Intro paper Flashcards
What is the concept called, describing the difference between what individuals intend to do and what they end up doing? Describe the concept and give an example of it. Give an example.
It is called the “intention-action gap.” This intention-action gap is what prevents people from doing what is best for them even though they want to, and they have the necessary means available.
People know that it is healthier and cheaper to cook at home, they have a fully equipped kitchen, a shelf full of cookbooks and vegetables in the fridge, but at the end of a long working day, they get home and order a pizza. “Tomorrow!” they tell themselves, tomorrow they will finally try that new recipe they have pinned to their fridge. At that moment, people like to think they are making an optimal decision, but in the long-term, they come to regret the choice they made.
What does the traditional economics say about the “intention-action gap”.
Traditional economics assumes that people make rational decisions, so there is no intention-action gap. In other words, they know what is good for them and behave accordingly. According to this theory, if people know what is good for them, and they have the means to carry out the action, and they say they intend to do something, then we should observe them taking action.
Can traditional economics explain the attention-action gap?
Traditional economic theory cannot explain this gap.That is where behavioral economics comes to the rescue. Behavioral economics is the science of understanding why these gaps occur, how to predict them and how to help individuals overcome them.
What does Kahneman argue about, when he talks about system 1 and system 2? Give me a description and an example
In the book “Thinking Fast and Slow” (Kahneman, 2011), Daniel Kahneman popularized the concept of “System 1” and “System 2” thinking. This concept is helpful to understand how the intention-action gap appears. Our System 1 consists of all the decisions that we take without thinking.These decisions are intuitive, fast and automatic.These can be decisions that we have made many times, decisions which we do not care very much about, or decisions we take when we are preoccupied with other factors that need our attention more. System 2, on the other hand, works the way traditional economists assume we make all decisions — with our full attention, in a slow and deliberate process, with our personal best interest in mind. Economists call this process of slow decision making “utility maximization” — how can we get the absolute best outcome given the information and preferences we have.We use System 2 for important decisions for which we carefully weigh the pros and cons.
Whether our System 1 or System 2 takes over the decision, depends on the context and on how much attention we can devote to a particular decision. For example, let’s assume you are going to a restaurant for lunch with a potential new client.Your whole attention is focused on the client and what you can say to convince her of your product.You might briefly glance at the menu and pick whatever looks “good enough” so that you can go back to focusing on your conversation.This is an example for a decision made with System 1. Now imagine you go back to the same restaurant in the evening with your partner for a long relaxed dinner. Now you might spend several minutes reading the entire menu and discussing the different options with your partner to put together the perfect dining experience.This time you made a decision with System 2.
What are biases? Give examples
Biases can be thought of as predictable, repeated mistakes in decision-making that throw us off track from rational decision-making.We all fall prey to biases and heuristics in our decision making. In many cases, they are useful and make our lives easier. But in some cases, they take us off the optimal path.
Cognitive load, framing, social norms, halo effect, overconfidence, context, loss aversion, anchoring, present bias , confirmation bias.
Describe the term cognitive load and give an example
It means that our brain has limited capacity at any given moment. Our brain can get overwhelmed when there is too much choice.
When Barack Obama was still president, he famously said that he only wears dark suits. He had so many important decisions to make, so he didn’t want to waste his brainpower on something as trivial as clothes. If you look at pictures of Steve Jobs or Mark Zuckerberg, you will see that they also wear the same thing every day.
Describe the term social norm and give an example.
We are all social beings, and we care about how other people see us. Especially in situations where we are not quite sure how to behave, we pay attention to what others are doing and conform. In a classic experiment by Solomon Asch (1951), students were asked to determine which line of three had the same length as the line they were shown first.This was a very simple task, and if completed by themselves, almost all students stated the correct answer. But when confederates were introduced who all gave the wrong answer, more than half of the students also gave the wrong answer.These students were influenced by the answers of their peers and doubted their own decisions — even when there was an obvious right choice.
As children, we learn by copying our parents or other children without asking why.This is a way to simplify decision making, and in many cases, this is very helpful.When we see people standing in a line, we get in line behind them. In most cases, this is the right thing to do to get the service we came for. However, sometimes following others’ example doesn’t necessarily bring us to the optimal outcome. In a littered environment, we are also more likely to litter. In this case, the social norm not only doesn’t help us, but also hurts us and the environment.
Describe the term loss aversion and give an example.
Nobody likes losing. Intuitively we know this to be true. It perhaps comes as no surprise that we try to avoid losing as much as possible. Sometimes though, our aversion to losing can stand in the way of a better outcome for ourselves.This is because we evaluate gains and losses in comparison to a reference point and not in absolute terms.
Think about the following situation.You buy a ticket to a concert of your favorite artist playing in your city next month.You are really excited. However, the day of the concert you wake up with a headache and signs of an upcoming flu, and on top of that it is raining and a miserable storm outside.You were really looking forward to the concert, but the last thing you feel like doing is leave the house.What will you do? If you are like most people, you will still go to the concert.You will look at not going to the concert as a loss of money and place a higher importance on that, compared to how awful you might feel the next day from having gone to a concert when you should have stayed to rest.
Describe the term overconfidence and give an example.
Though many of us are certainly intelligent and skilled, only some of us can be better than average at any particular activity.Yet we generally rate ourselves better than average on most things. Most people think they are better than average at driving, better looking than the average person, smarter than average, and that they are likelier to succeed at specific tasks than most individuals.
One way in which overconfidence consistently manifests itself is in the planning fallacy — our tendency to underestimate both time and costs for projects. Overconfidence is also to blame when we think statistics don’t apply to us.We believe we are less likely to develop lung cancer from smoking or that our small business is less likely to fail than those of others.This positive view about ourselves can be motivating in difficult situations, but it can also lead us to take unnecessary risks.
Describe the term present bias and give an example.
Present bias means that we overvalue the present moment compared to the future.We make plans for the future, but once that future arrives, we override these plans in favor of instant gratification. Present bias is responsible for the fact that we have a hard time saving money for retirement, never manage to go to the gym and always end up procrastinating our schoolwork. Even though we know what is good for us in the long run, we just cannot bring ourselves to resist the temptation in the present moment. Have you ever ate one too many rolls from the bread basket in a fancy restaurant despite knowing that a fine-dining experience is forthcoming? You wanted to resist to not spoil your appetite, but the bread was right there, smelling delicious, and you were hungry.
Present bias often manifests itself as giving in to immediate gratification, but it can also appear as “laziness”. It makes us stick with the status quo more than we should. If you’ve ever bought anything online and have been added to a marketing mailing list you weren’t interested in because you neglected to untick a box, you know what we mean. Present bias is what leads us to stick with a choice because we are lazy – even though we know it is best to resist or to change.
What is a nudge? Give som examples.
Nudging, a term coined by Richard Thaler and Cass Sunstein in their book “Nudge” (2008), is a tool with which we can redesign decision-making environments in a way that helps individuals make decisions that are in their best interest despite their cognitive biases. Nudging is a gentle correction back onto the path of action that a fully rational person would have taken.
Nudging utilizes techniques informed by behavioral science to gently “nudge” people to make decisions that are more in line with their intentions, or that are better for society. If a cognitive bias steers people off the correct path, then the nudge steers them back on. One classic nudge is placing green footprints leading up to trash cans around the city — increasing the number of people who throw their garbage away properly.This intervention doesn’t restrict people from doing anything, and it doesn’t try to convince them that littering is bad. It simply makes it a bit easier to do the right thing by drawing attention to the decision itself — walking a couple of steps to properly throw away garbage.
What are the traditional tools of behavior change and how can nudge compliment them?
Regulations (ban), economic incentives and information.
Nudging can complement other traditional tools of behavior change, such as regulations (which restrict people’s choice by prohibiting certain options), economic incentives (which make certain alternatives more or less appealing by changing their price), and information (which is given to change a preference or an attitude). However, these traditional instruments appeal to our rational decision making and can therefore fall short in cases of intention-action gaps.Those situations call for a different solution — nudging.
If the context is so crucial, then we should be able to steer individuals’ decision making by designing the environment. What do we call that and how do we understand it? Give an example. Is it neutral or no?
That is called the choice architecture, and it is a key component of nudging.To understand the concept of choice architecture, it helps to think about traditional architecture and the choices an architect makes when designing a building. For example, where is the staircase? At the end of the hallway, in a hard to find dark corner? Or in the middle of floor, open and inviting? These two options would promote very different behaviors from the people using the building when it comes to stair-taking.This is analogous to the choice architecture in any decision.Where you end up depends on how the options are laid out and what the context of the choices is.
There is no neutral choice architecture. It is impossible for the way a choice is set up to have zero impact on what an individual chooses. Choice architecture nudges the decision-maker in some direction, and you want to ensure that your nudges are for their benefit. By altering the environment in which someone has to make a decision, you alter what they are likely to do — you nudge them in the right direction.
When we want to identify whether people are affected by present bias, what should we look out for?
Situations where people:
… only care about the present moment and immediate gratification
… give in to temptation
… make plans they fail to carry out
… seem “lazy” and go with the most convenient alternative
How can we recognize situations where people are being overconfident?
Situations where people:
… make unrealistic plans or promise unrealistic positive outcomes
… engage in reckless behavior such as smoking or driving without a seatbelt
… are resistant to feedback from others regarding their own capabilities
In situations where loss aversion may manifest itself, what should we watch for?
Situations where people seem:
… resistant to change and afraid of new processes, ideas or tasks … overly attached to something they own or have created /
worked on
… to continue investing in something that doesn’t bring value
anymore, to avoid incurring a “loss”
How do we identify when a person is acting under the excessive influence of social norms?
Here are some footprints to look out for: Situations where:
… people are acting in groups or teams
… a few bad apples are spoiling the bunch
… the behavior gets worse when more people are together and
observe how others behave
… even if other people are not around, individuals can take cues
from the environment about how others behave (such as seeing graffiti on a wall or dirty dishes in a sink)
If we want to help people to overcome this bias, then we need to know how to detect it. How can we identify if someone is subjected to a too high cognitive load?
People seem…
… paralyzed and unable to make a decision
… distracted or confused
… already very busy, with competing priorities
… like they are not paying attention to important information … to avoid choosing between many options
The first category of nudges in the REFINE matrix is Reframe. Describe what it is and give an example
Reframing means presenting information in a different way to counteract a cognitive bias. If we, for example, know that people avoid a choice that is right for them because they suffer from loss aversion, then we can reframe the choices in a way that downplays these losses, or reassures of the gains. If we have identified a situation where people are overwhelmed by too much choice, then we could bundle several alternatives into smaller subsets to make choosing less overwhelming.
We Reframe when we change how different alternatives are presented. These could be alternatives on a typical menu in a restaurant, or on a drop-down menu on a website. Remember the concept of choice architecture? Reframing is the most literal application of redesigning the choice architecture. Reframing changes what is prominent in our minds and what we pay most attention to in a situation.
One example of Reframe in action is the Acorn savings app.To help individuals save more money, a behavioral science team led by Shlomo Benartzi created an app called Acorns which allows users to automatically transfer a certain amount into a savings account each month.The team tested whether the way in which the question of how much to save was framed affected individuals’ saving behavior. Individuals were presented, when prompted to enroll, with the amount they would be transferring into the savings account.The amounts were equivalent (150 dollars every month) yet presented in different ways. One group of individuals was asked whether they would like to deposit 150 dollars per month, and they enrolled in the program at a 7% rate. Another group was asked whether they would like to deposit 5 dollars a day, and they enrolled at almost a 30% rate (Hershfield et al. 2018). It is easier for people to imagine giving up a 5 dollars per day consumption (“that’s like one latte per day, I can do that!”) than a 150 dollar per month consumption (“I’d have to give up my gym and Netflix memberships!”). Reframing the choice based on this psychological insight, nudged the individuals into a behavior that is better for them in the long term.
What are the types of nudges that fall under Reframe:
Types of nudges that fall under Reframe are: Increasing salience of a particular choice, reframing between loss and gain messages, using future focused framing and restructuring choice by reordering options or grouping them differently.
Salience, loss aversion, future focus and restructure.
In the second category we have encourage. Describe what it is, give examples on it and its types of nudges that fall under.
In the Encourage category, we use conscious nudges that add information to a situation.They involve some kind of communication between the choice architect and the person being nudged, making the behavior in question more desirable and appealing. Encourage nudges, for example, make use of social norms by making the better behavior the norm. Our desire to conform to the group behavior has an effect on our decisions, and we are then more likely to engage in the same behavior, especially if we don’t have a strong preference either way. In a classic study (Cialdini, 2008), a hotel chain tested different messages to encourage their guests to reuse their towels. Messages that were particularly effective included information on how other guests behave:“most of our guests have chosen to reuse their towels”.
We do not just care about what others think of us, we also care about what our future selves think of us.That is why goals and commitment devices are other powerful types of Encourage nudges. When asked to commit and to plan how they will act in the future, people are more likely to follow through. This effect has been demonstrated on, among others, finding a job, getting a flu vaccine and recycling.
Other types of nudges in the Encourage category are using well-timed reminders, and sharing feedback with individuals on how they are doing.
Types of nudges: Social proof, commitment, reminders, “goals and feedbacks”.
What is a social proof. Give a description and an example.
One of the key mechanisms through which social proof works is the concept of social influence, which is the idea that people often look to the behavior of others in their social group to determine what is common, appropriate, or desirable behavior. By social group, we mean a relevant reference group, i.e., those people that matter to the decision maker in the specific choice circumstances. By providing individuals with information about the behavior of their reference group, social proof can influence individuals’ perceptions of what is normal or acceptable behavior.
Example 1 could be from Allcott, H. (2011). Social norms and energy conservation. Journal of Public Economics, 95(9-10), 1082-1095.
Example 2 could be from Andre, P., Boneva, T., Chopra, F., & Falk, A. (2024). Misperceived social norms and willingness to act against climate change. Review of Economics and Statistics, 1-46.
Other more general example: In 2010 during election day for U.S. congressional elections, a 61 million person experiment was conducted on Facebook with an Encourage nudge. Users who visited the site that day were randomly assigned to different groups. One group saw a social message at the top of their newsfeed encouraging them to vote by also telling them that six of their friends (including profile picture) and a host of other people, have chosen to do so.The researchers measured voting by collecting the actual, publicly available voting records of millions of users.The group who was exposed to the social proof messaged had an increased voter turnout by 0.39 percent — an effect larger than the margin of victory in many elections!
There exist two types of social proof norms, descriptive and normative. What is the difference, give me examples
Descriptive norms refer to perceptions of how people actually behave in a given context. They provide information about what the majority of people do, thereby creating a sense of social proof. For example, if individuals believe that “most people recycle,” they may be more inclined to recycle themselves. This type of norm leverages empirical expectations about behavior. Normative (Injunctive) norms, on the other hand, convey what behaviors are approved or disapproved by society. They reflect individuals’ perceptions of what others believe they should do. For instance, if people think that “most people believe recycling is the right thing to do,” this belief can motivate them to engage in recycling, even if they do not see it as a common behavior among their peers.
Examples of Social Proof Nudges
Policymakers can formulate nudges based on these norms as follows:
Descriptive Norm Nudge Example:
A local government could implement a campaign that informs residents that “75% of your neighbors are recycling regularly.” This message highlights the common behavior and encourages others to conform by showing that recycling is a prevalent practice in their community.
Normative (Injunctive) Norm Nudge Example:
A campaign could state, “Most residents believe that recycling is important for our community’s health.” This nudge leverages the perceived approval of recycling, motivating individuals to act in accordance with what they believe is socially acceptable behavior.
Combination of Descriptive and Normative Nudges:
Yes, there can be a combination of descriptive and normative nudges, and this approach can enhance effectiveness. For example, in the home energy reports experiments, we have seen descriptive norms “your most efficient neighbors’ electricity consumption” compared to your own and in addition smiles that are happy or sad depending on how well your household does (normative).
In the third category of REFINE we find Facilitate. Describe the types of nudges used and give examples.
The types of nudges: Hassle factor, simplify, default and physical environment.
Some processes are easy, while others are needlessly difficult. If you ever had to fill out a governmental form, you have probably seen a needlessly difficult document. And even though we know that we should still fill in the tax declaration, scholarship application or pension plan sign-up form, we procrastinate until the deadline has passed, or avoid it altogether. Life is hard enough! We have so many competing priorities with work and family life that if these necessary actions include something we consider as a hassle, we are likely to stick our head in the sand and ignore them. Even very small obstacles can get in our way of reaching our goals.
Some choice architectures resemble mazes when they should instead resemble straight paths. Some can be navigated while distracted and preoccupied, while others require extended periods of time and a full attention span. By using Facilitate type nudges, you are smoothing the way for the decision maker, clearing any obstacles and straightening the path.
Richard Thaler, the Nobel Prize in Economics winner for 2017, has famously said: “If you want to get somebody to do something, make it easy! Remove the barriers”. Facilitate nudges do just that. They leverage tools such as defaults to combat our laziness, for example, which prevents us from signing up for a program with long-term benefits such as a pension plan. By automatic enrollment — making the enrollment the default, people do not need to exert any effort themselves.
Facilitating can also leverage the physical environment.When Nordic Choice Hotels reduced the size of the plates at their hotel buffets from 24 cm diameter to 21 cm, people served themselves less food and in turn wasted less food.The results showed a reduction of 19% in food waste — great for the hotel chain, the environment, and perhaps even the guests’ waistlines.
In addition to default and physical environment, other categories of Facilitate nudges include simplification and reducing the hassle involved.
A study conducted in a large Swedish University found that simply changing the default option from single-sided printing to double-sided printing reduced the use of paper by 15%.This shows the power of default options – if we do not care enough about an outcome, in this case whether the printout will be single – or double-sided, then the smallest obstacles can keep us stuck on the status quo. So in cases where people don’t care much either way, we may as well make the better outcome the status quo.
The last category within the REFINE matrix is INcentivizE. What types of nudges fall under here, give examples.
Types of nudges that fall under Incentivize are:removing monetary incentives altogether, loss vs. gain framing of incentives and symbolic incentives.
The last category within the REFINE matrix is INcentivizE. By that we mean using incentives in a behaviorally informed way, not giving a classic carrot or stick. This category is about redesigning incentives by taking cognitive biases into consideration to make them more effective. So to change behavior, we don’t just give people money or take it away to encourage or discourage a behavior, but we reconsider whether money is the right approach in the first place and if so, how that reward can be reframed in a way that makes it more powerful.
Traditional economic incentives can be powerful tools to change behavior, but in some situation, their effect can actually backfire.An experiment in Israel (Gneezy and Rustichini, 2000) showed that when a fine for late daycare pickup was introduced, more parents arrived late rather than fewer. Before the fine, being late meant facing the teacher that had to stay late taking care of one’s child, full of guilt.After the fine was introduced, tardiness was seen as transactional — ”I’m paying for their time!” In this case, it would have been better to never have introduced economic incentives into the first place.
The Gates foundation experimented with reframing incentives to encourage commuting by public transport — specifically using loss aversion. During a specific period, each time an employee commuted by car they were entered into a lottery with a “loser ticket”, and each time they commuted by public transport they were entered with a “winner ticket”. At the end of the period, one ticket was drawn. If your name was on a “loser ticket”, you were made aware that you could have won, but didn’t because you had commuted by car, and a new name was drawn. This method increased public transport commuting significantly compared to a basic lottery with only “winner tickets” (Gneezy and List, 2014).
One example of an Incentivize intervention comes from Wikipedia (Gallus 2016), who examined how non-monetary incentives can keep people participating in voluntary activities. Could a non-monetary incentive encourage greater volunteer participation in activities involved in keeping Wikipedia going, such as writing and editing articles?They conducted a research project on the GermanWikipedia,among 4,007 individuals over 11 months.A number of new authors and editors were given a symbolic reward.This reward consisted of an emblem (“Edelweiss”) posted on their personal page as well as an announcement on the official award page. This simple award with no monetary value increased the rate at which the authors stayed on the site by 20%, while the rate of article contribution increased by 13%.This shows that sometimes, a symbolic reward can drive behavior change effectively, without the need for an economic incentive.
What is the BOOST Model for Behavioral Change
BEHAVIOR - Define the desired outcome, understand the target group, and identify the most OR important behavior to get them there.What would you want people to do in an ideal world that they are not doing today?
OBSTACLE - Understand the barriers that inhibit your users from engaging in the desired behavior. Why do people get derailed? How does the decision-making process look and what cognitive biases are at play?
OUTLINE - Identify potential interventions to promote the behavior based on science. Look for inspiration from past projects that have worked in similar situation, and design nudge alternatives that have high potential to address your target’s barriers.
STUDY - Understand which intervention works best in your context by testing and quantifying the effect.What worked in one context might not work in the next, so experimenting is a key part of the process.
TAILOR - Adapt the winning intervention to your needs and implement across users and markets. If the results are promising, consider scaling. If the results are less promising, go back in the process to understand where to adjust to get a better result.
