6. Applied Behavioural Economic Insights

Question 1

What are the fundamental behavioural insights? “Big ideas”

Answer 1

1. People use heuristics and rely on intuition
2. People have reference- dependent preferences
3. People are present biased
4. People have social preferences

Question 2

Nudging

Answer 2

The use of behavioural insights from economics and psychology to achieve behavioural change. To count as a mere nudge, the intervention must be and easy and cheap to avoid

Question 3

What are the 10 nudges?

Answer 3

1. Default rules
2. Simplification
3. Using social norms
4. Increasing ease and convenience
5. Disclosure
6. Warnings
7. Pre commitment strategies
8. Reminders
9. Implementation intentions
10. Informing people of the consequences of their own choices

Question 4

Examples of nudging in practice

Answer 4

• Save more tomorrow scheme (Benartzi and Thaler 2004)

* The behaviouralist as a tax collector (Hallsworth et al 2017)

Question 5

How does the save more tomorrow scheme work?

Answer 5

• pension scheme is made opt out
• there is an automatic escalation to increase their savings rate later
• this works because people are present biased so don’t bother about the future too much
• increases are linked with pay rises to avoid loss aversion

Question 6

How does the behaviouralist as the tax collector work?

Answer 6

• Framing the tax letter to emphasise the social norm of people paying tax in time increases payments
• this works because people adhere to the social norm since they are conditional cooperators

Question 7

Results of behaviouralist as tax collector

Answer 7

1. Reminders help
2. Letters with social norm messages help further
3. The minority norm works best- “you are in a small minority of people who haven’t paid”
4. Loss framed messages aren’t better than gain framed messages
5. Very cost effective way to increase government budget

Question 8

Mindspace acronym

Answer 8

Messenger
Incentives
Norms
Defaults
Salience
Priming 
Affect
Commitments
Ego

Question 9

What is the goal of mindspace?

Answer 9

To make nudges work better. This is only a guide; rigorous testing with RCTs is required for every specific planned policy intervention

Question 10

Messenger

Answer 10

• People pay attention to titles e.g doctor

* people listen to people who are similar to them

Question 11

Incentives

Answer 11

• perceived incentives may depend on reference point
• loss aversion
• overweighting of small probabilities
• mental accounting- people treat money as non- fungible between different payments
• present biased

Question 12

Norms

Answer 12

• relate norm to target audience
• norms may need reinforcing
• norms may backfire if people realise others aren’t obeying the norms and so they stop “boomerang effect”

Question 13

Saliency

Answer 13

• stimuli needs to be novel, accessible and snappy since there is currently an abundance of stimuli
• simplicity

Question 14

Priming

Answer 14

• priming of knowledge makes it more accessible
• simply asking people what they intend to do can act as a prime because it alters the ease of recalling and mentally representing the new behaviours
• it is unclear why, when and which primes work

Question 15

Affect

Answer 15

•emotions are powerful and act fast

Question 16

Commitment

Answer 16

• people have a tendency to procrastinate, commitment devices can be a rational response
• more effective if cost of failure increases
• automatic mechanisms (e.g direct debit) can be a commitment device

Question 17

Ego

Answer 17

• people tend to attribute success to themselves

* people want to be self consistent. This is exploited by “foot in the door” technique