The National Academies Press

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Pages 59-78

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From page 59... ... That is, if one's wages are increased by three percent when inflation is six percent, the value of one's wages is three percent lower than it had been. In part because of reference dependence and loss aversion, workers evaluate wages in nominal terms, comparing this year's pay to last year's, so a nominal wage cut is seen as a loss, while a real wage cut is not. Read the entire page →
From page 60... ... These models capture some elements of social preferences that come from social psychology and are consistent with some simple behavioral economics models. However, behavioral economists have explored how such socially based preferences affect choices and interactions with others in a deeper and more extensive way and have brought new conceptual models to the field. Read the entire page →
From page 61... ... . Recent work in behavioral economics also goes beyond traditional models by suggesting that social preferences and other preferences that drive behavior derive from people's understanding of themselves within a social context and their identities and attachments to particular social groups. Read the entire page →
From page 62... ... . A second key point from this body of work is that comparisons to others often trigger responses that are consistent with the importance of social norms and social comparisons of the type emphasized in behavioral economics. Read the entire page →
From page 63... ... Conclusion 3-1: Foundational work in behavioral economics, drawing on the fields of economics, psychology, social psychology, and others, suggests the importance of five principles to consider in designing policy interventions to modify human behavior: limited attention and cogni tion, inaccurate beliefs, present bias, reference dependence and framing, and social preferences and social norms. REFERENCES Akerlof, G Read the entire page →
From page 64... ... . Handbook of behavioral economics -- Foundations and applications, 2. Read the entire page →
From page 65... ... . Behavioral economics and public policy: A pragmatic perspective. Read the entire page →
From page 66... ... Evidence from non linear electricity pricing. American Economic Review, 104(2) Read the entire page →
From page 67... ... . Applying insights from behavioral economics to policy design. Read the entire page →
From page 68... ... American Economic Review, 89(1) Read the entire page →
From page 69... ... A nudge is defined in the context of behavioral economics as a lowcost, light-touch change in choice architecture -- the structures and contexts within which and through which a choice is presented -- that shifts people's behavior without explicitly regulating it and without imposing significant (financial) rewards or punishments (Thaler & Sunstein, 2009) Read the entire page →
From page 70... ... . Behaviorally informed interventions are those that have been selected or designed specifically to address a behavioral barrier, biased tendency, or decision error that can be explained by the foundational principles of behavioral economics discussed in Chapter 3.1 Interventions can be designed and implemented by different actors (corporate, governmental, institutional) Read the entire page →
From page 71... ... More research and discussion are also needed on the limitations of behaviorally informed interventions (especially for the narrow nudge form) and on how focusing on individual behavior change could preclude or crowd out focus on structural or system change (Loewenstein & Chater, 2017; Chater & Loewenstein, 2022) Read the entire page →
From page 72... ... 72 BEHAVIORAL ECONOMICS TABLE 4-1 Intervention Strategies Mapped to the Five Foundational Principles Strategies Foundational Principle and Everyday Meaning Limited Inaccurate Present Reference Social Attention Beliefs Bias Depen- Preferences and dence and and Social Cognition Framing Norms "I don't "I think "I want it "I want "I want to do know I know now" this more what others what I what I than I are doing" want" want" want that" Altruism Primes X X Behaviorally Informed X X X Incentives, Including Microincentives Choice Sets and Active X X X Choice Commitment Devices X Defaults X X X Feedback X X X Foot-in-the-Door X X Framing X X X Fresh Start Effects X X Hassle Factors X X X Implementation Intentions X Mental Models X X X Planning Prompts X Reciprocity Primes X Reminders X X Salience Primes X Scarcity X X X Simplification X X X Slack X Social Influence X X X X Social Proof X X X X X Switching Costs X X Temptation Bundling X Read the entire page →
From page 73... ... Defaults have been shown in several systematic reviews and meta-analyses to have larger effect sizes than other intervention approaches. Defaults work through multiple mechanisms but are particularly effective in conditions of limited attentional or cognitive bandwidth, when individuals cannot or will not take the time to evaluate options and make a fully informed choice (Johnson & Goldstein, 2003) Read the entire page →
From page 74... ... . Creating Slack A final category of intervention strategies to counteract limited attention and cognition is the creation of slack: that is, providing more space Read the entire page →
From page 75... ... , choice sets, peer feedback, and social proof. In addition to those interventions, two others are important for meeting the challenge of inaccurate beliefs: de-biasing and mental models, which are people's representations of the world. Read the entire page →
From page 76... ... . For example, multiple studies have shown that people have powerful mental models of the epidemiology of COVID-19 and of the effectiveness and acceptability of mitigation strategies, including masking, social distancing, and vaccination (Southwell et al., 2020; Greenhalgh, 2021; Berg et al., 2022; de Ridder et al., 2022) Read the entire page →
From page 77... ... Behaviorally Informed Financial or Nonfinancial Incentives Many people who read about behavioral economics in the lay press assume the term refers to financial incentives or paying individuals to change their behavior. It is certainly the case that many well-known behavioral economics studies leverage incentives to counter present bias. Read the entire page →
From page 78... ... may otherwise be ignored. Lottery-Based Incentives Many variations of financial incentives have also been tested, with features that further leverage behavioral research findings to boost effectiveness. Read the entire page →

From page 59...

... That is, if one's wages are increased by three percent when inflation is six percent, the value of one's wages is three percent lower than it had been. In part because of reference dependence and loss aversion, workers evaluate wages in nominal terms, comparing this year's pay to last year's, so a nominal wage cut is seen as a loss, while a real wage cut is not.