Paper by Hunt Allcott, Daniel Cohen, William Morrison & Dmitry Taubinsky: “Policymakers are increasingly interested in non-standard policy instruments (NPIs), or “nudges,” such as simplified information disclosure and warning labels. We characterize the welfare effects of NPIs using public finance sufficient statistic approaches, allowing for endogenous prices, market power, and optimal or suboptimal taxes. While many empirical evaluations have focused on whether NPIs increase ostensibly beneficial behaviors on average, we show that this can be a poor guide to welfare. Welfare also depends on whether the NPI reduces the variance of distortions from heterogenous biases and externalities, and the average effect becomes irrelevant with zero pass-through or optimal taxes. We apply our framework to randomized experiments evaluating automotive fuel economy labels and sugary drink health labels. In both experiments, the labels increase ostensibly beneficial behaviors but also may decrease welfare in our model, because they increase the variance of distortions…(More)”.
Active Urbanism and choice architecture: Encouraging the use of challenging city routes for health and fitness
Paper by Anna Boldina, Paul H. P. Hanel & Koen Steemers: “Inactivity is one of the major health risks in technologically developed countries. This paper explores the potential of a series of urban landscape interventions to engage people in physical activity. Online surveys were conducted with 595 participants living in the UK by inviting them to choose between conventional pavement or challenging routes (steppingstones, balancing beams, and high steps) using photorealistic images. Across four experiments, we discovered that 80% of walkers claim they would pick a challenging route in at least one of the scenarios, depending on perceived level of difficulty and design characteristics. Where a challenging option was shorter than a conventional route, this increased the likelihood of being chosen by 10%, and the presence of handrails by 12%. This suggests that people can get nudged into physical activities through minor changes to the urban landscape. We discuss implications for policy makers and urban designers…(More)”.
Critical Ignoring as a Core Competence for Digital Citizens
Paper by Anastasia Kozyreva, et al: “Low-quality and misleading information online can hijack people’s attention, often by evoking curiosity, outrage, or anger. Resisting certain types of information and actors online requires people to adopt new mental habits that help them avoid being tempted by attention-grabbing and potentially harmful content. We argue that digital information literacy must include the competence of critical ignoring—choosing what to ignore and where to invest one’s limited attentional capacities. We review three types of cognitive strategies for implementing critical ignoring: self-nudging, in which one ignores temptations by removing them from one’s digital environments; lateral reading, in which one vets information by leaving the source and verifying its credibility elsewhere online; and the do-not-feed-the-trolls heuristic, which advises one to not reward malicious actors with attention. We argue that these strategies implementing critical ignoring should be part of school curricula on digital information literacy. Teaching the competence of critical ignoring requires a paradigm shift in educators’ thinking, from a sole focus on the power and promise of paying close attention to an additional emphasis on the power of ignoring. Encouraging students and other online users to embrace critical ignoring can empower them to shield themselves from the excesses, traps, and information disorders of today’s attention economy…(More)”.
Shared Models in Networks, Organizations, and Groups
Paper by Joshua Schwartzstein & Adi Sunderam: “To understand new information, we exchange models or interpretations with others. This paper provides a framework for thinking about such social exchanges of models. The key assumption is that people adopt the interpretation in their network that best explains the data, given their prior beliefs. An implication is that interpretations evolve within a network. For many network structures, social learning mutes reactions to data: the exchange of models leaves beliefs closer to priors than they were before. Our results shed light on why disagreements persist as new information arrives, as well as the goal and structure of meetings in organizations…(More)”.
Behavioral Economics and the Energy Crisis in Europe
Blog by Carlos Scartascini: “European nations, stunned by Russia’s aggression, have mostly rallied in support of Ukraine, sending weapons and welcoming millions of refugees. But European citizens are paying dearly for it. Apart from the costs in direct assistance, the energy conflict with Russia had sent prices of gas soaring to eight times their 10-year average by the end of September and helped push inflation to around 10%. With a partial embargo of Russian oil going into effect in December and cold weather coming, many Europeans now fear an icy, bitter and poorer winter of 2023.
European governments hope to take the edge off by enacting price regulations, providing energy subsidies for households, and crucially curbing energy demand. Germany’s government, for example, imposed limits on heating in public offices and buildings to 19 degrees Celsius (66.2 Fahrenheit). France has introduced a raft of voluntary measures ranging from asking public officials to travel by train rather than car, suggesting that municipalities swap old lamps for LEDs and designing incentives to get people to car share…
As we know from years of experiments at the IDB in using behavioral economics to achieve policy goals, however, rules and recommendations are not enough. Trust in fellow citizens and in the government are also crucial when calling for a shared sacrifice. That means not appealing to fear, which can lead to deeper divisions in society, energy hoarding, resignation and indifference. Rather, it means appealing to social norms of morality and community.
In using behavioral economics to boost tax compliance in Argentina, for example, we found that sending messages that revealed how fellow citizens were paying their taxes significantly improved tax collection. Revealing how the government was using tax funds to improve people’s lives provided an additional boost to the effort. Posters and television ads in Europe showing people wearing sweaters, turning down their thermostats, insulating their homes and putting up solar panels might similarly instill a sense of common purpose. And signals that governments are trying to relieve hardship might help instill in citizens the need for sacrifice…(More)”.
Simple Writing Pays Off (Literally)
Article by Bill Birchard: “When SEC Chairman Arthur Levitt championed “plain English” writing in the 1990s, he argued that simpler financial disclosures would help investors make more informed decisions. Since then, we’ve also learned that it can help companies make more money.
Researchers have confirmed that if you write simply and directly in disclosures like 10-Ks you can attract more investors, cut the cost of debt and equity, and even save money and time on audits.
A landmark experiment by Kristina Rennekamp, an accounting professor at Cornell, documented some of the consequences of poor corporate writing. Working with readers of corporate press releases, she showed that companies stand to lose readers owing to lousy “processing fluency” of their documents. “Processing fluency” is a measure of readability used by psychologists and neuroscientists.
Rennekamp asked people in an experiment to evaluate two versions of financial press releases. One was the actual release, from a soft drink company. The other was an edit using simple language advocated by the SEC’s Plain English Handbook. The handbook, essentially a guide to better fluency, contains principles that now serve as a standard by which researchers measure readability.
Published under Levitt, the handbook clarified the requirements of Rule 421, which, starting in 1998, required all prospectuses (and in 2008 all mutual fund summary prospectuses) to adhere to the handbook’s principles. Among them: Use short sentences. Stick to active voice. Seek concrete words. Shun boilerplate. Minimize jargon. And avoid multiple negatives.
Rennekamp’s experiment, using the so-called Fog Index, a measure of readability based on handbook standards, provided evidence that companies would do better at hooking readers if they simply made their writing easier to read. “Processing fluency from a more readable disclosure,” she wrote in 2012 after measuring the greater trust readers put in well-written releases, “acts as a heuristic cue and increases investors’ beliefs that they can rely on the information in the disclosure…(More)”.
Nudging the Nudger: A Field Experiment on the Effect of Performance Feedback to Service Agents on Increasing Organ Donor Registrations
Paper by Julian House, Nicola Lacetera, Mario Macis & Nina Mazar: “We conducted a randomized controlled trial involving nearly 700 customer-service representatives (CSRs) in a Canadian government service agency to study whether providing CSRs with performance feedback with or without peer comparison affected their subsequent organ donor registration rates. Despite having no tie to remuneration or promotion, the provision of individual performance feedback three times over one year resulted in a 25% increase in daily signups, compared to otherwise similar encouragement and reminders. Adding benchmark information that compared CSRs performance to average and top peer performance did not further enhance this effect. Registrations increased more among CSRs whose performance was already above average, and there was no negative effect on lower-performing CSRs. A post-intervention survey showed that CSRs found the information included in the treatments helpful and encouraging. However, performance feedback without benchmark information increased perceived pressure to perform…(More)”.
Inclusive Imaginaries: Catalysing Forward-looking Policy Making through Civic Imagination
UNDP Report: “Today’s complex challenges- including climate change, global health, and international security, among others – are pushing development actors to re-think and re-imagine traditional ways of working and decision-making. Transforming traditional approaches to navigating complexity would support what development thinker Sam Pitroda’s calls a ‘third vision’ demands a mindset rooted in creativity, innovation, and courage in order to one transcend national interests and takes into account global issues.
Inclusive Imaginaries is an approach that utilises collective reflection and imagination to engage with citizens, towards building more just, equitable and inclusive futures. It seeks to infuse imagination as a key process to support gathering of community perspectives rooted in lived experience and local culture, towards developing more contextual visions for policy and programme development…(More)”.
When do Reminders work?
Paper by Kai Barron, Mette Trier Damgaard and Christina Gravert: “An extensive literature shows that reminders can successfully change behavior. Yet, there exists substantial unexplained heterogeneity in their effectiveness, both: (i) across studies, and (ii) across individuals within a particular study. This paper investigates when and why reminders work. We develop a theoretical model that highlights three key mechanisms through which reminders may operate. To test the predictions of the model, we run a nationwide field experiment on medical adherence with over 4000 pregnant women in South Africa and document several key results. First, we find an extremely strong baseline demand for reminders. This demand increases after exposure to reminders, suggesting that individuals learn how valuable they are for freeing up memory resources. Second, stated adherence is increased by pure reminders and reminders containing a moral suasion component, but interestingly, reminders containing health information reduce adherence in our setting. Using a structural model, we show that heterogeneity in memory costs (or, equivalently, annoyance costs) is crucial for explaining the observed behavior…(More)”.
Realistic Reasons to be Bullish on Nudging
Essay by Ed Bradon: “Nudges are a valuable, modestly resourced and, as we shall see, dramatically underused way of improving people’s lives. Abandoning them now would be like discovering aspirin then immediately shutting down production because it doesn’t cure cancer.
Nudging’s value stems from its modest but unusual success in solving two hard problems. One is changing people’s behavior, in a sustainable way, in challenging contexts such as health, crime, and education, in the messiness of the real world. The second is getting stuff done in large organizations, particularly government. Most attempts at either one of these fail: over 80 percent of social projects and programs don’t work; big reform efforts are generally stymied, or backfire.
By contrast, nudges do get implemented—albeit with a lot of hard work behind the scenes—and when they are they tend to do some good. Looking at trials from two nudge units, Stefano DellaVigna and Elizabeth Linos find that a sample of low-cost, light-touch nudges do better than their control groups by 8 percent on average. In a landscape littered with failures and overclaiming, small robust improvements that affect thousands of people are worth having…
But might we still be overinvesting in nudges? Perhaps they have proven so popular that the best opportunities have been exhausted, making it time to redeploy resources elsewhere?
Unfortunately, the opposite is true: we haven’t picked even the lowest hanging fruit. A back-of-the-envelope calculation for central governments can illustrate this opportunity. A typical government might have 10 large departments of state (a department for education, for example), each with 10 directorates (such as the organization in charge of apprenticeships and technical education). And each of these could easily have 20 nudge-able systems (a system through which young people can sign up for apprenticeships, say). Each system can accommodate multiple nudges: you could try boosting sign-ups by pre-filling parts of the form, for example, while also reminding students at a timely moment. One government × ten departments × ten directorates × twenty systems × three nudges each gets us a total of 6,000 possible nudges….(More)”.