INSTITUTIONAL INNOVATION

Selected Readings on Behavioral Economics: Nudges

Curated on February 10, 2014December 13, 2018 by Andrew Young

The Living Library’s Selected Readings series seeks to build a knowledge base on innovative approaches for improving the effectiveness and legitimacy of governance. This curated and annotated collection of recommended works on the topic of behavioral economics was originally published in 2014.

The 2008 publication of Richard Thaler and Cass Sunstein’s Nudge ushered in a new era of behavioral economics, and since then, policy makers in the United States and elsewhere have been applying behavioral economics to the field of public policy. Like Smart Disclosure, behavioral economics can be used in the public sector to improve the decisionmaking ability of citizens without relying on regulatory interventions. In the six years since Nudge was published, the United Kingdom has created the Behavioural Insights Team (also known as the Nudge Unit), a cross-ministerial organization that uses behavioral economics to inform public policy, and the White House has recently followed suit by convening a team of behavioral economists to create a behavioral insights-driven team in the United States. Policymakers have been using behavioral insights to design more effective interventions in the fields of long term unemployment; roadway safety; enrollment in retirement plans; and increasing enrollment in organ donation registries, to name some noteworthy examples. The literature of this nascent field provides a look at the growing optimism in the potential of applying behavioral insights in the public sector to improve people’s lives.

Selected Reading List (in alphabetical order)

John Beshears, James Choi, David Laibson and Brigitte C. Madrian – The Importance of Default Options for Retirement Savings Outcomes: Evidence from the United States – a paper examining the role default options play in encouraging intelligent retirement savings decisionmaking.
Cabinet Office and Behavioural Insights Team, United Kingdom – Applying Behavioural Insights to Health – a paper outlining some examples of behavioral economics being applied to the healthcare landscape using cost-efficient interventions.
Matthew Darling, Saugato Datta and Sendhil Mullainathan – The Nature of the BEast: What Behavioral Economics Is Not – a paper discussing why control and behavioral economics are not as closely aligned as some think, reiterating the fact that the field is politically agnostic.
Antoinette Schoar and Saugato Datta – The Power of Heuristics – a paper exploring the concept of “heuristics,” or rules of thumb, which can provide helpful guidelines for pushing people toward making “reasonably good” decisions without a full understanding of the complexity of a situation.
Richard H. Thaler and Cass R. Sunstein – Nudge: Improving Decisions About Health, Wealth, and Happiness – an influential book describing the many ways in which the principles of behavioral economics can be and have been used to influence choices and behavior through the development of new “choice architectures.”
U.K. Parliament Science and Technology Committee – Behaviour Change – an exploration of the government’s attempts to influence the behaviour of its citizens through nudges, with a focus on comparing the effectiveness of nudges to that of regulatory interventions.

Annotated Selected Reading List (in alphabetical order)

Beshears, John, James Choi, David Laibson and Brigitte C. Madrian. “The Importance of Default Options for Retirement Savings Outcomes: Evidence from the United States.” In Jeffrey R. Brown, Jeffrey B. Liebman and David A. Wise, editors, Social Security Policy in a Changing Environment, Cambridge: National Bureau of Economic Research, 2009. http://bit.ly/LFmC5s.

This paper examines the role default options play in pushing people toward making intelligent decisions regarding long-term savings and retirement planning.

Importantly, the authors provide evidence that a strategically oriented default setting from the outset is likely not enough to fully nudge people toward the best possible decisions in retirement savings. They find that the default settings in every major dimension of the savings process (from deciding whether to participate in a 401(k) to how to withdraw money at retirement) have real and distinct effects on behavior.

Cabinet Office and Behavioural Insights Team, United Kingdom. “Applying Behavioural Insights to Health.” December 2010. http://bit.ly/1eFP16J.

In this report, the United Kingdom’s Behavioural Insights Team does not attempt to “suggest that behaviour change techniques are the silver bullet that can solve every problem.” Rather, they explore a variety of examples where local authorities, charities, government and the private-sector are using behavioural interventions to encourage healthier behaviors.

The report features case studies regarding behavioral insights ability to affect the following public health issues:
- Smoking
- Organ donation
- Teenage pregnancy
- Alcohol
- Diet and weight
- Diabetes
- Food hygiene
- Physical activity
- Social care

The report concludes with a call for more experimentation and knowledge gathering to determine when, where and how behavioural interventions can be most effective in helping the public become healthier.

Darling, Matthew, Saugato Datta and Sendhil Mullainathan. “The Nature of the BEast: What Behavioral Economics Is Not.” The Center for Global Development. October 2013. https://bit.ly/2QytRmf.

In this paper, Darling, Datta and Mullainathan outline the three most pervasive myths that abound within the literature about behavioral economics:
- First, they dispel the relationship between control and behavioral economics. Although tools used within behavioral economics can convince people to make certain choices, the goal is to nudge people to make the choices they want to make. For example, studies find that when retirement savings plans change the default to opt-in rather than opt-out, more workers set up 401K plans. This is an example of a nudge that guides people to make a choice that they already intend to make.
- Second, they reiterate that the field is politically agnostic. Both liberals and conservatives have adopted behavioral economics and its approach is neither liberal nor conservative. President Obama embraces behavioral economics but the United Kingdom’s conservative party does, too.
- And thirdly, the article highlights that irrationality actually has little to do with behavioral economics. Context is an important consideration when one considers what behavior is rational and what behavior is not. Rather than use the term “irrational” to describe human beings, the authors assert that humans are “infinitely complex” and behavior that is often considered irrational is entirely situational.

Schoar, Antoinette and Saugato Datta. “The Power of Heuristics.” Ideas42. January 2014. https://bit.ly/2UDC5YK.

This paper explores the notion that being presented with a bevy of options can be desirable in many situations, but when making an intelligent decision requires a high-level understanding of the nuances of vastly different financial aid packages, for example, options can overwhelm. Heuristics (rules of thumb) provide helpful guidelines that “enable people to make ‘reasonably good’ decisions without needing to understand all the complex nuances of the situation.”

The underlying goal heuristics in the policy space involves giving people the type of “rules of thumb” that enable make good decisionmaking regarding complex topics such as finance, healthcare and education. The authors point to the benefit of asking individuals to remember smaller pieces of knowledge by referencing a series of studies conducted by psychologists Beatty and Kahneman that showed people were better able to remember long strings of numbers when they were broken into smaller segments.

Schoar and Datta recommend these four rules when implementing heuristics:
- Use heuristics where possible, particularly in complex situation;
- Leverage new technology (such as text messages and Internet-based tools) to implement heuristics.
- Determine where heuristics can be used in adult training programs and replace in-depth training programs with heuristics where possible; and
- Consider how to apply heuristics in situations where the exception is the rule. The authors point to the example of savings and credit card debt. In most instances, saving a portion of one’s income is a good rule of thumb. However, when one has high credit card debt, paying off debt could be preferable to building one’s savings.

Thaler, Richard H. and Cass R. Sunstein. Nudge: Improving Decisions About Health, Wealth, and Happiness. Yale University Press, 2008. https://bit.ly/2kNXroe.

This book, likely the single piece of scholarship most responsible for bringing the concept of nudges into the public consciousness, explores how a strategic “choice architecture” can help people make the best decisions.

Thaler and Sunstein, while advocating for the wider and more targeted use of nudges to help improve people’s lives without resorting to overly paternal regulation, look to five common nudges for lessons and inspiration:
- The design of menus gets you to eat (and spend) more;
- “Flies” in urinals improve, well, aim;
- Credit card minimum payments affect repayment schedules;
- Automatic savings programs increase savings rate; and
- “Defaults” can improve rates of organ donation.

In the simplest terms, the authors propose the wider deployment of choice architectures that follow “the golden rule of libertarian paternalism: offer nudges that are most likely to help and least likely to inflict harm.”

U.K. Parliament Science and Technology Committee. “Behaviour Change.” July 2011. http://bit.ly/1cbYv5j.

This report from the U.K.’s Science and Technology Committee explores the government’s attempts to influence the behavior of its citizens through nudges, with a focus on comparing the effectiveness of nudges to that of regulatory interventions.

The author’s central conclusion is that, “non-regulatory measures used in isolation, including ‘nudges,’ are less likely to be effective. Effective policies often use a range of interventions.”

The report’s other major findings and recommendations are:
- Government must invest in gathering more evidence about what measures work to influence population behaviour change;
- They should appoint an independent Chief Social Scientist to provide them with robust and independent scientific advice;
- The Government should take steps to implement a traffic light system of nutritional labelling on all food packaging; and
- Current voluntary agreements with businesses in relation to public health have major failings. They are not a proportionate response to the scale of the problem of obesity and do not reflect the evidence about what will work to reduce obesity. If effective agreements cannot be reached, or if they show minimal benefit, the Government should pursue regulation.”

Citizen Engagement: 3 Cities And Their Civic Tech Tools

Curated on February 8, 2014August 3, 2018 by Stefaan Verhulst

Melissa Jun Rowley at the Toolbox: “Though democratic governments are of the people, by the people, and for the people, it often seems that our only input is electing officials who pass laws on our behalf. After all, I don’t know many people who attend town hall meetings these days. But the evolution of technology has given citizens a new way to participate. Governments are using technology to include as many voices from their communities as possible in civic decisions and activities. Here are three examples.
Raleigh, NC
Raleigh North Carolina’s open government initiative is a great example of passive citizen engagement. By following an open source strategy, Open Raleigh has made city data available to the public. Citizens then use the data in a myriad of ways, from simply visualizing daily crime in their city, to creating an app that lets users navigate and interactively utilize the city’s greenway system.
Fort Smith, AR
Using MindMixer, Fort Smith Arkansas has created an online forum for residents to discuss the city’s comprehensive plan, effectively putting the community’s future in the hands of the community itself. Citizens are invited to share their own ideas, vote on ideas submitted by others, and engage with city officials that are “listening” to the conversation on the site.
Seattle, WA
Being a tech town, it’s no surprise that Seattle is using social media as a citizen engagement tool. The Seattle Police Department (SPD) uses a variety of social media tools to reach the public. In 2012, the department launched a first-of-its kind hyper-local twitter initiative. A police scanner for the twitter generation, Tweets by Beat provides twitter feeds of police dispatches in each of Seattle’s 51 police beats so that residents can find out what is happening right on their block.
In addition to Twitter and Facebook, SPD created a Tumblr to, in their own words, “show you your police department doing police-y things in your city.” In a nutshell, the department’s Tumblr serves as an extension of their other social media outlets. “

‘Nudge Unit’ forming mutual joint venture

Curated on February 5, 2014August 3, 2018 by Stefaan Verhulst

Press Release: “The government’s Behavioural Insights Team – also known as the Nudge Unit – has teamed up with Nesta, the UK’s innovation foundation, to create a new mutual joint venture, Minister for the Cabinet Office Francis Maude announced today.
The mutual joint venture will be a new UK-based company, paying taxes, exporting services across the world and helping get Britain on the rise.
The Behavioural Insights Team, which was set up in 2010 with a mission to find innovative ways of enabling people to make better choices for themselves and society, is now a world-leader in the application of insights from the behavioural sciences and credited with helping the UK government save millions of pounds for the taxpayer.
As a result, they have received an increasing number of requests to help apply insights from the behavioural sciences to tackle public policy problems, both at home and overseas. As of today, the team – which will continue to be known as the Behavioural Insights Team – is able to service this demand from any part of the UK public sector, charities and foreign governments. The new company will also be able to work with commercial organisations, where there is an underlying social purpose to the project….
The deal forms part of the government’s commitment to drive innovation in government commercial models – a central commitment in the Civil Service Reform Plan – and follows on from the launch of the civil service pension provider MyCSP in April 2012, which became the first mutual joint venture to spin out of government, and the launch of SSCL Ltd late last year in a joint venture with Steria Ltd to run shared services for Whitehall departments.
The government is determined to look beyond the old binary choice between in-house provision and outsourcing. As such they are working to develop a hybrid economy with a diverse range of suppliers from the mutual joint ventures to the voluntary sector, from in-house provision to straight sourcing.”

Civic Tech Forecast: 2014

Curated on January 30, 2014August 3, 2018 by Stefaan Verhulst

Laura Dyson from Code for America: “Last year was a big year for civic technology and government innovation, and if last week’s Municipal Innovation discussion was any indication, 2014 promises to be even bigger. More than sixty civic innovators from both inside and outside of government gathered to hear three leading civic tech experts share their “Top Five” list of civic tech trends from 2013m, and predictions for what’s to come in 2014. From responsive web design to overcoming leadership change, guest speakers Luke Fretwell, Juan Pablo Velez, and Alissa Black covered both challenges and opportunities. And the audience had a few predictions of their own. Highlights included:
Mark Leech, Application Development Manager, City of Albuquerque: “Regionalization will allow smaller communities to participate and act as a force multiplier for them.”
Rebecca Williams, Policy Analyst, Sunlight Foundation: “Open data policy (law and implementation) will become more connected to traditional forms of governance, like public records and town hall meetings.”
Rick Dietz, IT Director, City of Bloomington, Ind.: “I think governments will need to collaborate directly more on open source development, particularly on enterprise scale software systems — not just civic apps.”
Kristina Ng, Office of Financial Empowerment, City and County of San Francisco: “I’m excited about the growing community of innovative government workers.”
Hillary Hartley, Presidential Innovation Fellow: “We’ll need to address sustainability and revenue opportunities. Consulting work can only go so far; we must figure out how to empower civic tech companies to actually make money.”
An informal poll of the audience showed that roughly 96 percent of the group was feeling optimistic about the coming year for civic innovation. What’s your civic tech forecast for 2014? Read on to hear what guest speakers Luke Fretwell, Juan Pablo Velez, and Alissa Black had to say, and then let us know how you’re feeling about 2014 by tweeting at @codeforamerica.”

Belonging: Solidarity and Division in Modern Societies

Curated on January 28, 2014October 31, 2018 by Stefaan Verhulst

New book by Montserrat Guibernau: “It is commonly assumed that we live in an age of unbridled individualism, but in this important new book Montserrat Guibernau argues that the need to belong to a group or community – from peer groups and local communities to ethnic groups and nations – is a pervasive and enduring feature of modern social life.
The power of belonging stems from the potential to generate an emotional attachment capable of fostering a shared identity, loyalty and solidarity among members of a given community. It is this strong emotional dimension that enables belonging to act as a trigger for political mobilization and, in extreme cases, to underpin collective violence.
Among the topics examined in this book are identity as a political instrument; emotions and political mobilization; the return of authoritarianism and the rise of the new radical right; symbols and the rituals of belonging; loyalty, the nation and nationalism. It includes case studies from Britain, Spain, Catalonia, Germany, the Middle East and the United States.”

Don’t believe the hype about behavioral economics

Curated on January 23, 2014August 15, 2018 by Stefaan Verhulst

Allison Schrager: “I have a confession to make: I think behavioral economics is over-rated. Recently, Nobelist Robert Shiller called on economists to incorporate more psychology into their work. While there are certainly things economists can learn from psychology and other disciplines to enrich their understanding of the economy, this approach is not a revolution in economics. Often models that incorporate richer aspects of human behavior are the same models economists always use—they simply rationalize seemingly irrational behavior. Even if we can understand why people don’t always act rationally, it’s not clear if that can lead to better economic policy and regulation.

Mixing behavioral economics and policy raises two questions: should we change behavior and if so, can we? Sometimes people make bad choices—they under-save, take on too much debt or risk. These behaviors appear irrational and lead to bad outcomes, which would seem to demand more regulation. But if these choices reflect individuals’ preferences and values can we justify changing their behavior? Part of a free-society is letting people make bad choices, as long as his or her irrational economic behavior doesn’t pose costs to others. For example: Someone who under-saves may wind up dependent on taxpayers for financial support. High household debt has been associated with a weaker economy…

It’s been argued that irrational economic behavior merits regulation to encourage or force choices that will benefit both the individual and the economy as a whole. But the limits of these policies are apparent in a new OECD report on the application of behavioral economics to policy. The report gives examples of regulations adopted by different OECD countries that draw on insights from behavioral economics. Thus it’s disappointing that, with all economists have learned studying behavioral economics the last ten years, the big changes in regulation seem limited to more transparent fee disclosure, a ban on automatically selling people more goods than they explicitly ask for, and standard disclosures fees and energy use. These are certainly good policies. But is this a result of behavioral economics (helping consumers over-come behavioral bias that leads to sub-optimal choices) or is it simply requiring banks and merchants to be more honest?

Poor risk management and short-term thinking on Wall Street nearly took down the entire financial system. Can what we know about behavioral finance regulate Wall Street? According to Shiller, markets are inefficient and misprice assets because of behavioral biases (over-confidence, under-reaction to news, home bias). This leads to speculative bubbles. But it’s not clear what financial regulation can do to curb this behavior. According Gene Fama, Shiller’s co-laureate who believes markets are rational, (Disclosure: I used to work at Dimensional Fund Advisors where Fama is a consultant and shareholder) it’s not possible to systematically separate “irrational” behavior (that distorts prices) from healthy speculation, which aids price discovery. If speculators (who have an enormous financial interest) don’t know better, how can we expect regulators to?…

So far, the most promising use of behavioral economics has been in retirement saving. Automatically enrolling people into a company pension plan and raising their saving rates has been found to increase savings—especially among people not inclined to save. That is probably why the OECD report concedes behavioral economics has had the biggest impact in retirement saving….

The OECD report cites some other new policies based on behavioral science like the the 2009 CARD act in America. Credit card statements used to only list the minimum required payment, which people may have interpreted as a suggested payment plan and wound up taking years to pay their balance, incurring large fees. Now, in the US, statements must include how much it will cost to pay your balance within 36 months and the time and cost required to repay your balance if you pay the minimum. It’s still too early to see how this will impact behavior, but a 2013 study suggests it will offer modest savings to consumers, perhaps because the bias to under-value the future still exists.

But what’s striking from the OECD report is, when it comes to behavioral biases that contributed to the financial crisis (speculation on housing, too much housing debt, under-estimating risk), few policies have used what we’ve learned.”

Algorithms and the Changing Frontier

Curated on January 20, 2014October 31, 2018 by Stefaan Verhulst

A GMU School of Public Policy Research Paper by Agwara, Hezekiah and Auerswald, Philip E. and Higginbotham, Brian D.: “We first summarize the dominant interpretations of the “frontier” in the United States and predecessor colonies over the past 400 years: agricultural (1610s-1880s), industrial (1890s-1930s), scientific (1940s-1980s), and algorithmic (1990s-present). We describe the difference between the algorithmic frontier and the scientific frontier. We then propose that the recent phenomenon referred to as “globalization” is actually better understood as the progression of the algorithmic frontier, as enabled by standards that in turn have facilitated the interoperability of firm-level production algorithms. We conclude by describing implications of the advance of the algorithmic frontier for scientific discovery and technological innovation.”

Toward the Next Phase of Open Government

Curated on January 16, 2014October 31, 2018 by Stefaan Verhulst

The report of the 2013 Aspen Institute Forum on Communications and Society (FOCAS) is a series of six chapters that examine the current barriers to open government and provides creative solutions for advancing open government efforts.

Chapters:

1. Open Government and Its Constraints
2. What is Open Government and is it Working?
3. The Biases in Open Government that Blind Us
4. Open Government Needs to Understand Citizens
5. Open Government Needs Empathy for Government
6. Toward An Accountable Open Government Culture

Why This Simple Government Website Was Named the Best Design of the Year

Curated on January 16, 2014November 1, 2018 by Stefaan Verhulst

Kelsey Campbell-Dollaghan on Gizmodo: “When was the last time you tried to find a government form on the Internet? For me, it was a few months back, trying to track down an absentee ballot. And while I love American flag GIFs as much as the next patriot, I was amazed at the labyrinth of independent sites I had to visit before I found what I was looking for. Bringing the web presence of an entire government under one roof is a Sisyphean task, and the UK is one of the only countries that’s managed to do it, with Gov.uk, a one-stop-web-shop that launched earlier this year.

Today, at a ceremony in London, the site was named the 2013 Best Design of the Year by the Design Museum, beating out 99 shortlisted buildings, inventions, and cars for the honor. It’s the first website to ever win the six-year-old title, too—which illustrates just how remarkable the achievement really is.

Here’s what makes it so deceivingly special.

Why This Simple Government Website Was Named the Best Design of the Year

Why does a straightforward, cut-and-dry website deserve the award? Because of that straightforwardness, actually. “There were thousands of websites, and we folded them into Gov.uk to make just one,” says Ben Terrett, head of design at the UK’s Government Digital Service, in a Dezeen-produced video. “Booking a prison stay should be as easy as booking a driver’s license test.”…

Terrett describes Gov.uk as an attempt to bring web design up to speed with technology like Glass, where the user interfacer all but disappears. “We haven’t achieved that yet with most web interfaces, [where] you can still see the graphic design,” he says. “But technology will change, and we’ll get past that.”