The success of government initiatives – from the Big Society to action on binge drinking – will depend upon policymakers' ability to understand how networks change behaviour, according to the leading UK economist, Paul Ormerod. In an essay published today by the RSA, he argues that failure to understand 'network effects' partly explains the financial crisis and the failure of many policies to deliver the scale of change desired.
N-squared is published following news that the government has set up a new Behavioural Insight Team looking at 'nudge' based policies. Prof Ormerod concludes that much more significant is the need to understand networks. His essay calls for a fundamental shift in approach to public policy – moving away from large-scale, expensive interventions that often have only marginal effect on outcomes – towards smaller interventions whose impact can be magnified through the contagion of ideas and actions across networks of people or organisations.
The essay draws on a number of studies including Ormerod's own work on binge drinking amongst young people. This suggests that binge drinking spreads rapidly amongst groups of friends and that policies aimed at tackling the problem need to take seriously the role of peer acceptance, not just individual interventions or market solutions.
Using modern network modelling, the essay:
- Identifies particular structures of networks that determine how fast and broad behaviour change spreads. This includes 'scale-free' networks where changing the behaviour of thousands requires identifying key 'hubs' of influence.
- Shows how many policy evaluations – because they ignore networks – often deliver misleading results. This can result in public investment in the wrong interventions or to policies being abandoned before contagion effects take place.
- Network effects dwarf nudge policies. However, they make policymaking much more complex and unpredictable but with huge potential gains.
Commenting on the report, Professor Paul Ormerod said: "The combination of large-scale state activity and a mechanistic approach to policymaking has not delivered anything like the success that the founding fathers of the welfare state in imagined. The principal cause of the failure of what we might call the social democratic model to achieve its objectives is not the size of the state but the intellectual framework in which it operates."
"When it comes to contemporary challenges it seems clear that we will often need to induce dramatic mass behaviour change. We are unlikely to do so using simple incentive based approaches and need to get better at harnessing the power of networks. This makes the world more complicated but the potential gains from more effective policies built on a better scientific understanding of how the world operates are enormous."
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