Syndicate content

The Things We Do

#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”:

The science behind collective lying: How and why employees cheat

Roxanne Bauer's picture

It’s well understood that everyone has the capacity to be dishonest and almost everyone cheats— even if it’s just a little. Sometimes we fill our water cups with soda, we take the pens from the credit union, or we may speed when we’re running late. But what is going on when institutional deception, involving multiple people, occurs?

As most of us are now aware, Wells Fargo recently received a $100 million penalty from the Consumer Financial Bureau of the United States after it was uncovered that its employees were engaging in illegal banking practices. This brought the bank's total bill for these infractions to $185 million and coincided with the firings of about 5,300 Wells Fargo employees. According to reports, the 5,300 employees who were allegedly involved secretly issued credit cards that customers never requested, set up fake bank accounts that resulted in customer fees, created fraudulent email accounts to sign up customers for additional services, and actually transferred customers' money between accounts— without permission.
 
Such an outrage might remind you of the Volkswagen scandal last year in which the German car manufacturer admitted that it had used sophisticated software to trick emissions regulators. If a car was being tested, the emissions controls would operate as they should, but if the car was not undergoing a test, the emissions controls would switch off, resulting in cars that emitted 40 times the legally sanctioned levels of air pollutants.  Volkswagen has since has admitted that 11 million vehicles worldwide were equipped with the program that duped emission testing and had to recall a total of 8.5 million diesel vehicles in Europe alone.
 
How in the world did that many people get involved with such unscrupulous behavior? How could over 5,000 Wells Fargo employees engage in such obviously deceptive and fraudulent behavior? And how could so many Volkswagen employees, from software technicians to senior management, go along with blatantly circumventing the rules? How does a group of people end up lying together?

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”:

The things we do: How we might address political polarization by looking inward

Roxanne Bauer's picture

If there’s one common theme that resonates across Western democracies this past year, it’s a rejection of the status quo. Some outsider politicians have ridden this wave of populism to political office or to strong second-place finishes, stretching the boundaries of political expression. Frustration, anger with the status quo, globalization and the tradeoffs that come with it, and inequality are all basic concerns of the voters catapulting these politicians to power.

Globally, it also seems that fault lines have been erected between cultures, religions, genders, and so on.

Regardless of where the frustration comes from, though, polarization along ideological lines and negative rhetoric are pervasive. While polarization is a complex issue (and not something we can explain in its entirety in a blog post), how people process information is a significant factor.
 
If people are not open to other viewpoints or do not think critically about the negative rhetoric they encounter— which often involves self-reflection— then how can change really be achieved?  How can the frustration fueling the polarization be addressed if we cannot compromise?

The things we do: Can computer games contribute to HIV prevention?

Roxanne Bauer's picture
Also available in: Español

Preventing and controlling HIV is essential to ensuring that everyone can lead healthy, productive lives. It is essential to address this disease if everyone is to share in global prosperity.  The international community has made significant gains in fighting the spread of HIV as well as in increasing the survival rate of those already infected.

However, women- and in particular young women- remain vulnerable to contracting the disease.  According to The Gap Report from UNAIDS, adolescent girls and young women account for one in four new HIV infections in sub-Saharan Africa.  Globally, there are about 16 million women aged 15 years and older who are living with HIV, and 80% of them live in sub-Saharan Africa.  Within this region, women acquire HIV infections at least 5–7 years earlier than men, primarily through heterosexual transmission. While there is some research that younger women are more physiologically vulnerable to HIV, the evidence also points to several non-physiological factors that help account for gender inequalities, including inequalities in education and economic opportunities, vulnerability to intimate partner violence, and women having sex with older men.

The things we do: What the World Humanitarian Summit says about human nature

Roxanne Bauer's picture

Discussions of who mankind is usually begin with stories of small bands of hunter-gatherers roaming the savannah and struggling for survival under the African sun, of great feats of strength at the Olympics, or of monumental hurdles overcome to land on the moon.  They do not usually start like this: hundreds gather in a Mediterranean city to schmooze and discuss the fate of millions of others.  But this event is a quintessential story of who we are as human beings.  The World Humanitarian Summit demonstrates the very human characteristics of cooperation and competition.

Michael Tomasello, Director at the Max Planck Institute for Evolutionary Anthropology in Germany and author of Why We Cooperate, has explored the distinctiveness of human nature for decades.  He and his colleagues suggest that one of the defining characteristics of humans is that we cooperate.  Many species, from ants to dolphins and primates, cooperate in the wild, but Tomasello has identified a special form of cooperation that is truly human. In his view, humans alone are capable of shared intentionality—the ability to intuitively understand what another person is thinking and act toward a common goal.

The things we do: Why people hate Uber’s surge pricing so much

Roxanne Bauer's picture

Globally, citizens from Guadalajara to Chengdu both love and loath ride sharing app, Uber. 

We love it for the convenience, the ease with which we can pay, and the ability to avoid intemperate weather conditions— all though a few taps on our mobile phone. 
But… we loath it when surge pricing is in effect.  “Surge pricing” increases the cost of rides by many times the normal fare when demand is swelling, most commonly at rush hour, during inclement weather, or on a public holiday.  In these cases, the supply of drivers is constant or even low, creating a shortage of available rides.  By raising the price of each ride, Uber encourages more drivers to pick up passengers and rations the available supply of rides to the customers who value the service the most (those who are willing to pay more).
 
Nevertheless, while surge pricing may make economic sense, it feels like price gouging for many customers.  The recent clampdown on surge pricing by the Delhi and Karnataka governments illustrates the intense debate over Uber’s policies that has been circulating worldwide. Delhi chief minister Arvind Kejriwal even called surge pricing “daylight robbery”.
 
The debate has polarized opinion not just in India, but also in cities as diverse as Sydney, Paris, New York and Budapest. The reaction is even more severe when there is an emergency, such as during the December 2014 hostage crisis in Sydney, where a masked gunman held people captive in a café. As the central business district was cleared out by police, surge pricing automatically kicked in. Customers were appalled by Uber’s apparent insensitivity to the situation. The outrage grew so intense that Uber was forced it to suspend surge pricing and offer free rides.

The things we do: Why those who see the world differently are always wrong

Roxanne Bauer's picture

Have you ever been in an argument that ended badly, after which you expected to receive an apology? Did the apology come or was the other side also expecting one?  Have you ever done an audit or technical assessment and wondered how a team of professionals could have come to such seemingly erroneous conclusions?  How can that be?  How is that people can have such different views of the same thing?  

One reason misunderstandings occur is that people tend to be naïve realists. That is, we believe that we see social interactions as they truly are. Anyone else who has read what we have read or seen what we have seen will naturally perceive them the say way as we do… that is, assuming they’ve pondered the issue as thoughtfully as we have. In short, our own reality is true, so those who disagree with us must be uninformed, irrational, or biased.
 
However, one of the most enduring contributions of social psychology is the understanding that two people can interpret the same social interaction in very different ways, based on their own personal knowledge and experiences.
 
Tim Harford, the Undercover economist at the Financial Times, recently wrote about naïve realism, calling it the, “seductive sense that we’re seeing the world as it truly is, free of bias.”  He goes on to say that this is such an attractive illusion that whenever we meet someone that contradicts our own view, we instinctively believe we’ve met someone who is deluded rather than question our own rationale.


Pages