Gus O'Donnell: No man is an island

Gus O'Donnell

The 2013 John Donne lecture was delivered on 15 March by former cabinet secretary Lord O'Donnell. He described how governments could increase public wellbeing by drawing on some of the insights of behavioural economics - insights long exploited by advertisers and businesses in the private sector. The version below is summarized with thanks from his script.

Today you have probably been nudged. You probably didn’t realise it and it may have helped you or harmed you. Take your credit card bill. At the bottom it tells you the minimum amount you need to pay. Surprise, surprise, a very large number of people pay this amount despite the high interest rate and despite the fact that they may have savings earning a tiny rate of interest. Or perhaps you turned on the radio to hear that Ed Miliband wants to reverse the default position on union members’ payments to the Labour Party, proposing instead that union members should opt in to Labour membership.

Both these examples highlight the importance of so-called 'behavioural insights'. We are influenced by prompts, like the minimum suggested payment, often subconsciously. Default settings can be really important. The government has vastly improved chances of pensioners saving enough for their retirement by switching the default so that you are opted in to a pension plan, but can opt out.

Will Hutton asked me to give this year’s John Donne lecture and suggested I talk about the work of the government’s behavioural insight team, or the 'Nudge Unit' as it is commonly known. I also wanted to explain Prime Minister David Cameron’s interest in using wellbeing as a measure of the progress made by society rather than the simple economic measure of gross domestic product (GDP).

John Donne wrote that 'No man is an island'. In economics we forgot this basic truth and developed many of our theories assuming each individual maximised his or her own utility on the basis of “rational expectations”. It has been hard to reconcile this theory with the way humans actually behave. The seminal work by Danny Kahnemann, which he and Amos Tversky started decades ago, is now a best seller (Thinking Fast and Slow). In the lecture I tried to show how his ideas can be used to guide public policy.

These ideas have spread around the world incredibly quickly. Another example: a behavioural approach suggests that people are heavily influenced not just by the nature of a message, but by the person who delivers that message. In Thailand they were not having much success getting people to try to give up smoking. So they filmed as young children approached smokers puffing away outside their offices to ask for a light for their cigarette. You can see the results on YouTube. It turned out that young children were very effective 'messengers'.

This is an example of a government trying to change people’s behaviour because it believes they are not acting in their own best interests. Sunstein and Thaler, the authors of Nudge, describe this as liberal paternalism. The debate about whether governments should be paternalistic leads into the issue of what governments are for. David Cameron has said that the government should care about the wellbeing of the population, not just the level of GDP. This very much fits in with a behavioural approach which emphasises acting to enhance societal and individual wellbeing.

So what does focusing on wellbeing mean for public policy? Research tells us that some of the main causes of misery, or negative wellbeing, are mental illness and unemployment, particularly long term unemployment. The policy implications are clear: we need to spend more on preventing and treating mental illness and we should direct macro and micro policies towards minimizing unemployment and its effects.

Again this emphasis on wellbeing as a guide to policy is spreading around the world. I am working with the Legatum Institute to bring together much of this work. And in September the UN will release the second 'World Happiness' report, which will give a much broader way of assessing progress made by countries to achieve better lives for their citizens.

No man is an island and no country can effectively operate alone, especially when faced with global challenges like climate change or financial crisis. As these examples have shown, the combination of behavioural insights and a focus on wellbeing as a success measure can help governments rise to these enormous twenty-first-century challenges.