FPO touts psychology behind co-pay scheme

Taps into behavioural economics' principles

- WICHIT CHANTANUSORNSIRI

A consumer user her phone to scan a QR code to make a purchase under the government's co-payment plus scheme.

The "Khon La Khrueng Plus" co-payment scheme is considered one of the world's most effective consumption stimulus programmes, founded on the principles of behavioural economics, according to an analysis by the Fiscal Policy Office (FPO).

The FPO said the scheme leverages five key human behaviours to stimulate consumption during the fourth quarter, typically a weaker period for economic growth.

The five behaviours are: present bias or hyperbolic discounting; mental accounting; loss aversion and framing (prospect theory); nudging and choice architecture; and scarcity and salience.

Present bias refers to the human tendency to overvalue immediate rewards, even at the cost of losing greater future benefits. People tend to prefer small, instant pleasures (such as spending money) over larger, delayed pleasures (such as saving for retirement).

Conversely, they often seek to postpone immediate discomfort, such as making a large payment.

The design of the co-payment scheme fully capitalises on this bias. Specifically, the immediate reward — a 50% government co-payment — is not a year-end tax rebate, but rather an instant benefit received at the very moment the transaction takes place.