The Behavioral Economics Guide 2016

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Guide edited by Alain Samson: “Since the publication of last year’s edition of the Behavioral Economics (BE) Guide, behavioral science has continued to exert its influence in various domains of scholarship and practical applications. The Guide’s host, behavioraleconomics.com, has grown to become a popular online hub for behavioral science ideas and resources. Our domain’s new blog publishes articles from academics and practitioners alike, reflecting the wide range of areas in which BE ideas are generated and used. …

Past editions of the BE Guide focused on BE theory (2014) and behavioral science practice (2015). The aim of this year’s issue is to provide different perspectives on the field and novel applications. This editorial1 offers a selection of recent (often critical) thinking around behavioral economics research and applications. It is followed by Q&As with Richard Thaler and Varun Gauri. The subsequent section provides a range of absorbing contributions from authors who work in applied behavioral science. The final section includes a further expanded encyclopedia of BE (and related) concepts, a new listing of behavioral science events, more graduate programs, and a larger selection of journals, reflecting the growth of the field and our continued efforts to compile relevant information….(More)”

Nudging for Success

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Press Release: “A groundbreaking report published today by ideas42 reveals several innovations that college administrators and policymakers can leverage to significantly improve college graduation rates at a time where completion is more out of reach than ever for millions of students.

The student path through college to graduation day is strewn with subtle, often invisible barriers that, over time, hinder students’ progress and cause some of them to drop out entirely. In Nudging for Success: Using Behavioral Science to Improve the Postsecondary Student Journey, ideas42 focuses on simple, low-cost ways to combat these unintentional obstacles and support student persistence and success at every stage in the college experience, from pre-admission to post-graduation. Teams worked with students, faculty and administrators at colleges around the country.

Even for students whose tuition is covered by financial aid, whose academic preparation is exemplary, and who are able to commit themselves full-time to their education, the subtle logistical and psychological sticking points can have a huge impact on their ability to persist and fully reap the benefits of a higher education.

Less than 60% of full-time students graduate from four-year colleges within six years, and less than 30% graduate from community colleges within three years. There are a myriad of factors often cited as deterrents to finishing school, such as the cost of tuition or the need to juggle family and work obligations, but behavioral science and the results of this report demonstrate that lesser-known dynamics like self-perception are also at play.

From increasing financial aid filing to fostering positive friend groups and a sense of belonging on campus, the 16 behavioral solutions outlined in Nudging for Success represent the potential for significant impact on the student experience and persistence. At Arizona State University, sending behaviorally-designed email reminders to students and parents about the Free Application for Federal Student Aid (FAFSA) priority deadline increased submissions by 72% and led to an increase in grant awards. Freshman retention among low-income, first generation, under-represented or other students most at risk of dropping out increased by 10% at San Francisco State University with the use of a testimonial video, self-affirming exercises, and monthly messaging aimed at first-time students.

“This evidence demonstrates how behavioral science can be the key to uplifting millions of Americans through education,” said Alissa Fishbane, Managing Director at ideas42. “By approaching the completion crisis from the whole experience of students themselves, administrators and policymakers have the opportunity to reduce the number of students who start, but do not finish, college—students who take on the financial burden of tuition but miss out on the substantial benefits of earning a degree.”

The results of this work drive home the importance of examining the college experience from the student perspective and through the lens of human behavior. College administrators and policymakers can replicate these gains at institutions across the country to make it simpler for students to complete the degree they started in ways that are often easier and less expensive to implement than existing alternatives—paving the way to stronger economic futures for millions of Americans….(More)”

Using Behavioral Science to Combat Climate Change

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Cass R. Sunstein and Lucia A. Reisch in the Oxford Research Encyclopedia of Climate Science (Forthcoming): “Careful attention to choice architecture promises to open up new possibilities for reducing greenhouse gas emissions – possibilities that go well beyond, and that may supplement or complement, the standard tools of economic incentives, mandates, and bans. How, for example, do consumers choose between climate-friendly products or services and alternatives that are potentially damaging to the climate but less expensive? The answer may well depend on the default rule. Indeed, climate-friendly default rules may well be a more effective tool for altering outcomes than large economic incentives. The underlying reasons include the power of suggestion; inertia and procrastination; and loss aversion. If well-chosen, climate-friendly defaults are likely to have large effects in reducing the economic and environmental harms associated with various products and activities. In deciding whether to establish climate-friendly defaults, choice architects (subject to legal constraints) should consider both consumer welfare and a wide range of other costs and benefits. Sometimes that assessment will argue strongly in favor of climate-friendly defaults, particularly when both economic and environmental considerations point in their direction. Notably, surveys in the United States and Europe show that majorities in many nations are in favor of climate-friendly defaults….(More)”

Do Open Comment Processes Increase Regulatory Compliance? Evidence from a Public Goods Experiment

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Stephen N. Morgan, Nicole M. Mason and Robert S. Shupp at EconPapers: “Agri-environmental programs often incorporate stakeholder participation elements in an effort to increase community ownership of policies designed to protect environmental resources (Hajer 1995; Fischer 2000). Participation – acting through increased levels of ownership – is then expected to increase individual rates of compliance with regulatory policies. Utilizing a novel lab experiment, this research leverages a public goods contribution game to test the effects of a specific type of stakeholder participation scheme on individual compliance outcomes. We find significant evidence that the implemented type of non-voting participation mechanism reduces the probability that an individual will engage in noncompliant behavior and reduces the level of noncompliance. At the same time, exposure to the open comment treatment also increases individual contributions to a public good. Additionally, we find evidence that exposure to participation schemes results in a faster decay in individual compliance over time suggesting that the impacts of this type of participation mechanism may be transitory….(More)”

Nudge 2.0: A broader toolkit for lasting behavior change

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Cait Lamberton and Benjamin Castleman in the Huffington Post: “Nudges are all around us. Chances are that someone has nudged you today—even if you didn’t realize it. Maybe it was your doctor’s office, sending you a text message about an upcoming appointment. Or maybe it was an airline website, urging you to make a reservation because “only three tickets are left at this price.” In fact, the private sector has been nudging us in one way or another for at least 75 years, since the heyday of the Madison Avenue Ad Men.

It’s taken a few generations, but the public sector is starting to catch on. In policy domains ranging from consumer finance and public health to retirement planning and education, researchers are applying behavioral science insights to help people make more informed decisions that lead to better long-term outcomes.

Sometimes these nudges take the form of changing the rules that determine whether someone participates in a program or not (like switching the default so people are automatically enrolled in a retirement savings plan unless they opt out, rather than only enrolling people who actively sign up for the program). But oftentimes, nudges can be as simple as sending people simplified information about opportunities that are available to them, or reminders about important tasks they have to complete in order to participate in beneficial programs.

A growing body of research demonstrates that nudges like these, despite being low touch and costing very little, can lead to substantial improvements in educational outcomes, whether it’s parents reading more to their children, middle school students completing more class assignments, or college students successfully persisting in college….

As impressive as these results have been, many of the early nudge studies in education have focused on fairly low-hanging fruit. We’re often helping people follow through on an intention they already have, or informing them about opportunities or resources that they didn’t know or were confused about. What’s less clear, however, is how well these strategies can support sustained behavior change, like going to school every day or avoiding substance abuse….

But what if we want to change someone’s direction? In real-world terms, what if a student is struggling in school but isn’t even considering looking for help? What if their lives are too busy for them to search for or meet with a tutor on a consistent basis? What if they have a nagging feeling that they’re just not the kind of person who succeeds in school, so they don’t see the point in even trying?

For these types of behavior change, we need an expanded nudge toolkit—what we’ll call Nudge 2.0. These strategies go beyond information simplification, reminders, and professional assistance, and address the decision-making person more holistically- people’s identity, their psychology, their emotions, and the competing forces that vie for their attention….(More)”

Nudging – Possibilities, Limitations and Applications in European Law and Economics

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Book edited by Mathis, Klaus and Tor, Avishalom: “This anthology provides an in-depth analysis and discusses the issues surrounding nudging and its use in legislation, regulation, and policy making more generally. The 17 essays in this anthology provide startling insights into the multifaceted debate surrounding the use of nudges in European Law and Economics.

Nudging is a tool aimed at altering people’s behaviour in a predictable way without forbidding any option or significantly changing economic incentives. It can be used to help people make better decisions to influence human behaviour without forcing them because they can opt out. Its use has sparked lively debates in academia as well as in the public sphere. This book explores who decides which behaviour is desired. It looks at whether or not the state has sufficient information for debiasing, and if there are clear-cut boundaries between paternalism, manipulation and indoctrination. The first part of this anthology discusses the foundations of nudging theory and the problems associated, as well as outlining possible solutions to the problems raised. The second part is devoted to the wide scope of applications of nudges from contract law, tax law and health claim regulations, among others.

This volume is a result of the flourishing annual Law and Economics Conference held at the law faculty of the University of Lucerne. The conferences have been instrumental in establishing a strong and ever-growing Law and Economics movement in Europe, providing unique insights in the challenges faced by Law and Economics when applied in European legal traditions….(More)”

Could a tweet or a text increase college enrollment or student achievement?

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 at the Conversation: “Can a few text messages, a timely email or a letter increase college enrollment and student achievement? Such “nudges,” designed carefully using behavioral economics, can be effective.

But when do they work – and when not?

Barriers to success

Consider students who have just graduated high school intending to enroll in college. Even among those who have been accepted to college, 15 percent of low-income students do not enroll by the next fall. For the large share who intend to enroll in community colleges, this number can be as high as 40 percent….

Can a few text messages or a timely email overcome these barriers? My research uses behavioral economics to design low-cost, scalable interventions aimed at improving education outcomes. Behavioral economics suggests several important features to make a nudge effective: simplify complex information, make tasks easier to complete and ensure that support is timely.

So, what makes for an effective nudge?

Improving college enrollment

In 2012, researchers Ben Castleman and Lindsay Page sent 10 text messages to nearly 2,000 college-intending students the summer after high school graduation. These messages provided just-in-time reminders on key financial aid, housing and enrollment deadlines from early July to mid August.

Instead of set meetings with counselors, students could reply to messages and receive on-demand support from college guidance counselors to complete key tasks.

In another intervention – the Expanding College Opportunities Project (ECO) – researchers Caroline Hoxby and Sarah Turner worked to help high-achieving, low-income students enroll in colleges on par with their achievement. The intervention arrived to students as a packet in the mail.

The mailer simplified information by providing a list of colleges tailored to each student’s location along with information about net costs, graduation rates, and application deadlines. Moreover, the mailer included easy-to-claim application fee waivers. All these features reduced both the complexity and cost in applying to a wider range of colleges.

In both cases, researchers found that it significantly improved college outcomes. College enrollment went up by 15 percent in the intervention designed to reduce summer melt for community college students. The ECO project increased the likelihood of admission to a selective college by 78 percent.

…

When there is no impact

While these interventions are promising, there are important caveats.

For instance, our preliminary findings from ongoing research show that information alone may not be enough. We sent emails and letters to more than one hundred thousand college applicants about financial aid and education-related tax benefits. However, we didn’t provide any additional support to help families through the process of claiming these benefits.

In other words, we didn’t provide any support to complete the tasks – no fee waivers, no connection to guidance counselors – just the email and the letter. Without this support to answer questions or help families complete forms to claim the benefits, we found no impact, even when students opened the emails.

More generally, “nudges” often lead to modest impacts and should be considered only a part of the solution. But there’s a dearth of low-cost, scalable interventions in education, and behavioral economics can help.

Identifying the crucial decision points – when applications are due, forms need to be filled out or school choices are made – and supplying the just-in-time support to families is key….(More).”

Society’s biggest problems need more than a nudge

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 at the Conversation: “So-called “nudge units” are popping up in governments all around the world.

The best-known examples include the U.K.’s Behavioural Insights Team, created in 2010, and the White House-based Social and Behavioral Sciences Team, introduced by the Obama administration in 2014. Their mission is to leverage findings from behavioral science so that people’s decisions can be nudged in the direction of their best intentions without curtailing their ability to make choices that don’t align with their priorities.

Overall, these – and other – governments have made important strides when it comes to using behavioral science to nudge their constituents into better choices.

Yet, the same governments have done little to improve their own decision-making processes. Consider big missteps like the Flint water crisis. How could officials in Michigan decide to place an essential service – safe water – and almost 100,000 people at risk in order to save US$100 per day for three months? No defensible decision-making process should have allowed this call to be made.

When it comes to many of the big decisions faced by governments – and the private sector – behavioral science has more to offer than simple nudges.

Behavioral scientists who study decision-making processes could also help policy-makers understand why things went wrong in Flint, and how to get their arms around a wide array of society’s biggest problems – from energy transitions to how to best approach the refugee crisis in Syria.

When nudges are enough

The idea of nudging people in the direction of decisions that are in their own best interest has been around for a while. But it was popularized in 2008 with the publication of the bestseller “Nudge“ by Richard Thaler of the University of Chicago and Cass Sunstein of Harvard.

A common nudge goes something like this: if we want to eat better but are having a hard time doing it, choice architects can reengineer the environment in which we make our food choices so that healthier options are intuitively easier to select, without making it unrealistically difficult to eat junk food if that’s what we’d rather do. So, for example, we can shelve healthy foods at eye level in supermarkets, with less-healthy options relegated to the shelves nearer to the floor….

Sometimes a nudge isn’t enough

Nudges work for a wide array of choices, from ones we face every day to those that we face infrequently. Likewise, nudges are particularly well-suited to decisions that are complex with lots of different alternatives to choose from. And, they are advocated in situations where the outcomes of our decisions are delayed far enough into the future that they feel uncertain or abstract. This describes many of the big decisions policy-makers face, so it makes sense to think the solution must be more nudge units.

But herein lies the rub. For every context where a nudge seems like a realistic option, there’s at least another context where the application of passive decision support would be either be impossible – or, worse, a mistake.

Take, for example, the question of energy transitions. These transitions are often characterized by the move from infrastructure based on fossil fuels to renewables to address all manner of risks, including those from climate change. These are decisions that society makes infrequently. They are complex. And, the outcomes – which are based on our ability to meet conflicting economic, social and environmental objectives – will be delayed.

But, absent regulation that would place severe restrictions on the kinds of options we could choose from – and which, incidentally, would violate the freedom-of-choice tenet of choice architecture – there’s no way to put renewable infrastructure options at proverbial eye level for state or federal decision-makers, or their stakeholders.

Simply put, a nudge for a decision like this would be impossible. In these cases, decisions have to be made the old-fashioned way: with a heavy lift instead of a nudge.

Complex policy decisions like this require what we call active decision support….(More)”

Insights On Collective Problem-Solving: Complexity, Categorization And Lessons From Academia

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Part 3 of an interview series by Henry Farrell for the MacArthur Research Network on Opening Governance: “…Complexity theorists have devoted enormous energy and attention to thinking about how complex problems, in which different factors interact in ways that are hard to predict, can best be solved. One key challenge is categorizing problems, so as to understand which approaches are best suited to addressing them.

Scott Page is the Leonid Hurwicz Collegiate Professor of Complex Systems at the University of Michigan, Ann Arbor, and one of the world’s foremost experts on diversity and problem-solving. I asked him a series of questions about how we might use insights from academic research to think better about how problem solving works.

Henry: One of the key issues of collective problem-solving is what you call the ‘problem of problems’ – the question of identifying which problems we need to solve. This is often politically controversial – e.g., it may be hard to get agreement that global warming, or inequality, or long prison sentences are a problem. How do we best go about identifying problems, given that people may disagree?

Scott: In a recent big think paper on the potential of diversity for collective problem solving in Scientific American, Katherine Phillips writes that group members must feel validated, that they must share a commitment to the group, and they must have a common goal if they are going to contribute. This implies that you won’t succeed in getting people to collaborate by setting an agenda from on high and then seeking to attract diverse people to further that agenda.

One way of starting to tackle the problem of problems is to steal a rule of thumb from Getting to Yes, by getting to think people about their broad interests rather than the position that they’re starting from. People often agree on their fundamental desires but disagree on how they can be achieved. For example, nearly everyone wants less crime, but they may disagree over whether they think the solution to crime involves tackling poverty or imposing longer prison sentences. If you can get them to focus on their common interest in solving crime rather than their disagreements, you’re more likely to get them to collaborate usefully.

Segregation amplifies the problem of problems. We live in towns and neighborhoods segregated by race, income, ideology, and human capital. Democrats live near Democrats and Republicans near Republicans. Consensus requires integration. We must work across ideologies. Relatedly, opportunity requires more than access. Many people grow up not knowing any engineers, dentists, doctors, lawyers, and statisticians. This isolation narrows the set of careers they consider and it reduces the diversity of many professions. We cannot imagine lives we do not know.

Henry: Once you get past the problem of problems, you still need to identify which kind of problem you are dealing with. You identify three standard types of problems: solution problems, selection problems and optimization problems. What – very briefly – are the key differences between these kinds of problems?

Scott: I’m constantly pondering the potential set of categories in which collective intelligence can emerge. I’m teaching a course on collective intelligence this semester and the undergraduates and I developed an acronym SCARCE PIGS to describe the different types of domains. Here’s the brief summary:

  • Predict: when individuals combine information, models, or measurements to estimate a future event, guess an answer, or classify an event. Examples might involve betting markets, or combined efforts to guess a quantity, such as Francis Galton’s example of people at a fair trying to guess the weight of a steer.
  • Identify: when individuals have local, partial, or possibly erroneous knowledge and collectively can find an object. Here, an example is DARPA’s Red Balloon project.
  • Solve: when individuals apply and possibly combine higher order cognitive processes and analytic tools for the purpose of finding or improving a solution to a task. Innocentive and similar organizations provide examples of this.
  • Generate: when individuals apply diverse representations, heuristics, and knowledge to produce something new. An everyday example is creating a new building.
  • Coordinate: when individuals adopt similar actions, behaviors, beliefs, or mental frameworks by learning through local interactions. Ordinary social conventions such as people greeting each other are good examples.
  • Cooperate: when individuals take actions, not necessarily in their self interest, that collectively produce a desirable outcome. Here, think of managing common pool resources (e.g. fishing boats not overfishing an area that they collectively control).
  • Arrange: when individuals manipulate items in a physical or virtual environment for their own purposes resulting in an organization of that environment. As an example, imagine a student co-op which keeps twenty types of hot sauce in its pantry. If each student puts whichever hot sauce she uses in the front of the pantry, then on average, the hot sauces will be arranged according to popularity, with the most favored hot sauces in the front and the least favored lost in the back.
  • Respond: when individuals react to external or internal stimuli creating collective responses that maintains system level functioning. For example, when yellow jackets attack a predator to maintain the colony, they are displaying this kind of problem solving.
  • Emerge: when individual parts create a whole that has categorically distinct and new functionalities. The most obvious example of this is the human brain….(More)”

Is behavioural economics ready to save the world?

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Book review by Trenton G Smith of Behavioral Economics and Public Health : “Modern medicine has long doled out helpful advice to ailing patients about not only drug treatments, but also diet, exercise, alcohol abuse, and many other lifestyle decisions. And for just as long, patients have been failing to follow doctors’ orders. Many of today’s most pressing public health problems would disappear if people would just make better choices.

Enter behavioural economics. A fairly recent offshoot of the dismal science, behavioural economics aims to take the coldly rational decision makers who normally populate economic theories, and instil in them a host of human foibles. Neoclassical (ie, conventional) economics, after all is the study of optimising behaviour in the presence of material constraints—why not add constraints on cognitive capacity, or self-control, or susceptibility to the formation of bad habits? The hope is that by incorporating insights from other behavioural sciences (most notably cognitive psychology and neuroscience) while retaining the methodological rigour of neoclassical economics, behavioural economics will yield a more richly descriptive theory of human behaviour, and generate new and important insights to better inform public policy.

Policy makers have taken notice. In an era in which free-market rhetoric dominates the political landscape, the idea that small changes to public health policies might serve to nudge consumers towards healthier behaviours holds great appeal. Even though some (irrational) consumers might be better off, the argument goes, if certain unhealthy food products were banned (or worse, taxed), this approach would infringe on the rights of the many consumers who want to indulge occasionally, and fully understand the consequences. If governments could instead use evidence from consumer science to make food labels more effective, or to improve the way that healthy foods are presented in school cafeterias, more politically unpalatable interventions in the marketplace might not be needed. This idea, dubbed “libertarian paternalism” by Richard Thaler and Cass Sunstein, has been pursued with gusto in both the UK (David Cameron’s Government formed the Behavioural Insights Team—unofficially described as the Nudge Unit) and the USA (where Sunstein spent time in the Obama administration’s Office of Information and Regulatory Affairs).

Whatever public health practitioners might think about these developments—or indeed, of economics as a discipline—this turn of events has rather suddenly given scholars at the cutting edge of consumer science an influential voice in the regulatory process, and some of the best and brightest have stepped up to contribute. Behavioral Economics & Public Health (edited by Christina Roberto and Ichiro Kawachi) is the product of a 2014 Harvard University exploratory workshop on applying social science insights to public health. As might be expected in a volume that aims to bring together two such inherently multidisciplinary fields, the book’s 11 chapters offer an eclectic mix of perspectives. The editors begin with an excellent overview of the field of behavioural economics and its applications to public health, and an economic perspective can also be found in four of the other chapters: Justin White and William Dow write about intertemporal choice, Kristina Lewis and Jason Block review the use of incentives to promote health, Michael Sanders and Michael Hallsworth describe their experience working within the UK’s Behavioural Insights Team, and Frederick Zimmerman concludes with a thoughtful critique of the field of behavioural economics. The other contributions are largely from the perspectives of psychology and marketing: Dennis Runger and Wendy Wood discuss habit formation, Rebecca Ferrer and colleagues emphasise the importance of emotion in decision making, Brent McFerran discusses social norms in the context of obesity, Jason Riis and Rebecca Ratner explain why some public health communication strategies are more effective than others, and Zoe Chance and colleagues and Brian Wansink offer frameworks for designing environments (eg, in schools and workplaces) that are conducive to healthy choices.

This collection of essays holds many hidden gems, but the one that surprised me the most was the attention given (by Runger and Wood briefly, and Zimmerman extensively) to a dirty little secret that behavioural economists rarely mention: once it is acknowledged that sometimes-irrational consumers can be manipulated into making healthy choices, it does not require much of a leap to conclude that business interests can—and do—use the same methods to push back in the other direction. This conclusion leads Zimmerman to a discussion of power in the marketplace and in our collective political economy, and to a call to action on these larger structural issues in society that neoclassical theory has long neglected….(More; Book)