Behavioral Issues

A simple but interesting experiment (1) showed that children facing of a container filled with candy, from which they should only take one, changes their response if a mirror is placed in front of them. In the control group the number of children taking more than one candy was significantly lower than the number of those that took more than one in the study group. It seemed that the simple fact that they could see themselves on the mirror influenced their behavior. Subsequent studies and simple common sense confirm that when we feel observed, to be facing someone’s eyes can induce a change in behavior.

Choosing a dish in a restaurant obviously depends on personal preferences and wishes. But there are also other influencing elements. For example, a menu with too many options is not always welcome. The description of the dish may have more influence. For example, “beef steak with green salad” may not have the same effect as “juicy tender steak, perfectly grilled with the freshest organic salad” (but sometimes the price triples just because of that description). Perhaps other influencing elements are less obvious. If the most expensive item on the menu is lobster with orange, it will probably be sold less frequently than if the menu also includes another dish sold at a higher price, eels for instance, not popular but which will avoid that lobster-lovers will have the uncomfortable of choosing the most expensive dish on the menu. The same goes for half portions of dishes, which are sold at 80% of the full portion price.

When it comes to compliance, and particularly the voluntary, especially when induced by the administration’s actions, the issues influencing behavior are important and possibly determinant. I remember a case in an administration in which a group of doctors had received a notice about some inconsistencies identified between what was reported in the previous year return and the withholdings done by the clinics and those reported by the clinic in their name. The message also conveyed that reports on withholdings were regularly and timely send and received. This group of doctors mysteriously significantly increased the reporting of these withholdings and consequently of their income on the following return.

Will a message reminding the due date of payment arrangements have effect on the taxpayer? Which media will be the most effective? A phone call made by a robot, one made by a human, an SMS, an email, a publication in newspaper with a list of all taxpayers that have a payment for the day, a private message on Twitter… Will all have the same effect? Would a combination of more than one media improve the results? Will the media and the message be as effective if instead of reminding a fee to be paid they would warn of an overdue fee?

You will agree that the best media is not universal. Some users have their heart closer to the phone call, others prefer an email because the other media are considered intrusive, and others will prefer an SMS because it is immediately received. For sure few would prefer an open message on Twitter, but a private message will transmit the feeling that observers are watching what you are doing.

Tax administrations also can see the behavioral effects resulting from tax policy. Just remember some recent news about the intention of some large companies to change their jurisdiction seeking tax scenarios that appeal more to shareholders even if they upset a little their customers.

The effects of the message, the media, the way it is presented are issues still not sufficiently studied by administrations, and in my opinion they should be included in the agenda for the coming months and years. Currently, especially with the possibility to analyze users’ interactions and responses, either directly or through social networks, these studies could be carried out in shorter periods and at lower costs.

Specific taxes and green taxes have among their objectives to induce a change in behaviors. Studies have been made in these areas, illustrating the importance of understanding behavior patterns. Definitely a high tax on cigarettes should affect the behavior of consumers. But the influence is not always the same for all groups of people(2), or permanent(3) in certain segments of the population, or it only changes the behavior in certain individuals by switching to generic brands, buying in larger volumes or promoting contraband. In terms of consumption habits I wonder how these taxes interact with other measures such as including pictures of the unpleasant effects printed on the most visible part of the package, or the increasing restrictions imposed on users to prevent them from smoking in public areas. I personally think that the most effective measure without additional support to the perception, have been the restrictive one.

The singer Ismael Rivera wondered in his classic Dime por qué (Tell me why) the reasons why he was left alone and unloved. Maybe it was not only due to one reason, the consequence of a single action, but rather the effect to many misunderstood messages accumulated.

As it can be noted, the conclusions to these behaviors are based on aggregated data. It is a topic of current interest. Behavioral economics is being studied to determine new approaches to the analysis of tax compliance and to develop solutions that will improve it. One of CIATs program includes the Studies and Research Network. On September 29 and 30, members of this network will be meeting in Uruguay to discuss this matter. The results of these analyzes will be shared with members and other collaborators.

Good Luck.

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