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behavioral economics

Long-term effects of a short-term boost to savings – are mental accounts the key to why more small businesses don’t take advantage of high returns?

David McKenzie's picture

Standard economic theory would suggest that a one-time infusion of cash should have at most a temporary effect on business profitability – over time, individuals facing high returns should be able to re-invest business profits and bit-by-bit bootstrap themselves up to the steady-state size. Yet in an experiment I did with Suresh de Mel and Chris Woodruff in Sri Lanka, we find a one-time grant has sustained impacts five years later on male microenterprise owners.

Enhanced Active Choice: Utilizing Behavioral Economics to Increase Program Take-up

David McKenzie's picture

Shifting from opt-in to opt-out defaults is one of the clearest success stories for policy to emerge from behavioral economics, as evidenced by the large increases in organ donor rates and contributions to retirement savings plans obtained when opt-out defaults are used instead of opt-in. 
                However, there are several limits of opt-out policies:
 

Behavioral design: slap or tax yourself into productivity?

David McKenzie's picture

One of those stories going the rounds about a month ago concerns a blogger in San Francisco, who worried he was wasting too much time on Facebook and Reddit. As he writes on his blog, he used a software app which tracked what he was doing with his time and found almost 19 hours a week went to these activities.

Fruit Salad, Chocolate Cake, Cognitive Control, and Poverty

Jed Friedman's picture

In a psychology experiment from 15 years ago, participants were asked to remember a number – the number was randomly selected to either be a short two digit number or a seven digit number – and then to walk down a hallway to another room for an interview. As a seeming afterthought, they were told there is a snack cart in the hallway and to help themselves to one of the snacks. The snack choice was either fruit salad or chocolate cake.