Shiva Chakravarti Sharma, MPP, Staff Writer, Brief Policy Perspectives 

During the 2010 meeting on the Millennium Development Goals, the United Nations asserted that education is a major catalyst for human development. Delegates argued that rapid advances in education can help achieve other millennium goals, like reducing child mortality and eradicating extreme poverty. Education budgets form an important and substantial part of government spending for most countries. For developing countries in particular, a focus on increasing educational attainments is a central policy pillar. In recent years, many interdisciplinary approaches have come to play an important role in informing policy design. Behavioral economics, a study of economic decision-making using psychological insights, has, in the recent decades, explored many elements of human decision making that can increase the effectiveness of traditional policy tools. This article argues that there is a need for increased integration of behavioral insights into education policy.

Traditional economic theory assumes individuals make choices based on preferences and utility. New economic research focuses on people’s cognitive biases and limited attention that influence choices, including education choices. This literature illustrates that several biases can stop individuals from being fully rational. These biases could explain individuals not accounting for educational benefits because they are present-biased. This means that people tend to prefer benefits they can receive sooner, rather than later. In an educational context, people tend to give more weight to their present income than future income gains from a college education. Present-bias is one possible reason that 4.3 million children in India are forced into child labor. Parents may only account for present benefits that come from the child’s wages and ignore educational benefits because pay-offs are in the future.

In line with traditional economic theory, a major policy focus in India has been to subsidize education so that marginal social benefits equal to marginal social cost. In other words, the government policy focuses on the efficiency of equating demand and supply of education by attempting to make it more accessible to more individuals. The problem with this approach is that subsidizing education treats all students as homogenous agents, when the realities on the ground are quite different. For example, it is more difficult for some students to attend schools, even with subsidized education, because they face various social constraints. This is particularly true for female students and students from marginalized castes. In some Indian states fewer than 30 percent of girls are enrolled in secondary schools, compared to 61 percent worldwide.

Some recent Indian state policies have implemented innovative education policies that incorporate behavioral economic concepts. In Bihar, a northeastern state, the Chief Minister Bicycle Scheme provides conditional cash transfers for girls to buy bicycles to ride to school. Various studies have argued that this policy significantly reduced drop-out rate for girls. The unique part of this policy is that the cash is distributed through public ceremonies that highlight the importance of girls’ education. I believe that the public ceremonies function as an important framing tool for the families. Framing is an important behavioral economics concept. This idea emphasizes that people react differently to incentives when the incentives are framed differently. The effectiveness of this policy highlights the need for integrating behavioral insights into federal policies.

In another randomized study, the authors observe the framing effects of a small cash transfers to fathers of school-aged children, labeled as “child benefit”, in poor rural communities in Morocco. They found large gains in school participation. The authors argue that labelling the cash transfers for a specific purpose framed how the fathers thought about the money and encouraged them to invest in their children’s education. In other words, small alterations to a policy, like public ceremonies and labeling a cash-transfer, can significantly improve the intended outcomes of these policies.

David Halpern, the Director of the UK Behavioral Insights team, during an address, stated that many of policy models are based on rather naïve understanding of what drives behavior. Understanding behavior is imperative, especially in education policy. Education policy must not only increase school enrollment, but also improve learning outcomes. Small nudges to highlight the importance of child education can help improve policy design in significant ways. Humans do not always make accurate calculations when making decisions. Policies, like financial incentives, based on the assumptions of traditional economic theory may work better when coupled with the insights of what drives behavior.