Demonetization: A masterstroke or backfired decision

Recently Indian government announced the demonetization of the Rs 500 – Rs 1000 note. The decision was announced by Indian Prime Minister Mr Narendra Modi through a special address to nation on 8^th Nov 2016. The reason was given by government is that this decision was taken to curb and destroy black money that is available with corrupt politicians, bureaucrats and business men and to destroy terror funding and to eliminate fake currencies exists in country. The decision was cheered by common people. All social media platforms like whatsapp, Facebook and twitter were stormed by messages related to demonetization. While honest people were celebrating, corrupt people who have black money were busy in hiding their black money. Government announced that people who have hard earned honest money in form of Rs 500 and Rs 1000 currency can go to bank after 2 days and get it exchanged with new notes.

 People of India celebrated it for two days and reached to bank on 11^th Nov to exchange the notes. Huge queue started to form in front of bank. Lines were so long that all people are not able to get cash from bank. ATMs all over to country started to dispense notes from 12^th Nov but they were also having long lines. People started to feel cash crunch. There was no enough cash available in the banks. Lines in front of bank and ATM started getting longer day by day and few people were able to get cash and that was too in form of Rs 2000 note which was again not able to utilize day to day use items like milk, vegetables etc. Despite of so many problems, common public of India were firmly standing with Prime Minister Modi and was supporting the decision. Situation started to get tough and media started to report lot of natural deaths occurred due to people standing in line and the corrupt people who lost money due to this move started to take benefit and started to spread the message that this decision was not carried out with proper planning and government must roll back the decisions. A section of politicians and media started to provoke the people who were standing in the line peacefully that due to government decision they are facing too many difficulties. IT Cell of both parties (Pro demonetization and anti-demonetization) took gear in hand on social media and social media was full of both types of messages.

Pro demonization team is presenting it as masterstroke by government and claiming that it will yield very fruitful result in future and presenting Prime Minister Modi as visionary leader who have guts to remove corruption from country on the other side anti demonetization team that mostly consist opposition political parties are presenting this decision as backfired decision. They are claiming that it will not help to curb corruption and it is only creating problems for common people. They believe that it will harm the current government and they will face huge damage in coming elections. Lot of articles published at various Medias for analyzing these issues and everyone presented their own point of views with facts and figure. In this article I will try to solve the same issues but with different approach. While most of the writers took economic models as the reference and presented their views, I will take neuroeconomics models and Neo Psychology to analyze mindset of common people and try to find out how they will perceive this decision of demonetization and whether they will support the government or penalize the government.

In the democracy, elections are the medium to express people opinion of government policies. Currently no elections are scheduled in this year. Nearest elections are scheduled in some states in March 2017 so the question is when people will go to cast their votes in March 2017 they will be positively influenced by this government decision or will be negatively influenced or will forget it completely

To understand the mindset of people we need to understand a very common term of psychology that is called Cognitive Dissonance.

Cognitive Dissonance simply means mental stress or discomfort due to deviation from existing situation, idea or belief. We human don’t like cognitive dissonance and always try to reduce it by avoiding idea or situation or by adopting it. The decision of demonetization put entire country in cognitive dissonance because everything was going on in routine was and suddenly that were forced to stand in bank ques. Though amount of dissonance was different on different people while media was evaluating entire India on similar value but effect of dissonance was different on different people. A person who is habitual of living luxurious life style will feel different dissonance by standing in bank line than a person who is habitual of hardships of life and here media made the mistake. They thought that rural people will be hardly effected by it but in different surveys it was found that despite of lot of hardship faced by rural people their dissonance was lower than anticipated value but despite of all these it can’t be denied that people are in cognitive dissonance. Theory of cognitive dissonance is founded on the assumption that individuals seek consistency between their expectations and their reality. Because of this, people engage in a process called "dissonance reduction" to bring their cognition and actions in line with one another. Psychologist Lion Festinger did lot of experiments and found out that dissonance may be due to three main reasons:

1.     Forced compliance behavior – when someone is forced to do publically that they don’t want to do then dissonance is created between their cognition (I don’t like to do it) and their behavior (I did it)

2.     Decision making – decisions always arouse dissonance

3.     Effort – when we made efforts for something and we didn’t get the result

Dissonance caused due to demonetization falls under the category of forced compliance behavior where people were forced to stand in long bank ques. Shopkeepers forced to do business digitally. Lot of daily wagers lost the job and forced to stay at home. So how do people react when they put in this situation and how their perception can be change? To understand this Festinger carried out a very interesting experiment that gives very interesting outcomes. Festinger and Carlsmith (1959) investigated if making people perform a dull task would create cognitive dissonance through forced compliance behavior.

In their laboratory experiment, they used 71 male students as participants to perform a series of dull tasks (such as turning pegs in a peg board for an hour). They were then paid either $1 or $20 to tell a waiting participant (a confederate) that the tasks were really interesting. Almost all of the participants agreed to walk into the waiting room and persuade the confederate that the boring experiment would be fun. When the participants were asked to evaluate the experiment, the participants who were paid only $1 rated the tedious task as more fun and enjoyable than the participants who were paid $20 to lie. Being paid only $1 is not sufficient incentive for lying and so those who were paid $1 experienced dissonance. They could only overcome that dissonance by coming to believe that the tasks really were interesting and enjoyable. Being paid $20 provides a reason for turning pegs and there is therefore no dissonance. Exactly same happened in India, despite of so much dissonance people are still trying to support government and it is due to they can only overcome dissonance by coming to believe that they are doing service to nation.

If government wants to reduce the dissonance of citizen than government should widely create a social propaganda that they are doing it for nation and in future they will get great results and government was very much successful in creating this perception. People might have chosen violence and vandalism to remove their dissonance but till now there is no such news that shows that people opted out other method to justify their belief and that was they convinced themselves that they are doing it service to nation and it’s for betterment of country.

Government’s entire focus should be on building the perception of positive self-esteem by the message of “service to nation” by using all platforms like electronic media and social media. As people opts this method to reduce their dissonance two psychological phenomena – choice support bias and confirmation bias come into play. Choice support bias is human tendency where we give more weightage to the attributes of option choose by us than the option rejected by us and confirmation bias is tendency to search, interpret, share the information in such a way that it supports their existing belief (I am doing service to nation). These two phenomena will further reinforce the new attitude of people after demonetization

How attitude will change with the time

To reduce the dissonance, initially people have opted out the belief that they are doing service to nation and it will bring better results in future but government should not take it casually since this behavior can change with the time. Belief can tackle the dissonance at certain level and if dissonance goes high then this belief can be changed and government should not forget that they are not working in ideal situation. There are opposition parties and a section of media who have been continuously trying to create the perception to present demonetization as fraud, unplanned and scam that will increase the dissonance level. To counter it government should work in both fronts.

1.     keep increasing the tolerance level of people by circulating the message about “service to nation”  

2.     Keep decreasing the dissonance level by distributing new cash through banks and ATMs. Open and promote cashless mediums for trading and daily purchases

Though despite of lot of efforts opposition parties are failed to create impact till now and the major reason is difference between approach of opposition parties and government. While government chose “Preaching approach” opposition parties choose “Fear approach”. Social psychological research has shown that fear does not always lead people toward rational behavior. it may instead trigger denial. Recent theories suggest that being confronted with the fact that you are not practicing what you (service to nation). Preach induces feelings of hypocrisy,(Army is serving the nation at border it’s our turn to serve the nation)  which is a form of cognitive dissonance. Cognitive dissonance has been shown to produce "self-persuasion," a powerful and relatively permanent form of persuasion. It is generally predicted that individuals will bias their attitudes on the experimental task in a positive direction so as to justify their action and same happened in the case of demonetization

What next after 31^st December

As far as the game of perception, government has won the first round of demonetization where they were successful to force people to buy its decision. Second phase of this move will start from next month since PM asked to give 50 days (till 31^st Dec) after that he promised to give the results. People are expecting that those people who looted them for 60 years will be caught and huge money will be recovered that will be used in various soap operas for poor and middle class people. Now it’s duty of government to give them the experience that was promised to them. This decision is masterstroke or backfire will entirely depend upon how government makes them feel after December and the success of entire mission depends upon it.

Opposition leader Mr Chidambaram said that people would never forget the pain that they felt in demonetization and would take the revenge in elections. I think Mr Chidambaram doesn’t know anything about human psychology. He must read the Fading Memory Affect and Recency bias. As par fading affect bias our brain forgets the memories related to pain more quickly than memories associated with pleasure and as per Recency bias we have tendency to recall last information in series very easily. So what matters is the final outcome of demonetization. That will be in the mind of a voter when they will go to cast their vote in 2019. So to make it masterstroke, government must work on following activities –

·        Widespread IT raids all over the India and news related to IT raids must be spread widely through all mediums. This type of news gives thrilling stimuli in the brain and remains in memory for long time.

·        Arrest of big fishes will reinforce the beliefs of people that move was with honest intentions. Let people sit in their rooms with cup of tea and take enjoy watching them going to Jail.

·        Government must use the black money collected through demonetization for the welfare of poor, middle class, nation building and army

If government is successful in managing all this then this demonetization will become masterstroke for government otherwise it will backfire and negatively affect the government.

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