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behavioral economics

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.

Leadership for results

Ajay Tejasvi Narasimhan's picture
In my experience, when development practitioners are called in to help address a complex challenge, they are not alone. Every development project requires an implementation team – people working together to achieve development objectives and outcomes. Depending on the nature of the challenge, practitioners may work with government officials, staff from NGOs and CSOs, community leaders, sector specialists, and others. It, thus, becomes vitally important for members of these teams to understand one another and the stake each has in the project, the perspective from which they approach it, and their assumptions about it, their history with, and their commitment to it.
 
In addition, development professionals must become knowledgeable about the reality of the communities in which they work to avoid designing implementation plans that don’t always work out as intended. For example, we have all heard the stories of cook stoves or toilets that are introduced into communities, but are used as storage objects. This attention to personal, political, and social factors affecting project design and implementation is precisely what the Collaborative Leadership for Development Program helps operational teams achieve and maintain, to get desired results.
 
In the 2015 World Development Report on Mind, Society, and Behavior, the World Bank identifies three kinds of thinking we all do by reflex.
  • Thinking automatically, rather than carefully and deliberatively – we typically do not bring our full analytical prowess to bear on the issues and experiences of our daily lives;
  • Thinking socially, or in ways that are related to how others around us think – the influence of peer-pressure on our thought process is an example; and
  • Thinking with mental models generated by societal norms and the culture in which we live that tacitly influence how we perceive and think about our world.

These ways of thinking, research suggests, are implicit and fundamental and they shape human behavior, including interpersonal and collective interactions and decision making. This insight has enormous implications for our development work. If we do not account for and bring to the surface such social, cultural, and psychological realities in the design and implementation of projects, we can expect to be setting ourselves up for failure. Most challenges today are a complex mix of technical problems and behavioral or adaptive challenges.

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 (some) women are less competitive than men

Roxanne Bauer's picture

Students arriving for first classes of the day at a high-school, CasablancaWhy do women tend to make less money and occupy fewer management positions than men? Do social influences affect the competitive spirits – or lack thereof – women?  Or could it be that women are simply less competitive than men?

With support from the National Science Foundation, Uri Gneezy Kenneth L. Leonard, and John A. List, set out to test assumptions about biologically based competitiveness in two of the most culturally different places on the planet: the ultra-patriarchal Masai tribe of Tanzania and the matrilineal Khasi people of northeast India.  The researchers conducted experiments in both environments to see what they could unearth regarding the competitive spirit of women across extremely different societies that held women in diametrically opposite roles.  

The things we do: The high price of cheating a little

Roxanne Bauer's picture

"A Fool and His Money" by David Goehring Dishonesty is usually something we think about at the individual level.  Lies are errant, definite actions that individuals perform at specific moments. 

But lies are also important in aggregate because the effect of many small lies taken together can be devastating.

Dan Ariely, a Professor of Psychology and Behavioral Economics at Duke University, and his collaborators, starting in 2002, conducted a series of studies called “The Matrix Experiments”. In this experiment, the team gave participants, men and women from different age groups, 20 simple math questions. They asked them to solve as many questions as they can in five minutes and promised to reward the participants $1 for each problem solved. After five minutes, the participants are instructed to count how many problems they solved, insert their answer sheets into paper shredder machines, and report their results to one of the test supervisors to receive their cash. They did not need to show their answers as a proof. What the test takers did not know was that Ariely’s team programmed the shredders in such a way that they only shredded the margins of the papers while the main body of the page remained intact.

In the end, Ariely and his colleagues found that very few people lie a lot, but almost everyone lies a little.  They tested over 40,000 people and found that only a few dozen were “big cheaters” who claimed to have completed many more problems than they did.  Conversely, more than 28,000 people, or nearly 70 percent, were “small cheaters” who, on average, solved four problems but reported to have solved six.

What is interesting to note is that the sum of the team’s losses to so-called big cheaters was a total of $400.  Compare this to the few dollars each that “small cheaters” stole. Together, these small transgressions added up to a whopping $50,000, causing a much higher impact than the few bad apples.

#2 from 2015: The things we do: Nudging people to give

Roxanne Bauer's picture
Our Top Ten blog posts by readership in 2015. This post was originally posted on April 7, 2015.
 

Man delivers gas cylinders in IndiaIn an appeal to civic duty, the Government of India is asking citizens to forgo a gas subsidy they receive so that gas cylinders can be transferred to the less fortunate. To encourage Indians to "Give It Up," the government called on business leaders to set an example and made the procedure extremely easy.

India recently launched an ambitious cash transfer program to help small businesses and households buy fuel.  Under the plan, consumers of liquefied petroleum gas (LPG), commonly referred to as propane or butane, receive a cash subsidy in their bank accounts to buy gas cylinders at market price.

Once joining the scheme, the subsidy, which is equal to the difference between the current subsidized rate and the market price, is transferred to the consumer’s bank account when he/she orders a cylinder.  Another transfer is then provided at the time of delivery of the cylinder. 

Last November, the Direct Benefit Transfer Scheme for LPG was rolled out across 54 districts, with the rest of the country participating by January 1 of this year. 

The scheme was launched by India’s previous UPA government in June 2013, but it was abruptly stopped earlier this year following court orders.  It has since been modified to exclude the requirement of providing a unique identification number (Aadhaar) to avail the cash subsidy.

The idea behind the direct benefit transfer is that it can ensure that the subsidy meant for the genuine domestic customer reaches them directly and is not diverted. The Government of India hoped to save millions each year by curbing diversions and leakages in the system but also to ensure efficient delivery of subsidies to the target beneficiaries— the consumers.

#5 from 2015: The things we do: How a simple text message is the difference between success and failure

Roxanne Bauer's picture
Our Top Ten blog posts by readership in 2015. This post was  originally posted on April 21, 2015.
 

A woman and her child get the anti-malaria drugs distributed in Freetown.Mobile phones are increasingly prevalent throughout the world, and researchers have found that sending text message reminders can help people follow-through with their intentions, significantly increasing the success of development interventions.

“People need to be reminded more often than they need to be instructed.”

These are the wise words of Samuel Johnson, an English author, critic, and lexicographer. Even though he lived more than 200 years ago, international development interventions are proving him correct today. 
 
Reminders for Malaria
 
It’s widely known that failure to adhere to a full course of antibiotic treatment leads to treatment failure and encourages bacterial resistance to antibiotics, threatening the sustainability of current medications. This is extremely important for malaria, which, according to the World Health Organization, results in 198 million cases each year and around 584,000 deaths.  The burden is particularly heavy in Africa, where around 90% of malaria deaths occur, and in children under 5 years of age, who account for 78% of all deaths. Moreover, low rates of adherence to artemisinin-based combination therapy (ACT) treatments has led to a prevalence of antibiotic-resistant Malaria in many parts of the world, particularly Africa. One of the biggest and simplest  reasons why people fail to complete the full treatment for Malaria is that they forget.

Quote of the week: Ben Bernanke

Sina Odugbemi's picture

Ben Bernanke“Individually rational behaviour can be collectively irrational. And that’s why the regulators have to do what they can to constrain individual behaviour, so that it doesn’t lead to collectively irrational outcomes.”
 

- Ben Bernanke, an American economist currently working at the Brookings Institution. He served two terms as chairman of the Federal Reserve, the central bank of the United States, from 2006 to 2014. During his time as chairman, Bernanke oversaw the Federal Reserve's response to the late-2000s financial crisis. Bernanke wrote in his 2015 book, The Courage to Act, that the world's economy came close to collapse in 2007 and 2008 and that it was only the innovative efforts of the Federal Reserve, in cooperation with other agencies and agencies of foreign governments, that prevented an economic disaster greater than the Great Depression.  Prior to serving as chairman of the Federal Reserve, Bernanke was a member of the Board of Governors of the Federal Reserve System from 2002-2005 and proposed the Bernanke Doctrine concerning the source of deflation.  


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