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:
- Organ donation
- Teenage pregnancy
- Diet and weight
- 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.”