Behavioural economics | The Swedish Nudging Network

Nudge yourself towards more self-satisfaction in 2015

Posted on December 31, 2014 by idalemoine

The fox wanted the grapes, but when she found she couldn’t reach them she decided that they were probably sour, so she revised her original intention and believed that she never really wanted the grapes in the first place.

– The fox and the sour grapes, Aesop’s fable

One more year has passed and hopefully you have become wiser in life. You have not done the same mistakes like the year before, you know how foolish it is to do the same mistake twice. You have handed in all deadlines in time, you have ended all bad habits and you have never been to fatigue to care about your beloved ones.

Every year there is a constant strive to improve us to the next. New Years resolution is an excellent way to give us bad conscious. We set goals for the coming year, but do we act with them?

We all know that we sometimes cave into urges and don’t always do what we planned and we follow old habits even though we know they are bad for us. Our capacity to make decisions has limitations and we tend to use heuristics (i.e. mental shortcuts) in our everyday decision making Simon (1990). It seems to be very hard for us individuals to accept that we not all the time act with our intentions. When you look back on 2014, what would you remember? What are your best and worst moments? Is it the ones that Facebook would summarize, or is it the ones that social norms and society would define?

When you scrutinize yourself and the year, would you be grateful of your success stories or disappointed of that you haven’t accomplished?

There appears like we accept ourselves when we act in line with the rational Home economicus, but there is important to understand that happiness do not correspond to utility Clark et al. (2008). Happiness is subjective and very hard do define. If we would be more accepting towards our inadequacies and be more satisfied with out actions, would we be happier?

What if we could use cognitive biases to our advantage and with this be more satisfied with ourselves? I will give you my New Years Resolution “nudge”. It might be self-serving to argue for the benefits of mental shortcuts. But it helped me to be more satisfied with myself this year. I want to encourage you to accept your own decisions and that it’s fine to change your beliefs.

The fox and the sour grapes is a story that capture the psychological theory, cognitive dissonance, where people change their beliefs in order to reconcile with their past actions and behaviour Festinger (1957). We fall for self-deception and do not see things for what the really are, irrational behaviour. The theory states that people are motivated to avoid having their beliefs in a dissonant or conflicting relationship, and that we feel uncomfortable when dissonance occurs. But the brilliant function of cognitive dissonance is that it is much easier to change your beliefs than your actions. Even though it is obscuring the realities of situations and could lead to bad decisions it still is one way to bolster self-esteem and increase the sense of wellbeing, or even increase happiness.

So, – Did you accomplish all your New Years resolutions? Don’t forget to have The fox and the sour grapes in mind, it might nudge you to be more satisfied with the year.

SNN wishes you a fruitful 2015 🙂

Clark AndrewE, Frijters Paul, Shields MichaelA. (2007) Relative income, happiness, and utility: an explanation for the Easterlin paradox and other puzzles. Journal of Economic Literature.

Festinger, L. (1957). A theory of cognitive dissonance. Stanford, CA: Stanford University Press.

Herbert A. Simon. (1990). Invariants of Human Behavior, Annual Review of Psuchology

Nudges can backfire…

Posted on December 18, 2014 by lindalindstroms

In Sweden we have an alcohol monopoly, where only the store called Systembolaget is allowed to sell alcohol. Stated at Systembolagets webpage, it exists for one reason: “To minimize alcohol-related problems by selling alcohol in a responsible way, without profit motive.” During Christmas this year, they have a campaign with a message on their plastic bags stated as follows:

Bildtillblogpost4

“ The fact that we are the only one that sells beer, wine and liquor is a bit uncomfortable for you. But this is what you contribute to this year:

About 2000 saved lives

About 20 000 less violence crime

About 11 million less sick days”

Now… From a behavioural perspective, how does this make you feel? Perhaps I’m the only one, but this text actually puts me in a mood that make me feel – Yay, I just bought something for a good cause! Great, this justifies my alcohol shopping… Well, let’s be frank, I don’t think that’s the intention with the message.

Research led by Prof. Robert Cildini at Arizona State University proves that nudges can indeed backfire. In a national park, the research team tried to stop people from stealing petrified wood by posting: “Many past visitors have removed wood from the park, changing the state of the Petrified Forest”. But, with this warning, theft rates still stood high. So they changed the sign: “Your heritage is being vandalized every day by theft losses of petrified wood of 14 tons a year, mostly a small piece at a time”. Surprisingly, this warning influenced theft – but not in the intended direction: stealing jumped from 5 percent to almost 8 percent. The researchers concluded that the message people received was not “don’t steel the petrified wood” but rather “Stealing petrified wood is a common and socially acceptable behaviour.” This research proves that the intended effect the nudges can truly backfire. It emphasizes (as always) the importance of experimental testing thus, behavioural response to nudges can be unpredictable and very context depended.

I assume, that the intentions behind Systembolagets campaign are in line with the reason of why they exist, again: “To minimize alcohol-related problems by selling alcohol in a responsible way, without profit motive.” Maybe the campaign does work, we don’t know, as it’s most likely not tested.

But… According to me, from a behavioural perspective this is not a responsible campaign as it gives you a positive feedback holding a bag of alcohol. Hypothetically, this type of nudge may backfire making consumption of alcohol unintentionally justified as a good cause and consequently increase those numbers stated on the bag for next year…

“Systembolaget wishes you a very merry christmas”……

Reference:

Cialdini, R. B., Demaine, L. J., Sagarin, B. J., Barrett, D. W., Rhoads, K., & Winter, P. L. (2006). Managing social norms for persuasive impact. Social influence, 1(1), 3-15.

Could nudging bridge equality gaps?

Posted on November 24, 2014 by lindalindstroms

In Sweden, only about 2.4 % of total CEOs in listed companies are female (SCB, 2014). In fact, there are more male CEOs named Johan than there are CEOs who are female. Still, women educate themselves to a greater extent and in addition even manage their studies better than men. So, It is not fair that there are so incredibly few female CEOs even though they actually have the right skills for the job. One contributing factor that is likely to induce this equality gap is the gender bias. E.g. we are much more likely to implicitly think CEO – men, and Nurse – female. Or, when you first saw the picture above – what was your response? You probably thought of something relating to boys and girls and colour of the babies clothes – although the picture doesn’t even explicitly say that the babies are a boy and a girl. Still, that was your association. As we are not exposed of seeing females as CEOs or men as nurses, our sub-conscious won’t either.

Evidence suggests that the gender bias is automatically activated as soon as evaluators in hiring processes learn the sex of a candidate. Moreover, it may lead to unintentional discrimination rather than objective judgment. It happens that the recruiter is under the influence of gender bias and unconsciously ascribes group stereotypes to the candidate.

Harvard University researchers (Bohnet et al., 2012) showed in an experimental study some interesting implications regarding gender bias and the hiring process. They imply that gender bias played a role when determine positions that women and men were judged to be qualified for. The study builds on insights from prospect theory that our mind tends to make relative judgments rather than absolute judgments. E.g. whether you think your coffee tastes good – depends on what coffee you have drunk before. It is very hard to calibrate if it is a “nice cup of coffee” if you have nothing to compare it to, you base your judgment on whatever comes to mind.

When it comes to hiring and promotions for upper management positions (such as CEOs), these decisions are often done one at a time or as a separate evaluation. Therefore, the authors wanted to test if the candidates were evaluated differently in groups, where they could be comparatively judged. The study involved 654 participants (men and female); 100 played the role of candidates seeking new positions and the rest played the role of employers. The candidates performed math and verbal tasks, activities that according to the authors could trigger gender bias, as females are believed to be worse at math tasks and better at verbal tasks than males. The employers subsequently were asked to choose which candidates were qualified to go on to a second round of competence tests.

In the separate evaluation, employers chose men over equally qualified women for a male-stereotypical assignment. In fact, they even preferred lower qualified men for male-stereotypical assignments to higher performing women for the task. Likewise, the employers preferred woman to equally qualified men for female-stereotypical assignments. However, tested in a joint evaluation, where the decision-making environment showed information about performance of both male and female candidates, the gender gap disappeared.

The study therefore proposes that evaluating candidates in groups or in joint evaluations can mitigate the gender bias. It enables the recruiter to compare candidates, which increases the likelihood that employers would assess them based on their performance and potential, rather than gender stereotypes.

Equality gaps are structural complex problems that need to be ambushed from many different angles. This type of “evaluation nudge” mentioned above is one of many tools that may be effective. I think that by being aware of equlity biases such as the gender bias, and understand why they are there, that your association (sometimes an image or a feeling) is there because you have been exposed to that link frequently (e.g. that girls babies might wear pink more frequently than boys) you might at least be one step closer at building the bridge over equality gaps.

Whether it is unintentional or not, we are all prejudices. We make certain associations, cognitive shortcuts through things that we have seen, heard or believed in our lives. If society is custom in a certain way, our mind tend to follow its path which sometimes lead us to unconsciousness discriminating misjudgments. For an eye-opener, I strongly recommend you to do som Implicit Association Tests (IAT) here. Most of you will then realize – seeing is sometimes unconsciousness believing. Be aware that your brain takes these shortcuts, which sometimes makes you unintentionally prejudice, racist and gender discriminating. If you are aware of these biases and when they occur – you can actively work against them and hopefully even change the associations that they bring.

References

Bohnet, I., Van Geen, A. V., & Bazerman, M. H. (2012). When performance trumps gender bias: Joint versus separate evaluation. HKS Faculty Research Working Paper Series RWP12-009, John F. Kennedy School of Government, Harvard University.

Statistiska Centralbyrån (SCB). Kvinnor och män i arbetslivet, 2013, available on the internet at: http://www.scb.se/Statistik/_Publikationer/LE0201_2013A01_BR_LE0201BR1301.pdf (last accessed on 24 November 2014)

So, when is it legitimate to nudge?

Posted on November 5, 2014 by lindalindstroms

Critical debates about the nudge approach as a policy tool are often about that nudging “manipulates people’s choices“. That government tricks people to, in their unconsciousness, choose a certain choice. When it comes to this characterization of critique, Hansen and Jespersen (2013) highlights in a well written paper that there are often some unseen areas in the debate. Firstly, they argue that standard policy tools are seldom transparent. Hence, the critique about “manipulation of choice” applies not only for nudging – but for most types of policy instruments. E.g. who among us knows what taxes are applied to every product in the supermarket? So, perhaps a more accurate debate regarding this critique would be the question if paternalism is justified at all? And that’s another debate… Another valid point is that there are different types of nudges, some that may be more appropriate than others when it comes to policy implementation. Hansen and Jespersen divide nudges in to two types; type 1 and type 2. Both aim at influencing automatic behaviour*, but only type 2 is anchored in reflective behaviour*. Therefore, type 2 can be argued to change – not only people’s behaviour – but people’s choices, thus alleviate the manipulation of choice. The authors further divide these types in to two groups – transparent and non-transparent nudges. A transparent nudge is when the citizen being nudged, she or he reasonable understands the intention behind it. A Non-transparent nudge is working in a way that the citizen in situation cannot reconstruct the means by which the behavioural change is pursued. I have tried to clarify these types in the following table.

	Transparent	Non-transparent
Type 1	Reflective system not engaged in the behaviour change per se, but the nudge is transparent in the way that it allows the influenced person to recognize the means. Examples: Using color red to draw attention, changing printer defaults from one-sided to double-sided printing	Trigger change in automatic behaviour, but doesn’t give away the intention behind the nudge.Examples: reducing plate size, changing order of food in restaurants.
Type 2	Engages the reflective system and prompts decision-making in ways that are transparent for the person. Examples: Fuel economy information label, prompted choice for organ-donation.	Reflective system engaged, doesn’t happen in a way that by itself gives people epistemic access to the intentions and means. Example: posting faces to increase compliance rates with norms such as cleaning up after oneself or paying for coffee

Still, this is a general categorization and the transparency can have different scales. For a more detailed description – I recommend you to read the paper. Thus, one comment that I would like to add to this paper is that people have different reactions to the nudge depending on their own internal context. A nudge can be subjective – transparent for one person while non-transparent for another hence may be hard to charegorize. But in general, I think this is a quite nice way of analysing central component for a more nuanced ethical framework for policy recommendation. Nevertheless, behavioural market failures notion that people are in fact sometimes bad choosers – making their (and other) lives go worse. Sunstein (2014) argues that it is legitimate and good reasons to use choice architecture to counteract behavioural market failures (i.e. justify paternalism) when behavioural market failures occur and are significant. Sunstein ventures a general principle; the first (and only) law of behaviourally informed regulation: In the face of behavioural market failures, nudges are usually the best response, at least when there is no harm to others. Expectations to this law is that a careful analysis of the social welfare consequences from the choice response. For example, laws that require people to buckle their seatbelts, or prohibit them from texting while driving are based on well-justified cost-benefit grounds and count as acceptable forms of paternalism. Hence, if justified by this law of behaviourally informed regulation, e.g. some types 1 and non-transparent nudges can be legitimate to use in policy. Conclusions we can draw from this discussion are that by maintaining transparency in the goals and methods of nudges, policy-makers can avoid the moral pitfall of paternalism. However, this does not preclude the mandate of using e.g. type 1 non-transparent nudges, but that it is important to careful evaluate and proper acknowledge the cost and benefits of the potential response from the nudge. * The dual process theory underpins the nudge approach and encompasses the concept of ‘system 1 and system 2 thinking’ (Kahneman, 2011). It emphasizes that the human brain functions in two ways that invites for a distinction between two kinds of thinking. ‘System 1’ is fast, intuitive and automatic, and ‘system 2’ is slow, rational and reflective. The two cognitive modes of thinking can be active in combination or in isolation. Thaler and Sunstein (2008) names them ‘automatic’ and ‘reflective’ system. References: Hansen, P. G., & Jespersen, A. M. (2013). Nudge and the Manipulation of Choice: A Framework for the Responsible Use of the Nudge Approach to Behaviour Change in Public Policy. Eur. J. Risk Reg., 3. Kahneman, D. (2011). Thinking, Fast and Slow. New York Sunstein, C. R. (2014). Why Nudge?: The Politics of Libertarian Paternalism. Yale University Press. Thaler, R. H., & Sunstein, C. R. (2008). Nudge: Improving Decisions About Health,Wealth, and Happiness. Yale University Press, Boston

The Economic (Super)man vs. HomER economicus

Posted on October 30, 2014 by lindalindstroms

With this blog post, I intend to give a (very) brief taste for newbies to the field of behavioural economics. And by that – lets start by talking about some standard economic theory and a rarity of man called Homo Economicus. Homo economicus is a very rational man who carefully weighs cost and benefits and is well-informed by his existing preferences – that is, he computes the values of all the options he faces, and then follows the best possible path of choice. We can also call him superman – hrmhrm, minus the fact that he only maximizes utility in his choices with regard to his own self-interest. This self-interested Superman (nope, he doesn’t sound very charming at all) is what standard economic theory assumes we are as humans. Subsequently, it is also what standard policy tools (e.g. taxes, subsidies, bans & regulations) that target human behaviour are based on.

However, we all now that we as humans are not always rational in our choices. A substantial body of research proves that we are very much influenced by limited cognitive resources, incomplete information and heuristics that lead to systematic deviations from our “rational” choice. Heuristics are mental shortcuts that humans rely on which though to simplify judgemental operations. These heuristics are in general quite useful (it helps you to not being forced actively reflect on every little single bit action you do), but also quite often they lead to severe cognitive biases. Biases that reasons in a way, which is not in accordance with norms of logic and probability. Let’s give you one of the behaviour economics guru Daniel Kahnemans’s favourite examples of how a cognitive bias can occur (although I Swedishonized the version a bit):

An individual in Sweden has been described by a neighbour as follows: Veronika is a very shy and withdrawn person but always helpful to people. She has a passion for reading books and is a very tidy soul with a detail for order and structure. Is Veronika more likely to be a librarian or a doctor?

Now, most people’s first intuitive thought or image that pops up into their mind is that Veronika is a librarian. Surely, this is because Veronika resembles a librarian more than a doctor. But, what “rational” people first should think of is that there are almost ten times more doctors than librarians in Sweden – hence Veronika is more likely to be a doctor. This example is just one out of MANY that proves that we deviates from Mr. Rational Superman.

In fact, we are far more complex than just being rational and therefore behavioural economists rather call us humans HomER economicus. For example, we tend to postpone things that we rather would like to be done with, have unhealthy living habits where we smoke, eat too much and exercise to little and – we consume beyond the planet’s capacity to recover. Therefore, in the area of public policy-making and tools that are based on biased assumptions – the intended effect may lead to failures. Behaviour economics, and in particular nudging, which recently has become a field within applied behavioural economics, is all about understanding these failures in order to change human behaviour.

Applied behavioural economics acknowledge the importance of having an interdisciplinary evidence-based approach using economic with insights from psychology. It emphasizes the role of analyze and test (often via experiments) in order to reveal if the policy intervention actually reached an intended effect on human behaviour. In conclusion, the purpose with this blog – as Britt mentioned in her previous post is NOT to say that “nudging” is the solution of all problems – but to spur an open debate about use of it as a tool with the aim of increasing “good” behaviour in Sweden. Nevertheless, not all nudges are good nudges – nudging is a powerful tool and can be harmful if being used in the wrong hands. But a debate about the ethics of nudging requires much more space than what I will dedicate this post – we’ll save that discussion for an upcoming one!

For those of you how had no clue what behavioural economics is about – hopefully this post gave you a teaser about it and why we should look at policy through a evidence-based behavioural lens.

Over and out!

On the behalf of the Swedish nudging team,

Linda

Ps.. Oh, and to be clear – I only shared a glance from my own head in this post. For a more comprehensive understanding I suggest you to dig deeper in to the literature. We will soon provide a reading – and watching list for those who are interested in knowing more!