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behavioral economics

The Puzzle with LARCs

Berk Ozler's picture

Suppose that you’re at your doctor’s office, discussing an important health issue that may become a concern in the near future. There are multiple drugs available in the market that you can use to prevent unwanted outcomes. Some of them are so effective that there is practically no chance you will have a negative event if you start taking them. Effectiveness of the other options range from 94% to much lower, with the most commonly used drug failing about 10% of the time for the typical user. Somehow, you go home with the drug that has a one in 10 failure rate: worse, you’re not alone; most people end up in the same boat…

Keeping Up with Sunstein!

Zeina Afif's picture

As an enthusiast and practitioner of behavioral science, I try to stay current with the latest research and papers from the field. I follow the work of behavioral economics superstars such as Dan Ariely, Daniel Kahneman, Cass Sunstein, Richard Thaler, Robert Cialdini, and others. One thing, though, keeps challenging me. Cass Sunstein is a publishing machine! As soon as I finish reading one of his books or papers, three or four more pop up! 

For those not familiar with Sunstein, he is a law and behavioral economics professor at Harvard who co-authored with Richard Thaler the best seller, “Nudge: Improving Decisions About Health, Wealth, and Happiness”. Sunstein also served as the Administrator of the White House Office of Information and Regulatory Affairs, where he applied behavioral economics in the design and implementation of regulations.
 

Since the publication of ‘Nudge’, an increasing number of countries and government institutions have started applying insights from behavioral science in designing and implementing new policies and programs. The World Bank World Development Report 2015: Mind, Society, and Behavior outlined the ways behavioral science can complement policy makers’ toolbox and the European Commission and OECD published recent reports highlighting the latest developments.  The number of books, research papers and articles on the topic have doubled since the book was originally published.

Can behavioral change support water conservation? Examples from the US, Colombia and Costa Rica

Juan Jose Miranda's picture


This blog is part of the series "Small changes, big impacts: applying #behavioralscience into development".

While Latin America is rich in water, people’s ability to access safe, reliable water supply remains elusive in most countries. Worse, most countries and major cities in the region will face economic water scarcity in less than a decade. Strategies to manage water scarcity vary, from investing in water recycling facilities to changing consumer behavior.

The most common ways to change consumer behavior are to increase the price or conduct communication campaigns to encourage conservation. Neither solution, however, is guaranteed to succeed. In some cases, they even backfire. Increasing price, for example, can upset citizens who currently pay little for poor quality water. Likewise, if done poorly, communication campaigns can cause panic and increase consumption and water stockpiling, something Bogota faced in 1997 when a tunnel providing water to the city collapsed and caused water shortages.

#10 from 2016: Nudge for good: How insights from behavioral economics can improve the world— and manipulate people

Roxanne Bauer's picture
Our Top Ten blog posts by readership in 2016. This post was originally posted on August 16, 2016.
 
Richard H. Thaler is a world-renowned behavioral economist and professor of finance and psychology. Recently, he was interviewed by The Economist. The discussion covers some of the fundamental studies in the field, like “save more tomorrow” which encourages people to save more by signing up to increase their savings rate every year and auto-enrollment for pensions that have drastically increased employee participation in pension funds.

Thaler also suggests, in the interview, that behavioral economics has the ability to influence human behavior for both good and bad. He argues that much of what behavioral economics does is remove barriers. The goal is not to change people but to make life easier, but that idea can be skewed by organizations or individuals looking to capitalize on the biases of people. Whenever he is asked to sign a copy of his book Nudge, he writes “nudge for good” which is a plea, he says, to improve the lives of people and avoid insidious behavior.

The list of ways companies nudge behavior is endless, and I would love to hear more examples from you all in the comments section. In the meantime here are a few- I’ll let you judge which ones “nudge for good”:

Does superior information make us more discerning? What Uber drivers can teach us about learning and rationality

Roxanne Bauer's picture

In 1957, Herbert A. Simon (Nobel Prize in economics 1978) introduced the concept of bounded rationality that recognizes that in decision making, human rationality is limited by the information we have, our own cognitive biases, our training and experience, and the finite amount of time we have to make a decision. Individuals and firms do the best they can with the information they have, and since they don’t have time to evaluate and rationally pick the optimal solution, they simplify their choices and go with one that is satisfactory rather than rationally optimal—this is called stastificing.

Behavioral economics accounts for this by attempting to incorporate psychological insights. While most economists agree that there are some limits to the reasoning capabilities of individuals and firms, there has been much discussion about where and how to account for bounded rationality.  On the spectrum between perfect rationality and the total absence of it, where are humans?

To explore this question, let’s take a look at cabdrivers and Uber drivers.

Blog post of the month: Nudge for good: How insights from behavioral economics can improve the world— and manipulate people

Roxanne Bauer's picture

Each month People, Spaces, Deliberation shares the blog post that generated the most interest and discussion. In August 2016, the featured blog post is "Nudge for good: How insights from behavioral economics can improve the world— and manipulate people" by Roxanne Bauer.

Richard H. Thaler is a world-renowned behavioral economist and professor of finance and psychology. Recently, he was interviewed by The Economist. The discussion covers some of the fundamental studies in the field, like “save more tomorrow” which encourages people to save more by signing up to increase their savings rate every year and auto-enrollment for pensions that have drastically increased employee participation in pension funds.

Thaler also suggests, in the interview, that behavioral economics has the ability to influence human behavior for both good and bad. He argues that much of what behavioral economics does is remove barriers. The goal is not to change people but to make life easier. However, that idea can be skewed by organizations or individuals looking to capitalize on the biases of people. Whenever he is asked to sign a copy of his book Nudge, he writes “nudge for good” which is a plea, he says, to improve the lives of people and avoid insidious behavior.

The list of ways companies nudge behavior is endless, and I would love to hear more examples from you all in the comments section. In the meantime here are a few- I’ll let you judge which ones “nudge for good”:

Nudge for good: How insights from behavioral economics can improve the world— and manipulate people

Roxanne Bauer's picture
Richard H. Thaler is a world-renowned behavioral economist and professor of finance and psychology. Recently, he was interviewed by The Economist. The discussion covers some of the fundamental studies in the field, like “save more tomorrow” which encourages people to save more by signing up to increase their savings rate every year and auto-enrollment for pensions that have drastically increased employee participation in pension funds.

Thaler also suggests, in the interview, that behavioral economics has the ability to influence human behavior for both good and bad. He argues that much of what behavioral economics does is remove barriers. The goal is not to change people but to make life easier, but that idea can be skewed by organizations or individuals looking to capitalize on the biases of people. Whenever he is asked to sign a copy of his book Nudge, he writes “nudge for good” which is a plea, he says, to improve the lives of people and avoid insidious behavior.

The list of ways companies nudge behavior is endless, and I would love to hear more examples from you all in the comments section. In the meantime here are a few- I’ll let you judge which ones “nudge for good”:

Behavioral economics and social justice: A perspective from poverty and equity

James Walsh's picture

It has been almost ten years since Richard Thaler and Cass Sunstein wrote Nudge, but the revolution in behavioral policymaking is still unfolding.
 
Around the world, behavioral economists and policymakers strive to show that a richer model of human behavior can improve both individual and social welfare in virtually all domains of society.

Do social factors determine “who we are” as well as the choice sets we have?

Karla Hoff's picture

The World Bank’s conference on “The State of Economics, the State of the World” was an opportunity to take stock of the emergence of new paradigms for understanding economic development.  Following Ken Arrow’s talk on the history of the neoclassical model and Shanta Devarajan’s comments on this model’s centrality in the Bank’s work, I had the opportunity to discuss two paradigms of how individuals make decisions that have recently emerged in economics, drawing on psychology, sociology, and anthropology.


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