Behavioral Economics: Are Nudges Cost-Effective?

Curated on Posted on by Stefaan Verhulst

Carla Fried at UCLA Anderson Review: “Behavioral science does not suffer from a lack of academic focus. A Google Scholar search for the term delivers more than three million results.

While there is an abundance of research into how human nature can muck up our decision making process and the potential for well-placed nudges to help guide us to better outcomes, the field has kept rather mum on a basic question: Are behavioral nudges cost-effective?

That’s an ever more salient question as the art of the nudge is increasingly being woven into public policy initiatives. In 2009, the Obama administration set up a nudge unit within the White House Office of Information and Technology, and a year later the U.K. government launched its own unit. Harvard’s Cass Sunstein, co-author of the book Nudge, headed the U.S. effort. His co-author, the University of Chicago’s Richard Thaler — who won the 2017 Nobel Prize in Economics — helped develop the U.K.’s Behavioral Insights office. Nudge units are now humming away in other countries, including Germany and Singapore, as well as at the World Bank, various United Nations agencies and the Organisation for Economic Co-operation and Development (OECD).

Given the interest in the potential for behavioral science to improve public policy outcomes, a team of nine experts, including UCLA Anderson’s Shlomo Benartzi, Sunstein and Thaler, set out to explore the cost-effectiveness of behavioral nudges relative to more traditional forms of government interventions.

In addition to conducting their own experiments, the researchers looked at published research that addressed four areas where public policy initiatives aim to move the needle to improve individuals’ choices: saving for retirement, applying to college, energy conservation and flu vaccinations.

For each topic, they culled studies that focused on both nudge approaches and more traditional mandates such as tax breaks, education and financial incentives, and calculated cost-benefit estimates for both types of studies. Research used in this study was published between 2000 and 2015. All cost estimates were inflation-adjusted…

The study itself should serve as a nudge for governments to consider adding nudging to their policy toolkits, as this approach consistently delivered a high return on investment, relative to traditional mandates and policies….(More)”.

Reapplying behavioral symmetry: public choice and choice architecture

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Michael David Thomas in Public Choice: “New justifications for government intervention based on behavioral psychology rely on a behavioral asymmetry between expert policymakers and market participants. Public choice theory applied the behavioral symmetry assumption to policy making in order to illustrate how special interests corrupt the suppositions of benevolence on the part of policy makers. Cognitive problems associated with market choices have been used to argue for even more intervention.

If behavioral symmetry is applied to the experts and not just to market participants, problems with this approach to public policy formation become clear. Manipulation, cognitive capture, and expert bias are among the problems associated with a behavioral theory of market failure. The application of behavioral symmetry to the expanding role of choice architecture will help to limit the bias in behavioral policy. Since experts are also subject to cognitive failures, policy must include an evaluation of expert error. Like the rent-seeking literature before it, a theory of cognitive capture points out the systematic problems with a theory of asymmetry between policy experts and citizens when it comes to policy making….(More)”.

How Incorporating Behavioral Science into Cash Transfer Programs Is Changing Lives

Curated on Posted on by Stefaan Verhulst

Josh Martin and Laura Rawlings at Next Billion: “…Today, a new generation of cash transfer programs – currently being piloted in several countries in Africa – uses behavioral insights to help beneficiaries decide how to spend their cash and follow through on those plans. But the circumstances under which they receive the funds—like how long they have to wait on payment day or how close the local market is to the payment site—impact whether they put that intention into action. Other often-overlooked program design factors, such as the frequency of payments or how the purpose of the cash is framed, can disproportionately affect how people spend (or save) their money. Insights from behavioral science show that people act in predictable ways—and we can use that knowledge to design cash transfer programs that support people’s goals and continue to set them up for success.

For example, in our work, we have found that the way payments are made often caters more to administrators’ convenience than beneficiaries’ needs. But some innovators are already changing the timing, location and frequency of payments to suit recipients. For instance, GiveDirectly, a nonprofit that provides unconditional cash transfers, is experimenting with allowing beneficiaries in Kenya to choose when they’d prefer their payments to occur. This is important because getting money at the wrong time can actually increase stress. When cash arrives infrequently, it forces recipients to stretch funds until the next payment. But if it is transferred too often, recipients must save slowly over time, pulling their attention away from other critical tasks. While it isn’t always possible to pay everyone according to their ideal schedule, even offering some payment flexibility may help recipients achieve their goals more quickly.

A simple prompt for beneficiaries to consider how they’d like to use their money right before receiving it can also support their financial goals. Other tactics include reminders to follow through on plans, systems to provide feedback to people on their savings progress, and wallets to help them physically separate (and thus mentally separate) what they want to spend routinely from what they want to set aside for the future. Many inexpensive options exist that are fairly easy to put in place.

To bring more of these solutions to cash transfer programs, ideas42 and the World Bank, with financial support from the Global Innovation Fund, are launching a new initiative, Behavioral Design for Cash Transfer Programs. Working with government partners to identify the best options for incorporating behavioral designs in cash transfer programs across several African nations is a critical next step in improving this anti-poverty tool. We can then work to make behavioral science an automatic part of any social protection program that features a cash transfer….(More)”.

Nudging the city and residents of Cape Town to save water

Curated on Posted on by Stefaan Verhulst

Leila Harris, Jiaying Zhao and Martine Visser in The Conversation: “Cape Town could become the world’s first major city to run out of water – what’s been termed Day Zero….To its credit, the city has worked with researchers at the University of Cape Town to test strategies to nudge domestic users into reducing their water use. Nudges are interventions to encourage behaviour change for better outcomes, or in this context, to achieve environmental or conservation goals.

What key insights could help inform the city’s strategies? Research from psychology and behavioural economics could prove useful to refine efforts and help to achieve further water savings.

The most effective tactics

Research suggests the following types of nudges could be effective in promoting conservation behaviours.

Social norms: International research, as well as studies conducted in Cape Town, suggest that effective conservation can be promoted by giving feedback to consumers on how they perform relative to their neighbours. To this end, Cape Town introduced a water map that highlights homes that are compliant with targets.

The city has also been bundling information on usage with easy to implement water saving tips, something that research has shown to be particularly effective.

Research also suggests that combining behavioural interventions with traditional measures – such as tariff increases and restrictions – are often effective to reduce use in the short-term.

Real-time feedback: Cape Town is presenting the daily water level in major dams on a dashboard. This approach is consistent with research that shows that real-time information can effectively reduce water and energy consumption.

Such efforts could even be more effective if information is highlighted in relation to the critical level that’s been set for Day Zero, in this case 13.5%.

In the early days of a drought, it is also advisable to make information like this readily accessible through news outlets, social media, or even text messages. The water tracker produced by eighty20, a private Cape Town-based company, provides an example.

Social recognition: There’s evidence that efforts to celebrate successes or encourage competition can be effective – for instance, recognising neighbourhoods for meeting conservation targets. Prizes needn’t be monetary. Sometimes simple recognition, such as a certificate, can be effective.

Social recognition was found to be the most successful intervention among nine others nudges tested in research conducted in Cape Town in 2016. In this experiment, households who reduced consumption by 10% were recognised on the city’s website.

Another study showed that competition between the various floors of a government building in the Western Cape led to energy savings of up to 14%.

Cooperation: In the months ahead, the city would also do well to consider the support it might offer to encourage cooperation, particularly as the situation becomes more acute and as tensions rise.

Past studies have shown that social reputation and efforts to promote reciprocity can go a long way to encourage cooperation. The point is argued in a recent article featuring the importance of cooperation among Capetonians across different income groups.

Some residents of Cape Town are already pushing for a cooperative approach such as helping neighbours who might have difficulty travelling to collection points. Support for these efforts should be an important part of policies in the run up to Day Zero. These are often the examples that provide bright spots in challenging times.

Research also suggests that to navigate moments of crisis effectively, clear and trustworthy communication is critical. This also needs to be a priority….(More)“.

The nation that thrived by ‘nudging’ its population

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Sarah Keating at the BBC: “Singapore has grown from almost nothing in 50 years. And this well-regarded society has been built up, partly, thanks to the power of suggestion….But while Singapore still loves a public campaign, it has moved toward a more nuanced approach of influencing the behaviours of its inhabitants.

Nudging the population isn’t uniquely Singaporean; more than 150 governments across the globe have tried nudging as a better choice. A medical centre in Qatar, for example, managed to increase the uptake of diabetes screening by offering to test people during Ramadan. People were fasting anyway so the hassle of having to not eat before your testing was removed. It was convenient and timely, two key components to a successful nudge.

Towns in Iceland, India and China have trialed ‘floating zebra crossings’ – 3D optical illusions which make the crossings look like they are floating above the ground designed to urge drivers to slow down. And in order to get people to pay their taxes in the UK, people were sent a letter saying that the majority of taxpayers pay their taxes on time which has had very positive results. Using social norms make people want to conform.

In Singapore some of the nudges you come across are remarkably simple. Rubbish bins are placed away from bus stops to separate smokers from other bus users. Utility bills display how your energy consumption compares to your neighbours. Outdoor gyms have been built near the entrances and exits of HDB estates so they are easy to use, available and prominent enough to consistently remind you. Train stations have green and red arrows on the platform indicating where you should stand so as to speed up the alighting process. If you opt to travel at off-peak times (before 0700), your fare is reduced.

And with six out of 10 Singaporeans eating at food courts four or more times a week, getting people to eat healthier is also a priority. As well as the Healthier Dining Programme, some places make it cheaper to take the healthy option. If you’re determined to eat that Fried Bee Hoon at Khoo Teck Puat Hospital, for example, you’re going to have to pay more for it.

The National Steps Challenge, which encourages participants to get exercising using free step counters in exchange for cash and prizes, has been so successful that the programme name has been trademarked. This form of gamifying is one of the more successful ways of engaging users in achieving objectives. Massive queues to collect the free fitness tracker demonstrated the programme’s popularity.

And it’s not just in tangible ways that nudges are being rolled out. Citizens pay into a mandatory savings programme called the Central Provident Fund at a high rate. This can be accessed for healthcare, housing and pensions as a way to get people to save long-term because evidence has shown that people are too short-sighted when it comes to financing their future

And as the government looks to increase the population 30% by 2030, the city-state’s ageing population and declining birth rate is a problem. The Baby Bonus Scheme goes some way to encouraging parents to have more children by offering cash incentives. Introduced in 2001, the scheme means that all Singapore citizens who have a baby get a cash gift as well as a money into a Child Development Account (CDA) which can be used to pay for childcare and healthcare. The more children you have, the more money you get – since March 2016 you get a cash gift of $8,000 SGD (£4,340) for your first child and up to $10,000 (£5,430) for the third and any subsequent children, as well as money into your CDA.

So do people like being nudged? Is there any cultural difference in the way people react to being swayed toward a ‘better’ choice or behaviour? Given the breadth of the international use of behavioural insights, there is relatively little research done into whether people are happy about it….(More)”.

Big data and food retail: Nudging out citizens by creating dependent consumers

Curated on Posted on by Stefaan Verhulst

Michael Carolan at GeoForum: “The paper takes a critical look at how food retail firms use big data, looking specifically at how these techniques and technologies govern our ability to imagine food worlds. It does this by drawing on two sets of data: (1) interviews with twenty-one individuals who oversaw the use of big data applications in a retail setting and (2) five consumer focus groups composed of individuals who regularly shopped at major food chains along Colorado’s Front Range.

For reasons described below, the “nudge” provides the conceptual entry point for this analysis, as these techniques are typically expressed through big data-driven nudges. The argument begins by describing the nudge concept and how it is used in the context of retail big data. This is followed by a discussion of methods.

The remainder of the paper discusses how big data are used to nudge consumers and the effects of these practices. This analysis is organized around three themes that emerged out of the qualitative data: path dependency, products; path dependency, retail; and path dependency, habitus. The paper concludes connecting these themes through the concept of governance, particularly by way of their ability to, in Foucault’s (2003: 241) words, have “the power to ‘make’ live and ‘let’ die” worlds….(More)”.

Behavioral Analysis of International Law: On Lawmaking and Nudging

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Article by Doron Teichman and Eyal Zamir: “… examines the application of insights from behavioral economics to the area of international law. It reviews the unique challenges facing such application and demonstrates the contribution of behavioral findings to the understanding of lawmaking, the use of nudges, and states’ practices in the international arena.

In the sphere of lawmaking, the article first highlights the contribution of experimental game theory to understanding international customary law. It then analyzes the psychological mechanisms underpinning the advancement of treaty law through the use of deadlines, grandfather provisions, deferred implementation, and temporary arrangements. More generally, it provides insight into the processes through which international soft law evolves into hard law.

The article then argues that in the absence of a central legislative body or strong enforcement mechanisms, nudges (that is, low-cost, choice-preserving, behaviorally informed regulatory tools) can play a particularly important role in influencing the behavior of states and other entities. The article describes the current use of nudges, such as opt-in and opt-out arrangements in multilateral treaties, goal settings, and international rankings—and calls for further employment of such means.

Finally, the article suggests that the extent to which states comply with international norms may be explained by phenomena such as loss aversion and the identifiability effect; and that further insight into states’ (non)compliance may be gained from the emerging research in behavioral ethics…(More)”

Nudge Units to Improve the Delivery of Health Care

Curated on Posted on by Stefaan Verhulst

Mitesh S. Patel et al in The New England Journal of Medicine: “The final common pathway for the application of nearly every advance in medicine is human behavior. No matter how effective a drug, how protective a vaccine, or how targeted a therapy may be, a clinician usually has to prescribe it, and a patient accept and use it as directed, for it to improve health. Clinicians’ and patients’ environments influence their decisions about taking these actions, and the seemingly subtle design of information and choices can have outsize effects on our behavior. When the “choice architecture” is designed to influence behavior in a predictable way but without restricting choice, it is often called a “nudge.”…

In 2016, we launched the Penn Medicine Nudge Unit to systematically develop and test approaches using nudges to improve health care delivery. The goals are to improve health care value and outcomes, advance knowledge about how to best implement nudges for impact, evaluate our efforts, and disseminate our findings. Ideas are generated by health system leadership, frontline clinicians and staff, and members of the unit itself. Our early successes and failures reveal some lessons about the role that nudge units can play in improving health care (see table).

First, these units can help health systems understand when it makes sense to use a nudge and when it doesn’t. Nudges can be designed to remind, guide, or motivate behavior. Promising opportunities are those in which suboptimal care can be addressed by targeting a specific decision that drives a less-than-optimal behavior. For example, when prescribing medications, physicians must decide between brand-name and generic formulations. Systems can set generics as the default choice, so that ordering them becomes the path of least resistance even as the ability to opt out and order a brand-name drug is preserved. When we implemented this change in our EHR, prescribing rates for generics increased from 75% to 98%. Clinical settings also play an important role. We found that reducing the default duration of opioid prescriptions may make sense for acute conditions often seen by clinicians in the emergency department but may be inappropriate for clinicians caring for patients with chronic pain.

Second, although nudges have typically been deployed for simple one-off decisions, we’ve found that they can also support more complex decision paths. For example, only 15% of our eligible patients were being referred for cardiac rehabilitation after myocardial infarction. When we asked the cardiologists why, we discovered that the process remained manual, so they had to take action to initiate the referrals — in other words, it was an opt-in system. The process was redesigned as an opt-out system in which referral for rehab was the default; patient identification was automated using the EHR; staff were notified using secure text messaging; and processes were restructured so that cardiologists signed orders in a template for referral on rounds and staff met with patients to set up rehab placement before discharge. The referral rate increased to more than 80%.

Third, stakeholder alignment is critical to nudges’ success. ….

Fourth, nudges can lead to unintended behavior that’s invisible without proper evaluation….(More)”.

 

‘Politics done like science’: Critical perspectives on psychological governance and the experimental state

Curated on Posted on by Stefaan Verhulst
Paper by Rhys Jones and Mark Whitehead There has been a growing academic recognition of the increasing significance of psychologically – and behaviourally – informed modes of governance in recent years in a variety of different states. We contend that this academic research has neglected one important theme, namely the growing use of experiments as a way of developing and testing novel policies. Drawing on extensive qualitative and documentary research, this paper develops critical perspectives on the impacts of the psychological sciences on public policy, and considers more broadly the changing experimental form of modern states. The tendency for emerging forms of experimental governance to be predicated on very narrow, socially disempowering, visions of experimental knowledge production is critiqued. We delineate how psychological governance and emerging forms of experimental subjectivity have the potential to enable more empowering and progressive state forms and subjectivities to emerge through more open and collective forms of experimentation…(More)”.

The Potential for Human-Computer Interaction and Behavioral Science

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Article by Kweku Opoku-Agyemang as  part of a special issue by Behavioral Scientist on “Connected State of Mind,” which explores the impact of tech use on our behavior and relationships (complete issue here):

A few days ago, one of my best friends texted me a joke. It was funny, so a few seconds later I replied with the “laughing-while-crying emoji.” A little yellow smiley face with tear drops perched on its eyes captured exactly what I wanted to convey to my friend. No words needed. If this exchange happened ten years ago, we would have emailed each other. Two decades ago, snail mail.

As more of our interactions and experiences are mediated by screens and technology, the way we relate to one another and our world is changing. Posting your favorite emoji may seem superficial, but such reflexes are becoming critical for understanding humanity in the 21st century.

Seemingly ubiquitous computer interfaces—on our phones and laptops, not to mention our cars, coffee makers, thermostats, and washing machines—are blurring the lines between our connected and our unconnected selves. And it’s these relationships, between users and their computers, which define the field of human–computer interaction (HCI). HCI is based on the following premise: The more we understand about human behavior, the better we can design computer interfaces that suit people’s needs.

For instance, HCI researchers are designing tactile emoticons embedded in the Braille system for individuals with visual impairments. They’re also creating smartphones that can almost read your mind—predicting when and where your finger is about to touch them next.

Understanding human behavior is essential for designing human-computer interfaces. But there’s more to it than that: Understanding how people interact with computer interfaces can help us understand human behavior in general.

One of the insights that propelled behavioral science into the DNA of so many disciplines was the idea that we are not fully rational: We procrastinate, forget, break our promises, and change our minds. What most behavioral scientists might not realize is that as they transcended rationality, rational models found a new home in artificial intelligence. Much of A.I. is based on the familiar rational theories that dominated the field of economics prior to the rise of behavioral economics. However, one way to better understand how to apply A.I. in high-stakes scenarios, like self-driving cars, may be to embrace ways of thinking that are less rational.

It’s time for information and computer science to join forces with behavioral science. The mere presence of a camera phone can alter our cognition even when switched off, so if we ignore HCI in behavioral research in a world of constant clicks, avatars, emojis, and now animojis we limit our understanding of human behavior.

Below I’ve outlined three very different cases that would benefit from HCI researchers and behavioral scientists working together: technology in the developing world, video games and the labor market, and online trolling and bullying….(More)”.