Behavioral Economics in Action: Analyzing the Role of Choice Architecture and Incentives in Indian Welfare Schemes

Abstract

The study explores how behavioural principles, such as framing, nudges, and structured decision-making environments, have been embedded mainly in three flagship programmers viz. PM-Jan Dhan Yojana, PM-KISAN, and MGNREGS. The qualitative analysis highlights examples of choice architecture—such as the default enrolment in zero-balance bank accounts under Jan Dhan Yojana—and the use of financial incentives in PM-KISAN to provide income support to farmers. Similarly, MGNREGS employs guaranteed wages as an incentive to encourage rural employment and reduce poverty. These examples underscore the importance of aligning program design with the cognitive and socio-economic realities of beneficiaries. The paper also critically evaluates the limitations and challenges of applying behavioural economics in large-scale policy interventions, such as the potential for unintended consequences and the need for cultural sensitivity. By synthesising theoretical frameworks with practical applications, the study demonstrates how integrating choice architecture and well-structured incentives can improve program uptake, compliance, and overall impact. This research contributes to the growing discourse on innovative and inclusive policy design, offering valuable lessons for policymakers, development practitioners, and academics. It underscores the potential of behavioural economics to reshape welfare strategies, paving the way for more effective, sustainable, and equitable outcomes in addressing poverty and inequality