The Behavioural Economics stopping e-tolls in South Africa.Tags: behavioural economics, consumer behaviour, e-tolls, erik vermeulen, loss aversion, SANRAL, South Africa, sunk cost fallacy, tax
Although tolls are not a new concept in South Africa, much controversy surrounds the imminent implementation of the e-toll system. According to Erik Vermeulen, Behavioural Economics specialist, this has less to do with the actual e- toll system and more to do with the manner in which the e-toll system was presented to the public.
SANRAL framed the e-toll system in a poor manner as the result of inadequate marketing and implementation efforts.“In a world where most decisions are made on the basis of cost versus benefit, SANRAL erred in under-emphasising the benefits of the e-toll system, while the cost was made glaringly obvious,” says Vermeulen. As a result, the system was framed in such a way that it could only garner feelings of ill will equating to rebellion against the implementation of the system.
The greatest argument against the system is in line with this cost versus benefit dilemma; people are not willing to make the monetary sacrifice in other areas of their lives that will be required in order to pay the toll fees, especially in an economy where so many have already had to ‘downgrade’ their lifestyle as a result of the increased cost of living.
The over-riding issue is that the cost of the tolls does not measure up to the benefit of using the roads; public perception is that the cost simply does not equal the benefit.
“Extra money will now have to be spent on e-toll which means families will have to forego other activities, savings and/or pleasures in order to fund another tax,” confirms Vermeulen. The effect of this is that the public is battling with managing the mental accounting herein.
“Mentally, we create different accounts for spending. We don’t mind spending R1500 on running shoes if we are avid sportsmen as we assign this to a different mental bank account, one that meets our needs for fun, enjoyment and fitness. However, e-toll fees will be allocated to the same mental account as tax, insurance, fuel, etc. and these mental accounts are all perceived negatively.”
SANRAL could have presented the e-toll system more favourably if more research had gone into the price sensitivity around the subject. With ever increasing fuel prices, road travel is already a sore topic for all road users. The solution to the presentation of the system to the public could have been two fold. Firstly, the initial cost could have been presented below the ‘pain threshold’, starting at 10c per kilometreinstead of at 80c. “This way the ‘loss’ is perceived as insignificant,” confirms Vermeulen.
Secondly, SANRAL could have built only a few gantries. “Although this would mean that the cost associated with a specific gantry may be a little higher, the cost is ‘once-off’ which means that the Behavioural Economics principle of Hedonic framing applies, making the perceived impact of the ‘loss’ considerably less.”
Unfortunately, this matter will not be resolved quickly. With both SANRAL and the organisations lobbying against the high toll prices falling victim to the Sunk Cost Fallacy, neither side is willing to back down to reach an amicable solution. “Both sides believe that because they have invested money, it is impossible to walk away now,” says Vermeulen.
As a result of SANRAL’s seeming disinterest in the difficulty that these toll prices will cause for South African citizens, the ‘remembering self’ principle has come into application. “Our memory of an experience rather than the experience itself shapes our decisions and our behaviour.
Even though we may be able to get to work faster in the future, the memories of SANRAL’s actions will overshadow the time-benefit provided by the ease of travel,” concludes Vermeulen. SANRAL’s failure to commiserate with the plight of the general South African public will leave a bitter taste for some time to come, resulting in a lasting negative perception of the agency.