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Behavioral Economics Guide 2015 (with an introduction by Dan Ariely)

  • July 2015
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Alain Samson at The London School of Economics and Political Science
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THE BEHAVIORAL
ECONOMICS GUIDE 2015
Edited by
Alain Samson
Introduction by
Dan Ariely
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The Behavioral Economics Guide 2015
Author information:
Alain Samson (Editor)
Dan Ariely (Introduction)
Phil Barden, Gerhard Fehr, Timothy Gohmann, Moritz Jäger, Alain Kamm, Roger Miles, Seamus
O'Farrell , Henry Stott (Contributing authors)
Cover design and layout adapted from Tilly Patsalis and Elina Halonen.
Copyright © by the authors
All Rights Reserved
Requests for permission to reproduce materials from this work should be sent to
info@behavioraleconomics.com or directly to contributing authors.
Suggested citation:
Samson, A. (Ed.)(2015). The Behavioral Economics Guide 2015 (with an introduction by Dan Ariely). Retrieved from
http://www.behavioraleconomics.com.
Suggested citation for individual sections/authors:
[Author(s)] (2015). [Chapter/Section Title]. In A. Samson (Ed.), The Behavioral Economics Guide 2015 (with an introduction by
Dan Ariely)(pp. nn-nn). Retrieved from http://www.behavioraleconomics.com.
With Contributions By:
With Further Support By:
Contents
I N T R O D U C T I O N
BEHAVIORAL ECONOMICS: AN EXERCISE IN DESIGN AND HUMILITY (DAN ARIELY) ......................................... V
P A R T 1 - E D I T O R I A L
BEHAVIORAL SCIENCE: THEORY AND PRACTICE (ALAIN SAMSON) .................................................................... 1
BEHAVIORAL ECONOMICS IN 2015 ..................................................................................................................... 1
BE BITS AND PIECES .................................................................................................................................... 2
APPLIED BEHAVIORAL SCIENCE ........................................................................................................................... 9
BEHAVIORAL TOOLS .................................................................................................................................... 9
NUDGING AND CHOICE ARCHITECTURE .......................................................................................................... 11
TEST & LEARN ......................................................................................................................................... 15
DIFFERENTIATING EXPERIMENTS................................................................................................................... 16
WILL MY INTERVENTION WORK? ................................................................................................................. 19
PRACTITIONER CONTRIBUTIONS TO THIS GUIDE .................................................................................................... 23
SELECTED BEHAVIORAL SCIENCE CONCEPTS .................................................................................................... 28
P A R T 2 - R E S O U R C E S
TED TALKS ON BEHAVIORAL SCIENCE .............................................................................................................. 54
SCHOLARLY JOURNALS WITH BEHAVIORAL ECONOMICS CONTENT ................................................................ 60
POSTGRADUATE PROGRAMS IN BEHAVIORAL ECONOMICS AND BEHAVIORAL/DECISION SCIENCE ............... 69
OTHER RESOURCES .......................................................................................................................................... 78
P A R T 3 - A P P L I E D P E R S P E C T I V E S
BEHAVIORAL SCIENCE IN PRACTICE ................................................................................................................. 79
TOWARD A COMMON BEHAVIORAL ECONOMICS PERSPECTIVE (TIMOTHY GOHMANN) ...................................................... 80
CATCHING THE CARELESS NUDISTS: THE BEHAVIORAL REGULATORS’ AGENDA (ROGER MILES)............................................ 86
BUILDING STRONG BRANDS THROUGH THE LENS OF UNTHINKING EMOTIONAL BEHAVIOR (SEAMUS O'FARRELL) .................... 93
LEARNING FROM EXPERIENCE: HOW CUSTOMERS ARE WON AND LOST (HENRY STOTT) .................................................... 98
FROM BRANDING TO ACTION (PHIL BARDEN) ........................................................................................................ 105
THE BEHAVIORAL CHANGE MATRIX – A TOOL FOR EVIDENCE-BASED POLICY MAKING (GERHARD FEHR, ET AL.) ................... 112
A P P E N D I X
AUTHOR PROFILES ......................................................................................................................................... 120
CONTRIBUTING ORGANIZATIONS .................................................................................................................. 121
Behavioral Economics Guide 2015 III
Acknowledgements
The editor would like to thank Benny Cheung, Pete Dyson, Ciosa Garrahan, Roger Miles, Giuseppe
Veltri, and Ben Voyer for their helpful feedback. Special thanks to Dan Ariely for writing the
introduction to this edition. I am particularly grateful for the support received by Behavioral Science
Lab, Berkeley Research Group, BrainJuicer, Decision Technology, Decode Marketing, FehrAdvice &
Partners, City University London, London School of Economics and Political Science, University of
Warwick, University of Zurich, and the Behavioral Science & Policy Association.
Behavioral Economics Guide 2015 IV
INTRODUCTION
Behavioral Economics: An Exercise in Design and Humility
Dan Ariely
It is tempting to look at people in general and imagine a large body of reasonable and
rational individuals out there, going about their lives in a reasoned, calculated and sensible
way. Of course, this view is somewhat correct. Our minds and bodies are capable of
amazing acts. We can see a ball thrown from a distance, instantly calculate its trajectory
and impact, and then move our body and hands in order to catch it. We can learn new
languages with ease, particularly as young children. We can master chess. We can
recognize thousands of faces without confusing them (although as I get older I am less and
less impressed with my own memory). We can produce music, literature, technology, and
art—the list goes on and on.
As Shakespeare expressed in Hamlet:
“What a piece of work is a man! How noble in reason, how infinite in faculty! In form
and moving how express and admirable! In action how like an Angel! In apprehension
how like a god! The beauty of the world! The paragon of animals!”
The problem is that while this view of human nature is largely shared by economists, policy
makers, and most of the general population, it is not perfectly accurate. Sure we can do
many great things, but we also fail from time to time, and the costs of these failings can be
substantial. Think for example about something like texting and driving: You don’t have to
text and drive all the time for it to be dangerous and devastating. Even if we text and drive
once in awhile, let’s say only 3% of the time, it can still injure or kill us and the people
around us.
Texting and driving is a substantial problem, but it is also a useful metaphor to help us
think about some of the ways in which we misbehave — acting in ways that are
inconsistent with our long-term interests. Overeating, under-saving, crimes of passion, the
list goes on and on. The big problem is that our ability to act in our long-term interest is
only getting more and more difficult! Why? Because the way we design the world around
us does not help us fight temptation and think long-term. In fact, if an alien would observe
the way we design the world, the only sensible conclusion he could come to is that human
beings are determined to design the world in a way that creates more and more
temptations and makes us think more and more myopically. Think about it, will the next
version of the doughnut (doughnut 2.0) be more tempting or less tempting? Will the next
version of the smartphone get us to check it more or less throughout the day? And will the
next version of Facebook make us check Facebook more or less frequently?
Behavioral Economics Guide 2015 V
Basically, we can think about life as a tug-of-war. We are walking around with our wallets,
our priorities and our thoughts — and the commercial world around us wants our money,
time, and attention. Does the commercial world want our money time and attention at
some time in the far future? Is it trying to maximize our wellbeing in 30 or 40 years from
now? No. The commercial actors around us want our money, time, and attention now. And
they are rather successful in their mission — partially because they control the
environment in which we live (supermarkets, malls), partially because we allow them into
our computers and phones (apps, advertising), partially because they know more about
what tempts us than we know, and partially because we don’t really understand some of
the most basic aspects of our nature.
An important and rather depressing study by Ralph Keeney (a fellow researcher at Duke)
explored the overarching impact of bad decision-making on our lives, or more accurately,
our deaths. Using mortality data from the Center for Disease Control, Ralph estimated that
about half of all deaths among adults 15-64 years old in the United States are caused or
aided by bad personal decisions, particularly those relating to smoking, not exercising,
criminality, drug and alcohol use, and unsafe sexual behavior.
Ralph carefully defined both the nature of personal decision and what can be considered
premature death. For instance, if someone died after being broadsided by a drunk driver, it
was not considered premature because the deceased did not make the decision that led to
their death. However, if the drunk driver died then it was considered as a premature death
because the decision to drive drunk, and dying as a result, are clearly connected. With this
in mind we can examine a variety of instances where multiple decision paths are available
(the drunk driver also has the option to take a cab, ride with a designated driver, or call a
friend), and where these other decision paths are not chosen despite the fact that they are
less likely to result in the same negative outcome (i.e., fatality).
To elaborate just a bit on just one example of a personal decision that can lead to death,
let’s examine the overconsumption of alcohol. This decision can lead to weight gain, which
can lead to obesity, which can cause heart attacks, strokes, cancer, and other fatal health
problems. It can also result in accidental injury, which, in some cases can be fatal to the
person drinking. Drinking alcohol can also lead to having unprotected sex, which can result
in the contraction of a fatal disease. It can also, though less common, result in suicidal
behavior. And these are just a few of the ways that the decision to drink alcohol can be
fatal. There are plenty of other potential consequences. Of course, overconsumption of
alcohol is just one example of how bad decisions can lead to premature death, and sadly as
society moves forward, the number and types of bad decisions increases, as does the
number of their potential negative consequences.
Now, if people were simply perfectly rational creatures, life would be wonderful and
simple. We would just have to give people the information they need to make good
decisions, and they would immediately make the right decisions. People eat too much?
Just give them calorie information and all will be well. People don’t save, just give them a
retirement calculator and they will start saving at the appropriate rate. People text and
drive? Just let them know how dangerous it is. Kids drop out of school, doctors don’t wash
Behavioral Economics Guide 2015 VI
their hands before checking their patients. Just explain to the kids why they should stay in
school and tell the doctors why they should wash their hands. Sadly, life is not that simple
and most of the problems we have in modern life are not due to lack of information, which
is why our repeated attempts to improve behavior by providing additional information
does little (at best) to make things better.
This is the basic problem: we have our internal software and hardware that has been
developing over the years to deal with the world. And while we have some tremendous
abilities, there are many cases in which these skills and abilities are incompatible with the
modern world we have designed. These are the cases where we can veer dangerously off
path and make serious mistakes. And these mistakes are getting more and more expensive
to live with. Why? Think of these dangers as if they were terrorists. A thousand years ago,
how much damage could a terrorist cause before they got caught? But today? With
technologies such as explosives, chemical and biological warfare, even a very small group
can cause tremendous damage. The same goes for falling to temptation. In a world where
we don’t have cell phones and cars the dangers of not paying attention is not that large --
at worst we will walk into a tree. But when we get a car that drives at 70 MPH, even a
small mistake of attention can be very costly. The same goes for food. In a world where
the caloric content of any food is not that high, eating for 10 minutes extra after we got our
food intake need satisfied is not a big deal, but when a doughnut contains a few hundred
calories, and we can scoff it down in less than a minute, eating for a bit too much time can
be costly. Very costly.
There are lots of biases, and lots of ways we make mistakes, but two of the blind spots that
surprise me most are the continuous belief in the rationality of people and of the markets.
This surprises me particularly because even the people who seem to believe that
rationality is a good way to describe individuals, societies and markets, feel very differently
when you ask them specific questions about the people and institutions they know very
well. On one hand, they can state all kinds of high order beliefs about the rationality of
people, corporations, and societies, but then they share very different sentiments about
their significant other, their mother-in-law (and I am sure that their significant other and
mother-in-law also have crazy stories to share about them), and the organizations they
work at. Somehow when we look at a particular example of life up close, the illusion of
sensible behavior fades almost instantly. And the more we look at the small details of our
own life, the more our bad decisions seem to multiply.
As an exercise let’s each think about our own life and write down the number of time we
have done the following activities in the last thirty days. Two more points to keep in mind:
1) If you don’t fill in the numbers it will be much easier for you to keep the illusion of your
own rationality, so it is up to you if you prefer to confront your own behavior or not. 2) If
you leave lines empty, it feels very different from writing zero, so if you want to be truly
honest with yourself, don’t leave any line empty.
Behavioral Economics Guide 2015 VII
In the last thirty days the number of times I …
Overate is _______________
Texted while driving is _______________
Read email while driving is _______________
Spent money and regretted it later _______________
Spent too much time on social media _______________
Procrastinated _______________
Stayed up too late and did not sleep well _______________
Drank too much _______________
Was not as kind to my significant other as I want to be _____
Did not spend enough time with my kids is _______________
Did not exercise as much as I wanted to is _______________
Did not take my medications _______________
Lied (and not a white lie) _______________
Mismanaged my time _______________
Said yes to something that I should have said no to ________
Said something inappropriate and then regretted it _________
Took a non-optimal flight just to get a few more frequent flyer points _______________
[Please add any additional misbehaviors below]
___________________________________ ___________________
___________________________________ ___________________
___________________________________ ___________________
___________________________________ ___________________
___________________________________ ___________________
Behavioral Economics Guide 2015 VIII
I did this exercise myself and for a few minutes I considered publicly posting my own
answers but when I tallied the numbers, I did not want to admit my own failing or increase
the number of times I lied – so I decided to keep the details of my own misbehaviors
private. Maybe the extent of undesirable behaviors is only prevalent in my own life and
maybe I am the most irrational person out there. But on the off chance that my experience
is on par with the general human experience, maybe we all need to update our
assessments of our abilities and think about how to improve our sorry state. And hopefully
sooner rather than later.
The first question that comes directly from this somewhat sad analysis of the state of bad
decisions and the modern world, is whether we should be depressed with all of these
illustrations and personal anecdotes of substantial personal failings. And the second
question that should follow it, is what are we to do?
In terms of being depressed, it might seem that the rational perspective is a much more
optimistic view of life and that the behavioral economics perspective is depressing. After
all, it seems wonderful to go about our daily life believing that the people around us are
perfectly rational superhumans who always make the right decisions. Plus, this perspective
has a certain level of respect for the marvel of humanity. In contrast, thinking about the
people we interact with both professionally and socially as myopic, emotional, vindictive,
unsure about what they want, easily confused, etc. seems rather sad. But let’s take a
different view on this — one that is rooted in the state of the world and not one that is
focused on individuals.
Think about the world. We have somewhere between 7 and 8 billion people in the world,
and as far as I can tell, things are far from ideal. We have wars, high crime rates, climate
change, pollution, our oceans are unhealthy, we have a large amounts of poverty, we have
obesity, smoking, etc, etc, etc. From this perspective, what is more optimistic? To think
about the state of the world as the result of 7-8 billion rational people, or to think about it
as the result of 7-8 billion irrational people? If we think about the world as an outcome of
7-8 billion rational people, then it means that this is the best we can hope for. But if we
understand that the state of the world as an outcome of 7-8 billion irrational people, this
means that we can do much better. It means that as long as we understand where we go
wrong, we can improve things. This is the version of optimism – and I deeply believe in.
True, we are flawed in many ways, and I'm sure that over the years we will find even more
ways in which we are flawed. But for me, this only emphasizes the vast room for
improvement. Now, this is optimism!
In terms of what to do next, in my mind the challenges are basically design challenges. As
long as we build the world around us assuming that people have limitless cognitive
capacity and no emotions to interfere with our decisions, we will fail, and we will fail often
and on larger scales. But, if we truly understand human limitations and build around this
understanding, we will end up with products and markets that are much more compatible
with our human ability and will ultimately allow us to flourish. In the same way that we
would never design a car assuming that people have an infinite amount of hands and legs
to operate the car, we must also recognize our social, cognitive, emotional, and attention
Behavioral Economics Guide 2015 IX
limitations as we design our environment. This is a challenge, but this is also the path of
hope.
And finally, I would like to remind us about the wisdom of the Romans. At the peak of
Rome’s empire, Roman generals who won significant victories paraded through the middle
of the city displaying their spoils. The generals wore purple and gold ceremonial robes, a
crown of laurels, and red paint on their face as they were carried through the city on a
throne. They were hailed, celebrated and admired. But there was one more element to
the ceremony: Throughout the day a slave walked next to the general whispering
repeatedly in his ear “Momento mori,” which means “Remember your mortality.”
If I could create a modern version of this Roman phrase, I would probably pick “Remember
your fallibility” or maybe “Remember your irrationality.” Whatever the phrase is,
recognizing our shortcomings is a crucial first step in the path to making better decisions,
creating better societies and fixing our institutions.
Behavioral Economics Guide 2015 X
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Thesis
  • Apr 2019
The neighbourhood provides a spatial context within which the well-being of individuals and households are shaped. Central and local governments recognise this essential role of neighbourhoods and often rely on deprivation indices to identify deprived areas and to guide policy actions. However, neighbourhoods are not confined to administrative boundaries, and looking at area-based deprivation on its own understate the significance of spatial context and the importance of what is nearby. This thesis uses a spatial analytical approach to explore the impacts of neighbourhood spatial attributes on the measurement of deprivation. The aim is to improve the understanding of how these local spatial contextual differences could be integrated into the measurement of deprivation and why it matters. Using different conceptualisations to define neighbourhood spatial context, modified versions of the 2015 English Index of Multiple Deprivation were produced to examine the effect of differences in neighbourhood spatial structure, spatial scale and spatial relations on the indices. The findings of the research show that our understanding of deprivation in an area can be influenced by the spatial context of the neighbourhood. Accounting for neighbourhood spatial context within the measurement of deprivation significantly altered the IMD2015 rankings and decile classifications. The research also demonstrates that incorporating neighbourhood spatial attributes in assessing relative deprivation is methodologically feasible and can highlight areas which are deprived in terms of both within neighbourhood socioeconomic characteristics and characteristics of the wider local environment that forms part of its spatial opportunity structure.
Behavioral Law and Economics: Multidisciplinarity in Action
Article
Full-text available
  • Dec 2019
This paper presents the theoretical foundations of Behavioral Law and Economics (BLE), as well as the practical implications of some key findings of this discipline. The author examines the roots of this discipline, its development, the most important representatives and opponents, and, most importantly, the boundaries of this discipline in relation to the neoclassical Law and Economics (L&E), on the one hand, and Behavioral Economics, on the other hand. Since BLE “borrows” certain findings from psychology (especially from social psychology), it raises the issue of interconnection between these two disciplines, which will be analyzed en passant. The central questions that need to be addressed are whether BLE is a special and sufficiently developed scientific discipline, or is it only a theoretical upgrade over its base (the neoclassical L&E), and what are the practical achievements and significance of its key findings in the field of dispute resolution policy?
The Behavioral Economics Guide 2017 (with an introduction by Cass Sunstein)
Book
Full-text available
  • Jan 2017
Full-text download available at https://www.behavioraleconomics.com/be-guide/the-behavioral-economics-guide-2017/
Andra slänger mat, inte jag: Nudging för mindre matsvinn i skolor
Thesis
Full-text available
  • Aug 2016
Food waste is a problem that permeates the whole food supply chain. It causes economic loss, negative effects on the climate and depletion of finite resources. The scale of required change necessary to counteract the negative effects is huge. In Sweden's schools food waste loss is a matter of a costly wastage, both from an environmental perspective, but also with regard to municipalities' limited resources. Due to this, there is a big demand for waste loss reducing measures. Something that can help mitigate the extent of the food waste problem is behavioral change. Unfortunately, we cannot expect change to occur on one’s own. We need tools that can nudge us in the right direction. This thesis is a theoretical base that explores and describes how nudging, a tool for sustainable behaviors, can be a part of the solution to the food waste problem in school canteens. Recommendations for design and implementation of such change strategies are presented, with a special focus on planned interventions (nudges) and practical application. The goal is that the study will contribute to the application of behavioral insights in the environmental field. The foundation of the thesis consists of two earlier studies, a literature study, aimed at examining nudging as a tool for sustainable societal development, and a pilot study, aimed at examining students' behavior in canteens, and how they deal with leftovers. The first study found a number of practical shortcomings if nudging (the tool) is to be used successfully, long-term and more extensively in environmental work. The pilot study found irrationally made decisions among students. In order to answer how nudging can be part of the solution to the food waste problem in schools, the thesis applied the strategic framework for sustainable development. According to the strategic framework for sustainable development nudges employs as a catalyzing action while nudging is a tangible tool for strategic behavior change management. In the thesis nudging and nudges are presented as two separate parts of the behavior change management process, this also illustrates how each part can be part of the solution to the problem, because it clarifies the scope of the notions and their role in resolving the issue. Based on knowledge gained from the pilot study, the thesis draws conclusions that there is a theoretical potential to use nudging to encourage sustainable development in school canteens and reduce food waste, especially when students are about to leave the canteen, but also in the serving situation and during everyday school hours. Identified areas to focus on when applying nudges were mainly evaluation and feedback, smart anchors, order, normative messages, commitment, reminders, fewer options, strategic planning, loss disclosure and less social proof. In addition to this, the thesis finally gave suggestions for working with nudging from an above- or below perspective (by integrating assessment questions in the decision-making process) to adjust the application of interventions.
Identifying Social Norms using Coordination Games: Why Does Dictator Game Sharing Vary?
Article
  • Jan 2008
We explore the influence of social norms on behavior. To do so, we introduce a method for identifying norms, based on the property that social norms reflect social consensus regarding the appropriateness of different possible behaviors. We demonstrate that the norms we elicit, along with a simple model combining concern for norm-compliance with utility for money, predict changes in behavior across several variants of the dictator game in which behavior changes substantially following the introduction of minor contextual variations. Our findings indicate that people care not just about monetary payoffs but also care about the social appropriateness of any action they take. Our work also suggests that a social norm is not always a single action that should or should not be taken, but rather a profile of varying degrees of social appropriateness for different available actions.
Blind Spots: Why We Fail to Do What's Right and What to Do about It
Article
  • Mar 2011
When confronted with an ethical dilemma, most of us like to think we would stand up for our principles. But we are not as ethical as we think we are. InBlind Spots, leading business ethicists Max Bazerman and Ann Tenbrunsel examine the ways we overestimate our ability to do what is right and how we act unethically without meaning to. From the collapse of Enron and corruption in the tobacco industry, to sales of the defective Ford Pinto and the downfall of Bernard Madoff, the authors investigate the nature of ethical failures in the business world and beyond, and illustrate how we can become more ethical, bridging the gap between who we are and who we want to be.Explaining why traditional approaches to ethics don't work, the book considers how blind spots like ethical fading--the removal of ethics from the decision--making process--have led to tragedies and scandals such as the Challenger space shuttle disaster, steroid use in Major League Baseball, the crash in the financial markets, and the energy crisis. The authors demonstrate how ethical standards shift, how we neglect to notice and act on the unethical behavior of others, and how compliance initiatives can actually promote unethical behavior. Distinguishing our "should self" (the person who knows what is correct) from our "want self" (the person who ends up making decisions), the authors point out ethical sinkholes that create questionable actions.Suggesting innovative individual and group tactics for improving human judgment,Blind Spotsshows us how to secure a place for ethics in our workplaces, institutions, and daily lives.
Judgment Under Uncertainty: Heuristics and Biases
Article
  • Jan 1982
Many decisions are based on beliefs concerning the likelihood of uncertain events such as the outcome of an election, the guilt of a defendant, or the future value of the dollar. Occasionally, beliefs concerning uncertain events are expressed in numerical form as odds or subjective probabilities. In general, the heuristics are quite useful, but sometimes they lead to severe and systematic errors. The subjective assessment of probability resembles the subjective assessment of physical quantities such as distance or size. These judgments are all based on data of limited validity, which are processed according to heuristic rules. However, the reliance on this rule leads to systematic errors in the estimation of distance. This chapter describes three heuristics that are employed in making judgments under uncertainty. The first is representativeness, which is usually employed when people are asked to judge the probability that an object or event belongs to a class or event. The second is the availability of instances or scenarios, which is often employed when people are asked to assess the frequency of a class or the plausibility of a particular development, and the third is adjustment from an anchor, which is usually employed in numerical prediction when a relevant value is available.