cut through complexity, dislike losses more than they like gains, prefer lower-value certainties over higher-value risks, evaluate things in relative rather than absolute terms, and are heavily influenced by the people around them. Yet these cognitive biases and motivational factors are often overlooked by practitioners and policymakers seeking to promote energy efficiency and conservation.

To ensure cost-effectiveness and maximise return on investment, it is important to take these phenomena into account when developing strategies for encouraging renewable and sustainable energy use, and for motivating pro-environmental behaviour more broadly. By understanding these predictable deviations from economically rational behaviour, policymakers will be better placed to craft interventions that successfully bridge the gap between pro-environmental knowledge, values, attitudes and intentions, and the everyday energy-related behaviour of consumers.

Behavioral economics is fast becoming relevant to economists and public policy makers as it challenges the myth of the “rational man” hypothesis as a driver of the market place, and points to the ways people make decisions which are often nonrational. It also provides insights about how the environment and context can help provide conditions for better choices. It is becoming increasingly evident that governments can successfully use behavioral science to create policies and implement programs geared towards sustainable development and how its application can have a ripple effect where small changes in policy design based on behavioral science principles can lead to larger outcomes for sustainable development.

Using psychology as an indicator reveals aspects of developed societies that are unsustainable in the long run, and suggests what pathways developing countries need to avoid when attempting to build societies based on human health and well-being. This is extremely important as the SDGs are applying more to developing countries that must catch up in terms of their economic growth and productivity.

However, through the lens of psychology, the pitfalls and unsustainable aspects of materialistic, consumer driven, developed economies can be brought to light through problems in mental health and well-being. If a socioeconomic environment leads to a decrease in well-being, it is an indication that it needs to be changed through social policy legislation and economic reforms. Thus, psychology can also be relevant to sustainable development by helping to shape social policies that foster mental health and well-being in both developed and developing countries.

Another way in which psychology is relevant, is its application to repair some of the fall-out of unsustainable development e.g., disaster relief and psychological resilience building in the wake of natural disasters brought about by man-made climate change, or conflict reduction through nonviolent communication, trauma interventions and peace building in the wake of conflicts between ethnic groups or over extraction of resources. Psychology can be relevant as an indicator of unsustainable development. Health is at the centre of sustainable development and a society is unsustainable if its economic and social systems and institutions are compromising mental as well as physical health.

Dr Fawad Kaiser

There is a new commitment to develop Sustainable Development Goals (SDGs) and we are witnessing a shift in paradigm in the conceptualization of development, from seeing it mainly as economic growth, to conceptualizing it as healthy, human centered sustainable development. Civil society is contributing to this new way of thinking, drawing on grassroots movements and research from academic disciplines, the social sciences.

As a result, sustainable development (SD) is conceptualized as three overlapping dimensions, environmental, economic and social sustainability, with human welfare and well-being at its heart. A society cannot be sustainable unless it has incorporated social justice, economic welfare, as well as environmental protection, into its guiding principles. This conceptualization of development is possibly the most important thing happening on the planet right now that will affect the future for a long time to come, and psychology has an integral role to play in this process.

An emerging trend in public administration is the use of behavioral science and industrial-organizational psychology. Psychology is stereotypically seen as being about mental health. Little is known by the public about other branches of psychology such as behavioral economics and how its use can encourage better choices and decision making in line with sustainable development. Behavioral economics is the study of how psychological, social, cognitive, and emotional factors influence the behaviour of individuals and institutions. It recognizes that your choice of which car to buy is not simply the product of a rational cost-benefit analysis but also relies on things such as your mood, what car your best friend drives, and which metric the salesman used to describe the car’s fuel efficiency.

The complexity of household energy consumption and conservation behaviour has drawn together the utility of applying key principles from psychology and behavioral economics to explain, predict and change such behaviour. Consumers are far from the purely rational decision-makers assumed by traditional economic models, and there is often a wide gap between peoples׳ values and material interests, and their actual behaviour. Put simply, people often act in ways that both fail to align with their knowledge, values, attitudes and intentions, and fall short of maximising their material interests.

A growing body of research indicates that consumer choices and behaviour are, to a large extent, driven by cognitive biases, heuristics and other ׳predictably irrational׳ tendencies—for example, people use mental shortcuts to cut through complexity, dislike losses more than they like gains, prefer lower-value certainties over higher-value risks, evaluate things in relative rather than absolute terms, and are heavily influenced by the people around them. Yet these cognitive biases and motivational factors are often overlooked by practitioners and policymakers seeking to promote energy efficiency and conservation.

To ensure cost-effectiveness and maximise return on investment, it is important to take these phenomena into account when developing strategies for encouraging renewable and sustainable energy use, and for motivating pro-environmental behaviour more broadly. By understanding these predictable deviations from economically rational behaviour, policymakers will be better placed to craft interventions that successfully bridge the gap between pro-environmental knowledge, values, attitudes and intentions, and the everyday energy-related behaviour of consumers.

Behavioral economics is fast becoming relevant to economists and public policy makers as it challenges the myth of the “rational man” hypothesis as a driver of the market place, and points to the ways people make decisions which are often nonrational. It also provides insights about how the environment and context can help provide conditions for better choices. It is becoming increasingly evident that governments can successfully use behavioral science to create policies and implement programs geared towards sustainable development and how its application can have a ripple effect where small changes in policy design based on behavioral science principles can lead to larger outcomes for sustainable development.

Using psychology as an indicator reveals aspects of developed societies that are unsustainable in the long run, and suggests what pathways developing countries need to avoid when attempting to build societies based on human health and well-being. This is extremely important as the SDGs are applying more to developing countries that must catch up in terms of their economic growth and productivity.

However, through the lens of psychology, the pitfalls and unsustainable aspects of materialistic, consumer driven, developed economies can be brought to light through problems in mental health and well-being. If a socioeconomic environment leads to a decrease in well-being, it is an indication that it needs to be changed through social policy legislation and economic reforms. Thus, psychology can also be relevant to sustainable development by helping to shape social policies that foster mental health and well-being in both developed and developing countries.

Another way in which psychology is relevant, is its application to repair some of the fall-out of unsustainable development e.g., disaster relief and psychological resilience building in the wake of natural disasters brought about by man-made climate change, or conflict reduction through nonviolent communication, trauma interventions and peace building in the wake of conflicts between ethnic groups or over extraction of resources. Psychology can be relevant as an indicator of unsustainable development. Health is at the centre of sustainable development and a society is unsustainable if its economic and social systems and institutions are compromising mental as well as physical health.

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