Nudge: A policymaking Instrument

Nudge thinking is the use of elective architecture and other techniques in behavioural science to influence the decisions people make. Nudge theory was formulated in 2008 by Thaler and Sunstein in their book Nudge: Improving Decisions about Health, Wealth, and Happiness. It is an approach to understand the changing people's behaviour by analysing and improving designs that propose people free choices to generate more beneficial results for themselves and society than outcomes from traditional forced direct changes and compared to designs with indirect influence. 

Behavioural economics examines how people make decisions in the real world, and how irrational biases are applied in public policy. Many governments have implemented well-informed policies that focus on nudge interventions to preserve freedom of choice by steering people in certain directions. 

Nudge testing, conducted by government agencies in the United Kingdom, Australia, Germany, the Netherlands, Singapore, and the United States, deviates from traditional policy instruments which encourage certain behaviours without restricting individual options or imposing financial penalties. Nudges, however, are no substitute for traditional economic policy instruments. 

As behavioural change requires a combination of interventions and nudges often rely as much on important information provision and selection issues as on a range of government resources. Moreover, there is a tendency to underestimate the cost of nudges because they are easy to understand for policymakers rather than engaging in sophisticated and long research-based policy, nudges make them attractive in a low-capacity environment. Moreover, implementing nudges can serve as a signal to politicians, voters, and governments that rely on behavioural science can improve policy.

The attractiveness of nudging is partly due to the relatively low cost of behavioural interventions, which seem particularly applicable in the age of austerity, and because they complement conventional policy tools such as legislation and regulation. Since the launch of the Behavioural Insights Team during David Cameron's premiership is 2010, the UK has hosted the concept of a nudging unit, and concepts of nudge-related programs have begun to populate the political repertoire of the public administration, migrating from the remote realm of corporate governance and international governance. More than a dozen countries have established offices known as "nudge units" that conduct experiments with behavioural science methods.

As prime minister of Britain, David Cameron formed the Behavioural insights Team that pursued a NUDGE strategy for organ donation at driver’s license centres and found that it led to 100,000 new volunteers in a single year. President Barack Obama had his agencies investigate in 2015, implemented a behavioural science insights policy across the federal government by executive order.

In India, NITI Aayog, the government’s think tank, is looking to hire behavioural economists for its ‘nudge unit’ to understand behavioural changes to make more effective policies and programmes, especially in the health and education sectors. This year’s Economic Survey authored by Chief Economic Advisor K.V. Subramanian devoted a whole chapter to behavioural economics and sought the fixing of the ‘nudge unit’ in NITI Aayog.

The survey had talked about how behavioural economics had been one among the explanations behind the success of a number of the Narendra Modi government’s flagship schemes like Swachh Bharat and Beti Bachao Beti Padhao(BBBP). It had even set a more ambitious agenda to cause social change, including moving from BBBP to ‘BADLAV’ (Beti Aapki Dhan Lakshmi Aur Vijay Lakshmi) and from Swachh Bharat to ‘Sundar Bharat’. Against this background, the research team, which includes academics, practitioners, and governments examined existing studies to assess the relative cost-effectiveness of nudges and other policy interventions. Nudging is influenced by a growing body of research in the field of behavioural economics.

By Sheldon Patrick Joseph

Time to reform the Big 4

The U.K’s largest accounting firms, colloquially known as the big 4, and others have been criticized by the Financial Reporting Council (Britain's accounting watchdog) for their ‘unacceptable’ decline in quality after a third of their audits fell below expected standards. The FRC report reserved much of its criticism for PwC, KPMG and Grant Thornton mainly for their involvement in the infamous business failures including WireCard, Thomas Cook, Carillion & Patisserie Valerie. It found that 35 per cent of PwC’s audits and 39 per cent of KPMG’s audits required improvements. So what are the reasons behind their  shortcomings?

One reason presented by the FRC was the existence of conflict of interest within firms due to the firms having wider practices closely integrated within the audit practice and consistent cross subsidisation into the audit division. To counter this problem the FRC have asked the big four to separate their audit practices from their consulting, restructuring and tax operations by 2024, with the expectation to eliminate conflict of interest issues. Another potential reason posed was the observation that many accounting firms were not ‘standing up’ to their clients management, meaning, auditors were failing to challenge companies, particularly on issues such as revenue, contracts and investment property valuations. The FRC have prompted the accounting firms’ senior management to create a more open culture of taking difficult decisions and inducing stricter client management while asking for information.

Although the FRC believes separating the audit division from wider company practices may shift the tide and improve audit quality many others are sceptical. Many believe that crucial innovations in the accounting sector, such as AI, block chain and robotics, can only be achieved through scale and financial strength, something that cannot be obtained by removing them from their parent company. They argue that it is these advancements in the sector that will inevitably boost audit quality and performance and so it is integral to keep the divisions together. That being said, time will only tell if the FRC’s decision will lead to the improvements required for this consistently sub-standard sector.

Another example from the US- Lehman Brothers. Despite an audit the auditors failed to detect a potential collapse. The reports didn’t make accurate long-term projections after considering market uncertainties and risks. Lehman's commitment to subprime loans was a result of their expectations that market boom in the housing sector would sustain. Instead, the faulty audit reports rendered them incapable of implementing counter strategies when the market fluctuated. Their audit reports should have revealed the excessive borrowing that raised their leverage ratio above what is prescribed. The firms, however, window dressed its financial statements to deceive its stakeholders. The auditors, Ernst &Young, on being questioned, claimed that they only agreed to the accounting treatment applied to the transactions, but didn't actually look at the transactions themselves, their overall impact on the financial statements, and the real reason why they were used.

India's biggest corporate fraud, 'Satyam scandal', one of the biggest scams, misled the market and other stakeholders by lying about the company’s financial health. Even the basic facts such as revenues, operating profits, interest liabilities and cash balances were grossly inflated to show the company in good health.

SEBI’s investigation found that Price Water Coopers did not independently verify bank statements and fixed deposit receipts nor disclose the lack of such verification in the audit report. PWC argued that it had undertaken verification and that the fixed deposit receipts appeared to be genuine. The regulator found that not once in eight and half years did PWC request independent confirmation from the New York branch of Bank of Baroda and instead relied on Satyam to source the confirmations from the bank.

Another error found was, though Satyam was predominantly a services company, several of the fake bills related to products and that should have alerted the audit firm. Another revelation was that the company reported fictitious sales thereby making space for fictitious debtors. Despite PWC's contentions that the standards of duty of an auditor are different from that of the firm and that all partners cannot be held liable for the actions of two, SEBI has penalised all 11 accounting firms operating under the PWC brand in India.

In all the above cases, fraud while auditing has been considered a common problem.  Auditors simply signing off on a theoretical accounting treatment, and not examining any of the transactions or their materiality doesn't seem to meet the professional standards. Auditors must have sufficient, competent evidence to support their opinions.

Written by- Meghna Raj Saxena

  

DATA SCIENCE FOR SOCIAL GOOD

 

The companies and the institutions have realized that there is a need to hire data scientists. Academic institutions are putting in their best efforts to scramble in courses of data sciences in their curriculum. Many professionals and institutions even tout data science as a hot career choice. However there is confusion about what exactly data science is, and this confusion could lead to disillusionment as the concept diffuses into meaningless buzz. Therefore in this article, we discuss what exactly data science is and how it's put into action in the present scenario and drives decision making.  

     

With the huge amount of data available, companies in almost all sectors tend to exploit data for their competitive advantage. The volume and category of data available have outstripped the capacity of human analysis. On the other hand, the technology has grown so rapidly and algorithms have been developed that can connect broader databases and provide results efficiently and effectively that too in a shorter period.  This has given rise to the increasing application of data sciences. , data science is a set of fundamental principles that support and guide the principled extraction of information and knowledge from data. The principle and techniques of studying these algorithms through data science are recommending in almost all kinds of marketing tasks ranging from targeted marketing, online advertising to understanding consumer behavior and maximizing profit.

Data science involves principles, processes, and techniques for understanding phenomenon via the analysis of data. The ultimate goal of any enterprise or company is decision making to which data science acts as a driving force through its analysis. Data-driven decision-making refers to the practice of basing the decision on the analysis of data rather than purely on intuition. 

There is a well-studied set of fundamental concepts underlying the process and purpose of extracting knowledge from the data. Some of these fundamental concepts show the relationship between data science and business problems, some reflect the sort of 

knowledge and the discoveries that will be made out of the technical solutions. The fundamental concept of data science can be summarized through the following pointers: 

• Extracting useful language from data to solve business problems can be treated systematically by following a process with reasonably well-defined stages.

• Evaluating the data science results require careful consideration of the context in which they will be used.

• The relationship between the business problems and the analytics solution often can be decomposed into traceable and be solved subproblems.

• Even if a small set of data is studied then also focus and importance should be laid upon minor details.

Therefore from the above discussion and all the points stated, it draws out the conclusion that data science is an extensive and popularly growing course which is proving to be useful in every industry or corporate houses. A large portion of the success of these industries and corporate giants owes to the application of data science. Data science supports data-driven decision-making and sometimes also aids in making automated decisions from massive data. However, the fundamental concepts of data science are of their own and should be considered and discussed explicitly to determine the real potential of data science.

Written by- Arnav Jain

Ek Abhilashaa: Donation Drive in loving memory of Lt. Dr. Sapna Newar

Exactly one year ago it was a clear normal day for rest of the world, but for us, a day where we saw the final rites of Sapna Ma'am, Nitin sir (her husband) and their youngest son, Darsh. A day which was marked to be celebrated (their anniversary) turned into a day of mourning, condolences and gut-wrenching despair. Indeed, one of the darkest days this institution had witnessed. The untimely and brutally tragic demise of one of our most respected, loved and brilliant teachers had left us all shocked and numb. This incident has left a permanent scar in our hearts and minds, but despite all the cruel and heartless moves of fate, life has to continue. Sapna Ma'am was someone who was loved, cherished and respected by all, her students, colleagues, friends, family, without exception. Apart from being a teacher who treated all her students like her own children she was also a philanthropist, an avid researcher and a person who wanted to bring out the best in whomever she connected with.

 

To honor her memory and spirit, the Economics Society successfully organized a Donation Drive in which Groceries, Clothes, Toiletries, and Stationery items were collected to help and support the residents of Mother Teresa Home, C-scheme, Jaipur, and SOS children’s Village, Jhotwara, Jaipur. These items were collected under the guidance of faculty coordinator Dr. Boola Choudhary, in the Campus over a period of 5 days (17^th Nov to 21^st Nov, 2020. Donations were made by students, teachers, alumni, and well-wishers. On the afternoon of the 21^st, the donated items were duly segregated, sorted, and packed by the student volunteers under the supervision of faculty members. 

On 22^nd Nov 2020 the donations were taken to Mother Teresa Home where they were kindly received by the staff and administration. On 23^rd Nov, the donations were taken to SOS children’s Village. These too were kindly received by the administration. The whole team and our institution were very warmly appreciated this initiative. The visit to SOS children’s village was an important part of this initiative it was received donations by Lt. Dr.  Sapna Newar every year on her anniversary. The whole event process was duly managed by the student coordinators, Nandini Gupta and Anushka Sharma under the supervision and support of EcoSoc President Aashita Pandey and Vice Presidents Akshat Agarwal and Rishabh Somani. Each and every activity in the process was conducted strictly adhering to the public health safety guidelines issued by the administration.

Cost of COVID Treatment in India

 

The Economic Society (ECOSOC), St. Xavier’s College, organized a webinar on the subject “Cost of COVID treatment in India: Who bears the burden” as a part of the Economics Lecture Series which is an annual event of the Department of Economics.

The webinar was aimed at discussing the impacts of COVID-19 on the Indian healthcare system and to analyze who is bearing a major burden of the expenses in its treatment, the Government, or the citizens.

To provide a better perspective to the students, two very eminent speakers -  Prof. Indrani Gupta and Dr. Sakhtivel Selvaraj were invited.

Prof. Indrani Gupta is a Professor and Head, Health Policy Research Unit (HPRU) at the Institute of Economic Growth, Delhi. She holds a Ph.D. in Economics from the University of Maryland, College Park, USA , and a Masters in Economics from the University of Delhi.

Dr. Sakhtivel Selvaraj currently holds the position of Director, Health Economics, Financing and Policy, at the Public Health Foundation of India, New Delhi  and has a Ph.D. in Health Economics from Jawaharlal Nehru University, New Delhi.

Prof. Indrani Gupta focused more on the infrastructural and policy-based aspects of the pandemic. She stressed on the need for India to have a resilient public health care system and increase its production and preparedness in terms of the health infrastructure as compared to many other countries of the world. She also emphasized on the fact that the Government of India needs to make sure that it has sufficient medical supplies to cater the needs of the millions in the country and also it should work on a prioritized budget for the health care sector so that the production of medical resources can be effectively increased.

Dr. Sakhtivel Selvaraj focused on the financial aspects of the pandemic. He statistically analyzed the capability of the Indian government to fulfill the demand for healthcare infrastructure in the country and talked about the division of healthcare expenditure between the public and private domain which is 1/3 and 2/3 respectively. He also discussed the role of different states in bearing the medical costs of the citizens.

He emphasized the need for the Governments to increase their efficiency in dealing with the health-care needs of the people and also to bear the burden of the costs of COVID vaccines in the country. If the government doesn’t pay for the vaccines, a major section of our population might not be able to pay for it.

The webinar indeed helped the students to draw a true picture of the status of health-care infrastructure in India and broaden their perspectives around the same. The speakers also answered some intriguing questions by the participants. The session was concluded with a vote of thanks by the Head of the Department of Economics, Ms. Poorvi Medatwal.

INDIA’S MIDDLE CLASS: HOW MANY ARE THEY, WHO ARE THEY?

 

“A healthy middle class is necessary to have a healthy political democracy. A society made up of rich and poor has no mediating group either politically or economically.” — Lester Thurow

The middle class constitutes the critical markets of the country, it is said to be the key driver of the economy and is vital for growth and development.

Today, in India 28% of the population is said to be middle class but there are different measures of how a particular country constitutes its data. So, it becomes very important for not only the students of economics but each and every person in the country to know, how the middle class is defined.

In order to do so, the Department of Economics and Psychology jointly with Meghnad Desai Academy of Economics organized a webinar on 16th October 2020. The topic being “INDIA’S MIDDLE CLASS- HOW MANY ARE THEY, WHO ARE THEY.” The webinar was addressed by Dr. Sandhya Krishnan. She has done her Ph.D. from the University of Amsterdam and is currently working as an Assistant Professor at Meghnad Desai Academy of Economics.

The webinar commenced with the welcoming speech of Ms. Maharshi Sharma, assistant professor of Economics department. Dr. Sandhya started the lecture by asking the students about their knowledge and awareness of India’s demographic structure. Attendees showed high participation as they were well aware and had a good knowledge of the topic. 

Dr. Sandhya continued with her presentation giving the students a detailed report on India’s middle class and statistics related to it. She also emphasized the future of the demographics of India.

 Briefing out, “After being largely stable between 1999-2000 and 2004-05, the new middle class in India (that is, those spending between $2 and $10 per capita per day) doubled in size between 2004-05 and 2011-12, amounting to nearly half of India's population. This growth, though largely in the lower middle-class category, happened across a majority of states in both rural and urban areas."

Structurally, the new middle class is quite different from the conventional understanding of it. Although dominated by upper castes, other caste groups too have entered the new middle class in large numbers. The occupational structure within the class is heterogeneous. The lower middle class is engaged in occupations similar to that of the poor, whereas the upper-middle class is involved in traditional service activities as well as in new knowledge service. Further, the lecture was followed by a question and answers round. Insightful answers given by Dr. Sandhya to students' questions made attendees' day interesting and valuable.

The informative webinar was then culminated with a vote of thanks proposed by Ms. Maharshi Sharma.

It was an effective lecture and over 100 participants joined it. The webinar fulfilled every purpose from enriching student's potential to opening doors of opportunities for them and thus added one more feather of achievement to the department.

Interactive Session on Data Science: A Roadmap to Future Predictions

 

In today's busy world everyone is in the need for ready-to-use commodities, whether it be consumer goods or content for research. Keeping in mind the requirements of our growing population, eminent economists and scientists introduced the concept of data sciences. Theoretically, data science is the extraction of actionable insights from raw data. So what we find on the internet in the form of processed data to study or research about something is all made available with the help of data science.

Data science involves a plethora of disciplines and areas of expertise to produce a holistic, thorough, and refined look into raw data. Data scientists must be skilled in everything from data engineering, math, statistics, advanced computing, and visualizations to be able to effectively sift through muddled masses of information and communicate only the most vital bits that will help drive innovation and efficiency. With the motive of making the students understand the concept of data science in more detail, the Department of Economics and Psychology conducted an interactive session on 28th November 2020 on the online platform Google Meet.

Mr. Shubham Saxena, an alumnus of the St. Xavier's College, Jaipur who is currently working as an Analytics Advisor (Data Sciences) at Think analytics Pvt. Ltd., Mumbai was invited as the resource person. The coordinator for the session was Ms. Sunita Choudhary. 

The event commenced with a formal introduction of Mr. Shubham Saxena, following which he talked about the concept of data sciences in detail. The detailed discussion on the topic included the explanation of what is data sciences, why is data sciences so important, how is it useful, where is it used and what are the different career options in being a data scientist. Through the discussion, a major confusion of the difference between a data scientist and a data analyst was solved. 

The session further included a question-answer session with Mr. Shubham. The questions put forth by the students filled more enthusiasm in the session and the active participation showed the zeal of the students to understand the concept. The session also talked about the use of various catalysts to understand data sciences, some of them include R programming, Python, etc. The interaction also helped the participants to gain knowledge about the use of data science in Fintech and how the massive databases can be analyzed with the help of this science.

The session concluded with an explanation of the importance of data science in the post COVID-19 era and the significance it will hold in the coming times.

Overall the event turned out to be a great success.