Nudges and Behavioural Public Policy 2

Question 1

Default option example

Answer 1

• make automatic enrolment in to pensions default
• make organ donations default with opt-out option

Question 2

Why do default options work?

Answer 2

• people have a tendency to do nothing - inertia
• status quo bias
• important part of the choice architecture as a large number of people will end up with the default
• can be strengthened through suggestion that this is recommended option

Question 3

What are examples of Frames?

Answer 3

• If you use energy conservation methods, you will save $350 per year
• If you do not use energy conservation methods, you will lose $350 per year
  The second framing could be more effective due to loss aversion (if an individual losses x, they suffer a greater loss in value than the increase in value they experience if they gain x)

Question 4

How does faming work?

Answer 4

It is often System 1 (automatic) that makes decisions rather than system 2 (reflective) which would conclude that the outcome of the two options is the same

Question 5

Example of use of Social Norms

Answer 5

Poster: most of Gallatin County’s Young Adults (89%) Don’t Drink and Drive
Letter: x% of your neighbours pay their taxes
News: x% of adults are vaccinated

Question 6

Why do social norms work?

Answer 6

• people have a tendency to conform & follow the herd (sometimes based on thinking that others have more information than them; sometimes simply herding; sometimes thinking that others are paying more attention to them than they actually are)

Question 7

What does it mean to prime?

Answer 7

to influence subtly in order to increase ease at which certain information comes to mind
Study: asking about intention to vote the day before election increases probability of voting by 25 percent

Question 8

Objections to Nudges & Potential Responses - What are some objections to nudges?

Answer 8

• slippery slope argument - manipulation concerns
• evil nudges and bad nudges
• right to be wrong
• required choosing better than nudging (provide info & let people choose)
• neutrality preferred
• nudges not enough in some situations
• salience objection (nudges, e.g. reminders may make distort individual focus from what is important)

Question 9

Objections to Nudges & Potential Responses - What is the slippery slope argument?

Answer 9

If libertarian paternalism (nudges) accepted, hard paternalism (bans) will follow
- But: what if the policies are helping people achieve what they themselves would want
- Many of the nudges intend to substitute for hard paternalism (they offer choice)
- In many case nudge is inevitable, some form of choice architecture is there

Question 10

Objections to Nudges & Potential Responses - What is the evil nudges and bad nudges concern?

Answer 10

concern that choice architects constructing nudges may have their own agenda or be incompetent
- proposed solution: create rule of engagement that make it easy to monitor nudgers
- both for public and private choice architects
- increase transparency (e.g. RECAP)

Question 11

Objections to Nudges & Potential Responses - What is the right to be wrong

Answer 11

• helpful to make mistakes - basis for learning
• But: Perhaps with some decisions it is difficult to learn as outcome is realized only later or decision is one-off

Question 12

Objections to Nudges & Potential Responses - Required choosing better than nudges; better to provide info and let people choose

Answer 12

Yes, sometimes. But sometimes choice may be hard and options too numerous. Also, people often choose not to choose

Question 13

Objections to Nudges & Potential Responses - Neutrality preferred

Answer 13

but: it is sometimes difficult to be neutral
- randomizing ballots makes sense but not randomizing assignment to insurance policies

Question 14

Objections to Nudges & Potential Responses - Nudges not enough in some situations

Answer 14

• Yes, but in others they may be useful
• they may be seen as complements to more paternalistic policies

Question 15

What is scarcity?

Answer 15

having less than you feel you need

Question 16

What are different types of scarcity?

Answer 16

Financial scarcity - unemployment, poverty
Social scarcity - social isolation
Time scarcity - perpetually busy
Dieting - may feel that need for more calories than are allowed

Question 17

How is Scarcity different from usual Economics concept?

Answer 17

Usual concept of “scarcity” in Economics:
- “How we use our limited means to achieve our unlimited desires”
- “How people and societies manage physical scarcity”
- everyone faces scarcity; money as a limited resource; have to make trade-offs (if I buy x, can’t buy y)
- but having limited resources is not necessarily equal with a feeling of scarcity
Key idea of Mullainathan and Shafir’s Scarcity:
- Physical limits matter but also the subjective perception of them.

Question 18

What does Scarcity do to our minds?

Answer 18

• Focus dividend - heightened productivity when facing a deadline
  -> cost of the focus dividend - other things are neglected
  Tunnel - Focus single-mindedly on the scarcity at hand

Question 19

How does tunnelling change our decisions?

Answer 19

By focusing on a deadline, we neglect other things (e.g. going to the gym)
Entering a tunnel
- changing what comes to mind (may forget about gym)
- costs of activities outside the tunnel are magnified, benefits minimized (health benefits of gym not as pressing)
Tunnelling tax: focus on stuff inside the tunnel at the expense of stuff outside the tunnel, e.g. forego health insurance if you are on a tight budget or eat while driving if you are in a hurry

Question 20

What does Scarcity affect?

Answer 20

Scarcity affects:
- Cognitive capacity: underlies ability to solve problems, retain information, engage in logical reasoning and so on; a central feature is fluid intelligence
- experience of poverty reduced a person’s cognitive capacity more than going one full night without sleep
- Executive Control: underlies ability to manage cognitive activities such as planning, attention, initiating and inhibiting actions, and controlling impulses (e.g. Marshmallow test to measure self-control)

Question 21

Scarcity affects bandwidth. What is bandwidth?

Answer 21

Bandwidth
- computational capacity
- ability to pay attention
- ability to make good decisions
- ability to stick with plans
- ability to resist temptations

Question 22

What removes the feeling of scarcity?

Answer 22

Slack
- part of our budget is left untapped because of the way we pack - inefficiency in how we allocate or distribute our resources due to no slack/ room to make decisions etc.
untapped budget: part of the budget remains unutilized because resources are not allocated optimally
- mental luxury
- allows us time to think
- allows us not to mind mistakes
- Slack removes feeling of scarcity
- it thus affects tendency to consider or not consider trade-offs
- slack refers to the extra capacity, or surplus that provides flexibility in managing resources.
- when slack is absent or minimal, individuals are pushed to their limits, with limited room to adapt to changes or address emergencies

Question 23

What does scarcity make people do?

Answer 23

Scarcity makes people tunnel
- their minds become preoccupied solely with what they feel scarcity on
- their cognitive and executive control is affected and they therefore perform worse on various tasks including IQ tests

Question 24

Anyone who suffers from scarcity has more or less bandwidth?

Answer 24

less bandwidth
It is the scarcity that creates less bandwidth that exacerbates poverty

Question 25

What are the common ingredient across all forms of scarcity?

Answer 25

tunnelling
borrowing
a lack of slack
bandwidth tax
But: while a busy professional can choose not to take on any more projects, a person under poverty cannot what they want or think they need
- persistent poverty causes a scarcity loop and taxes the mind constantly

Question 26

What are possible policy implications of poverty and scarcity?

Answer 26

• realization that the experience of scarcity makes people perform worse on cognitive tests, exhibit less self-control
• try to reduce scarcity and create more slack, e.g., by creating opportunities to borrow at a lower interest rate
• unconditional (in-kind benefits provided to individuals or households without requiring them to meet specific conditions to receive the support e.g., a cash payment given to low-income individuals) rather than conditional (benefits provided only if recipients meet certain criteria e.g., a govt program that gives cash assistance to families only if their children attend school) transfers to people in poverty
• conditional transfers involve requirements that not only take time and effort but also tax the bandwidth

Question 27

Examples of Lack of Slack in Scarcity

Answer 27

Financial Scarcity: A person with no savings must borrow at high interest rates when an emergency arises
Time Scarcity: A busy parent juggling multiple responsibilities might skip self-care or neglect long-term planning
Bandwidth Scarcity: A student working multiple jobs while studying may struggle to focus on academics, leading to poorer outcomes