Questions based from case study below. Question 1

Imagine you are advising Her Majesty's Revenue and Customs (HMRC). What should HMRC write in its letter to delinquent taxpayers? Why do you think your proposal would be effective? What alternatives did you consider?

Question 2

How should HMRC evaluate the success of your proposed letter? What factors should they take into account?

Question 3

Step back from the context of HMRC. Suppose instead that a credit card company was sending a letter asking people to pay their overdue account balances. How, if at all, should that letter differ from the one sent by HMRC?

MICHAEL LUCA PATRICK RODNEY Behavioural Insights Team (A) David Halpern and Owain Service celebrated at the Behavioural Insights Team (BIT) headquarters in London. Halpern had just received an email from Nick Down at HM Revenue and Customs (PIMRC), the UK tax ofce, agreeing to a partnership. I-[MRC regularly sent tax letters to delinquent taxpayers, asking them to pay. They would now allow BIT to redesign the letters using behavioral economics to increase compliance rates. BIT a new organization dedicated to applying behavioral insights in policy settings - had been in existence for a little less than a year. Though championed by Prime Minister David Cameron, they were given a short leash, and their future status as an organization within the British government was still in question. A major success in increasing revenue would be a defining achievement and gamechanging proof of concept, virtually guaranteeing BI'I"s longevity. On the ip side, a failure might presage a quick exit from the policy scene. Prior to the tax letter, most of BIT's work focused on making the case for the inclusion of behavioral economics in making government policy. Halpern and Service knew that this project offered an opportunity to put their theories and aspirations to the test and to give behavioral economics a grand entrance onto the national policy scene. The stakes were high. Service realized that the landscape of a post-crisis economy was ripe for policy change: "Austerity [had] put efficiency at the top of the government's priorities. If you could show that you could make things more efficient, people would listen.\" A Revolution in Economics Most economic analyses in the 20th century centered on the simple notion that people make rational and self-interested decisions. "Homo Economicus\" as this sage decision-maker is often called - uses all information available to him or her, is unaffected by the way an issue is "framed,\" and virtually never makes mistakes. While economists understood that this simplifying assumption was often incorrect, the prevailing view was that deviations from rationality were generally unimportant and could be treated as noise rather than systematic, substantive issues warranting interest from companies and policymakers. Behavioral economics, drawing heavily on psychology, emerged in the late 1970s as a rebellious, direct challenge to rmly entrenched economic ideas. In 1974, behavioral scientists Daniel Kahneman and Amos Tversky published \"Judgment Under Uncertainty: Heuristics and Biases\" arguing that mental shortcuts and behavioral mistakes among individuals biased their economic decision-making. Although this paper was published in a well-respected journal and began a line ofwork that ultimately led to a Nobel Prize, economists initially ignored it. Kahneman and Tversky understood that these mistakes could lead to devastating outcomes even for smart, well-intentioned people. They pushed forward and in 1979 published \"Prospect Theory: An Analysis of Decision Under Risk\" in Econometrica, a journal geared toward an economist' s economist. The inuential paper formalized the idea that became known as prospect theory and provided evidence that could no longer be ignored by economists, ultimately laying the foundation for a new way of thinking about economic decisions. As time went on, a growing eld of behavioral scholars emerged and developed a deeper understanding of human judgment and decision-making. The eld began to explore the way that systematically biased decision-making inuences market outcomes and ultimately managerial and policy decisions. In the 2000s, behavioral economics thinking became mainstream through the publication of books like Nudge, Predictably Irrational, and Thinking Fast and Slow. Companies and governments alike began taking notice of the notion of \"choice architecture\" (a term coined in Nudge), looking for ways in which they could structure individuals' choices in order to promote better habits and decisions among their employees, customers, and citizens without heavy-handed coercion. In Nudge, Cass Sunstein and Richard Thaler were among the first to write about behavioral economics for a mass audience of managers and policymakers. The Behavioural Insights Team is perhaps the most prominent example of an organization dedicated to using behavioral insights in a policy setting. Founded by the British government in 2010 as a team of 8, the group has more than 50 members as of 2015. The core goal of BIT is to infuse the design of public policy with insights from behavioral science, an idea that was both exciting and controversial from its inception. Behavioural Insights Team Background In 2010, the United Kingdom found itself at a crossroads of sorts, suffering through the aftershocks of the 2008 Financial Crisis and subsequent self-imposed austerity measures. That year, David Cameron rose to become Prime Minister with help from a coalition of Conservative and Liberal- Democrat politicians. During his time as leader of the opposition, Cameron had gone searching for "low-cost alternatives" to the standard policy-making process. He had met Nudge co-author Richard Thaler during a 2008 lecture on choice architecture and, with Thaler's help, began carving out a new behaviorally-driven agenda for the nation's policymaking future. Even before the creation of BIT, members of the Prime Minister' 5 Strategy Team had begun witnessing the slow seep of behavioral economic theories into the offices of Whitehall. In 2009, former Chief Analyst David Halpern penned the MINDSPACE Report, a seminal publication trumpeting the promise of behavioral science for the future of UK government policymaking. For its part, the Cabinet Ofce as a whole was dedicated to strengthening es with luminaries in this burgeoning eld, inviting prominent behavioral scientists to advise and lecture on their topics of expertise. According to Service, the combination of political and economic shifts, along with buy-in from the government's most savvy policy minds, laid the groundwork for an organization that could radically revise British policymaking for the 21st Century. Soon after Cameron took office, the UK Government became one of the first major public policy bodies to formally adopt these ideas. The Cabinet Office established BIT as a unit under the Prime NIiIIisteI's discretion, with the express mission to streamline government operations through choice architecture and insights from behavioral science. The team was lead by David Halpern, a former faculty member from the University of Cambridge who had left academia to work in government. Halpern had an impressive track record and history in the British government, having most recently served a six-year stint as Chief Analyst in the Prime Minister's Strategy Team. Halpern was a born contrarian and this was the perfect role for him. Owain Service, the Deputy Director at Strategy, was a fast tracker within the UK'S elite Civil service organization. He was also a long-time believer in the power of behavioral insights, a mindset he rst developed at Cambridge in a course on criminal behavior taught by (as fate would have it) Halpern himself. He and Halpern had also worked closely together at Strategy, and within the first few months of BIT's existence, Halpern convinced Service to join him for this journey as the team's first Managing Director. The two assembled a small team of former business consultants, academics, and civil servants. The 8-person team quickly acquired the moniker "The Nudge Unit," deriving from the seminal book that underlay much of BIT's vision. This moniker was not always applied in positive light, with many believing that the group was a manifestation of government overreach at best, and a suffocating "Big Brother" presence at worst. Nonetheless, Halpern and Service held fast to their mission looking for policy relevant situations where they could redesign the environment in which people make choices. Early Promise Soon after its inception, BIT co-published a report suggesting behaviorally informed changes meant to empower consumers to make better decisions. One idea consisted of reforming disclosure of information to would-be car buyers by incorporating maintenance costs. The team also proposed a tool thatwould allow credit card users to compare their current cards to alternatives based on their personal spending habits. The report demonstrated the collaborative, interdisciplinary approach that would come to characterize the team. With its publications growing at a steady clip, BIT began making headlines for its work including both favorable and unfavorable press by The Financial Times, The Economist, BBC Radio, and McKinsey Quarterly, among others. Because of the novelty of their mission, a successful redesign of the tax letter was crucial. Service trusted that his team would remain focused, noting, \"the original team was used to working within the core parts of the central government of the UK, and [a skeptical press] was not something we cared about too much. " From Promise to Action: The Tax Letter Halpern and Service knew that moving from promise to action would not be easy. With no formal authority over the partners they hoped to work with, outreach and persuasion were early challenges for the group. Moreover, the team had only been given a provisional time period for operation: at the end of 2012, the group would be up for review by a steering board run by the head of the civil service to determine its efficacy in shaping policy. Working without guaranteed cooperation from I-IMRC, and under a looming deadline, there was pressure and risk involved in this task. Earlier in 2010, the team had proposed three goals to its steering board. First, the team hoped to incorporate behavioral economics insights into the decision making process of the British government. Second, the team hoped to \"transformatively change" two major elds of policy through their new approach. Lastly, and most pressingly, BIT promised to show a 10-fold return on the cost of running the team, which at that point amounted to half a million pounds per year. Both Service and Halpern understood the inner workings of the civil service and the intricacies of Whitehall. Yet there was much to be done. Service knew that the team's well-honed understanding of human nature would go a long way towards dening the future of behavioral policymaking: We almost needed to approach the process of working with someone as if we were working on a (separate) BTT project. Most of the time, they (our potential partners) see themselves as looking for some sort of gain, whether work-related or otherwise. We needed to put ourselves in the shoes of those performing the service and ask ourselves \"What does it feel like for the user of this service?\" "What does it feel like to be across the table from a person who you want to convince to do something so radically different (from the norm)?\" The Task at Hand Once there was broad agreement on the idea of implementing a new tax letter, BIT needed to execute. They received a first draft of a letter that looked something like this: Dear Sir/A/ladam We are writing to iner you that we have still not received your tax payment of (amount). It is imperative that you contact us immediately, at (phone number). HM'RC They now needed to develop the best possible letter to be sent to delinquent taxpayers, with the goal of maximizing the likelihood that taxpayers would pay their late taxes. They started by considering a letter being sent to John Smith, who is a hypothetical UK citizen who has not paid his taxes for the year and owes 5,000 to HM Revenue and Customs. HMRC has sent two letters to John asking him to pay his overdue taxes, but he has not responded. BIT also has access to the following additional information about John's situation. At this point, 98% of UK citizens have paid their taxes for the year, including 95% of citizens in John's hometown. Both of his neighbors (Will and Kate) have paid their taxes on time, as have his parents. John is clearly difcult to reach. If John continues to ignore HMRC, they have the option to liquidate his belongings in order to recoup the money. Liquidation is costly (both for HMRC and for John) and potentially embarrassing for John, and hence viewed as a last resort. Because of this, I-[M'RC wants to send John a third letter before proceeding to alternative collection methods