Invitational Conference on Behavioral Science WRR, Netspar (Network for Studies on Pensions, Aging and Retirement), TIBER (Tilburg Institute for Behavioral Economics Research) and the Ministry of Finance
Behavioral Science Conference WRR TIBER Netspar Ministry of Finance
1. Conference Policy Challenges of Behavioral Science Lectures by prof. Barry Schwartz, prof. Robert Cialdini, prof. Max Bazerman, prof. Eldar Shafir, prof. David Laibson, prof. Zvi Bodie and prof. Henriette Prast The Hague, 11 February 2010 More information on www.wrr.nl
40. The Power of Defaults (Johnson & Goldstein, Science , 2003)
41.
42.
43.
44. The Power of Social Norms in Behavior Change Dr. Robert B. Cialdini Regents’ Professor of Psychology and Marketing Arizona State University
45.
46.
47.
48. Descriptive social norm (Consensus) If teenager is troubled If teenager has 3+ friends who smoke If teenager has 2 friends who smoke If teenager has a parent who smokes 14% 26% 1000% 2400% Increase in likelihood of smoking
49.
50.
51.
52. 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.
53. 7% 6% 5% 4% 3% 2% 1% 0% 8% Percentage of petrified wood theft. No-sign Control Lone Thief Descriptive Social Norm (3 Thieves)
65. 14.5 14.0 13.5 13.0 12.5 Energy Conservation Appeal Saving Money Benefit to Society Environmental Protection Combined Controls Energy Consumption (kilowatt hours consumed per day) Descriptive Norm Field Experiment
66. Descriptive Social Norm ( Consensus) How can we use this principle to advance national environmental goals? One possibility would be to engage the private sector in the process.
71. Why Don’t We Create Wiser Policies? A Behavioral Science Analysis Max H. Bazerman Harvard University Disclosure: I have received consulting teaching fees from Chevron, BP, PWC, Deloite Touche, and Ernst and Young.
72. The U.S. has a Council of Economic Advisors, but no Council of Psychological Advisors
73. The U.S. has a Council of Economic Advisors, but no Council of Psychological Advisors This talk: Toward a broader social science analysis of failures of public policy making
80. What is a rational policy change? Pareto efficiency? Near-Pareto efficiency (Stigletz, 1998): Policy changes that create large benefits for some and comparatively small losses for others, as well as changes that would hurt only a small, narrowly defined special-interest group—in many cases, a group that has already manipulated the political process to its advantage.
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
93.
94.
95. Political Explanations for the Failure to Enact Wise Policies Distortion of policies and prevention of meaningful campaign finance reform Overweighting of GM, Philip Morris, Final Four Accounting Firms, ExxonMobil, Etc. Underweighting of current citizens, and dramatic underweighting of future citizens
96.
97. Obfuscation Tobacco : They knew more than the government, hired skeptics, called for more research, and create a standard for evidence that they knew could not be achieved Auditing : Argued that no evidence existed about the effects of consulting, emphasized that their integrity was the solution Energy : Paid for “experts” to offer skepticism about climate change, while having ample knowledge that climate change existed
98. Shifting view of what is being challenged Tobacco : Cigarettes are good for you....No causal connection exists....to Cigarettes may be one of many factors that create illness....There is no evidence of second hand smoke affecting health and Of course, smokers knew the risk Auditing : Our reputations are your protection....Disclosure is the right solution Energy : Climate change does not exist....Climate change is not caused by humans....We shouldn’t act until we know that the benefit of action is justified
99. Encouraging Reasonable Doubt Tobacco : Create reasonable doubt, particularly by smokers who were customers, doctors, and legislators Auditing : No “smoking gun” versus “how would you create an independent auditing function” Energy : PR campaign to say that oil is addressing the issue, publicizing the doubt, and funding the skeptics
100. Status quo effects It works on an individual level And, it works on a national policy level Status quo effects interact with obfuscation, shifting views of the argument, and encouraging reasonable The result: We are too slow to overcome cognitive and political barriers to create wiser policies
101.
102. Behaviorally Informed Policy Design for the Poor Eldar Shafir Princeton University Behavioral Science Challenges for Policy The Hague, February 11, 2010
103. How are preferences revealed? John Beshears, David Laibson, Brigitte Madrian Harvard University James Choi Yale University February 2010
104.
105.
106.
107.
108. Data from Harvard Staff Control Treatment Fees salient 3% of Harvard staff in Control Treatment put all $$$ in low-cost fund $494 $518 Fees from random allocation $431
109. Data from Harvard Staff Control Treatment Fees salient 3% of Harvard staff in Control Treatment put all $$$ in low-cost fund 9% of Harvard staff in Fee Treatment put all $$$ in low-cost fund $494 $518 Fees from random allocation $431
110.
111.
112. Madrian and Shea (2001) Choi, Laibson, Madrian, Metrick (2004) Automatic enrollment Opt in Opt out
113. Employees enrolled under automatic enrollment cluster at default contribution rate. Fraction of Participants at different contribution rates: Default contribution rate under automatic enrollment
117. 03/02/10 How are preferences revealed? Agarwal, Driscoll, Gabaix, and Laibson (2006) Cash advance Late fee Limit fee
118.
119.
120. Choosing fruit vs. chocolate Read and van Leeuwen (1998) Time Choosing Today Eating Next Week If you were deciding today , would you choose fruit or chocolate for next week ?
121. Patient choices for the future: Time Choosing Today Eating Next Week Today , subjects typically choose fruit for next week . 74% choose fruit
122. Impatient choices for today: Time Choosing and Eating Simultaneously If you were deciding today , would you choose fruit or chocolate for today ?
132. 401(k) participation rate increases under active decisions 03/02/10 How are preferences revealed? Active decision cohort Standard enrollment cohort
133.
134.
135. 03/02/10 How are preferences revealed? Employees move slowly from an old match threshold to a new match threshold. Fraction of employees at 6% savings rate Fraction of employees at 8% savings rate Employer changes match threshold from 6% to 8%
136.
137.
138.
139. Typical breakdown among 100 employees Out of every 100 surveyed employees 68 self-report saving too little 24 plan to raise savings rate in next 2 months 3 actually follow through
140. Self-reports after a financial education seminar 03/02/10 How are preferences revealed? Seminar attendees Non-attendees Percent planning to make change Percent actually made change Percent actually made change “ Will enroll in 401(k)” 100% 14% 7%
149. Behavioral research: The importance of context and construal (in survey responses, language, perception, judgments, decisions, social / political life, etc…) A simple but profound fact: Decisions are not about objective states of the world, but about our mental representations of those states The Power of the Situation The Tendency to Underestimate the Power of the Situation
150.
151. The Power of Defaults Johnson & Goldstein, Science, 2003
161. A poor ‘identity’ Identity salience in the context of welfare benefits programs (EITC and local VITA sites) … Stopped to consider: 44% 58% ( ns) Of those, took the information: 36% 79% p= .03. (Total take up:) 16% 46% Neutral Affirmation Condition: (Crystal Hall, PU dissert., 2008)
162. The Context of Poverty General “lack of slack” means exhausted savings, mounting debt, making ends meet with current income. Material hardship is high: within a 12-month period, 90 percent of low to moderate income households experience major illness or medical expense, eviction, utility shutoff, phone disconnection, not having enough to eat, or a bankruptcy filing. [Detroit Area Household Financial Services study] Inherent to poverty: Scarcity Conditions of scarcity produce their own psychology. This psychology, interacted with scarcity, yields particular behaviors.
163.
164. Family Feud Multiple rounds High slack: 50 sec / rd (total 1000 sec) Low slack:15 sec / rd (total 300 sec) High interest loans.. (w. Anuj Shah)
165.
166.
167. No borrowing vs. high interest: P < .001 ( No borrowing vs. no interest: P < .09 )
176. The firm & the individual ( Barr, Mullainathan, & Shafir, 2008) Market neutral / wants to overcome consumer fallibility Market happy to exploit consumer fallibility com poun ding pro crastination Consumers misunderstand compounding in savings Banks would like to reduce this so as to increase savings base Consumers procrastinate in signing up for EITC Tax filing companies would like to reduce this so as to increase number of customers Consumers misunderstand compounding in borrowing Banks would like to exploit this to increase borrowing Consumers procrastinate in returning rebates Retailers would like to exploit this so as to increase revenues
177.
178. To summarize: Context has big impact on behavior Context of the poor is particularly tough Need context design and regulation (above & beyond financial education) to ameliorate outcomes for the poor...
187. Money (the poor) vs. Time (you) Tradeoffs If I buy this, what do If I do this, what do I not buy instead? I not do instead? Temptation Shouldn’t have Shouldn’t have bought… committed… Error/Distraction Failed to pay… Failed to do… Bad borrowing Given what you owe, what are you doing spending?! Given what you owe, what are you doing schmoozing?!.. Even basic goods become “luxuries” Even basic activities turn into “luxuries” Affordability
188. Zvi Bodie, Norman and Adele Barron Professor of Management, Boston University, and Member of the Scientific Council of Netspar and Henriette Prast, Professor of Personal Finance, Tilburg University, and Member of the Scientific Council for Government Policy, the Netherlands Behavioral science, junk science, and pension saving
189.
190.
191.
192.
193.
194.
195.
196.
197.
198.
199.
200.
201.
202.
203. Behavioral policy challenges for the Netherlands Henriëtte Prast Professor of Personal Finance, Tilburg University Member Scientific Council for Government Policy Netspar Fellow &TIBER Friend The Hague, February 11, 2010
Our argument was applied to a particular type of ethical challenge- conflicts of interest. We discussed the ways in which decision-makers fail to see easily visible information – that is, evidence of the conflict of interest – due to the strong psychological motivations to maintain a particular view of self. We described this failure to see ethical challenges, even when they are clearly visible to others, as bounded ethicality. Today, we are broadening this concept to that of bounded awareness, retaining the central idea.
Ulric Neisser (1979) asked participants to observe a video of two visually superimposed groups of players passing basketballs. In the video, one group of players wears white shirts and the other group wears dark shirts. Study participants were instructed to count the number of passes between members of one of the two groups. The task is moderately difficult, and study participants had to give it their full attention. Only 21% of Neisser’s study participants reported seeing a woman who clearly and unexpectedly walked through the basketball court carrying an open umbrella. Our own experience using this video in the classroom is that even far fewer than 21% of students notice the woman. Yet when the video is shown again to demonstrate what most of the class missed, everyone sees the woman. Essentially, by focusing on one task, people miss very obvious information in their visual world. Simons and Chabris (1999) replicated this effect with a more contemporary video in which a person in a gorilla costume walks through a basketball game, thumping his chest, and is clearly and comically visible for more than five seconds. Simons provides a series of such demonstrations on a video that is available at www.viscog.com . Our naïve observation of the videos is that the common failure to see the obvious is amazing, far exceeding conventional assumptions about our visual awareness. Investigating the relationship between perception and attention, Mack and Rock (1998) demonstrate that people have a broad tendency to not see what they are looking at directly when they are focused on a different issue. This failure, known as “inattentional blindness,” is nicely summarized in Mack and Rock (1998) and in the work of Daniel Simons (Simons, 2000; Simons & Chabris, 1999; Simons & Levin, 2003). Mack (2003) suggests the implications of inattentional blindness for the airplane pilot who, attending to his controls, fails to see another airplane in his runway. Similarly, many car accidents undoubtedly result from drivers focusing on matters other than driving, such as talking on their cell phones. Psychologists are conducting interesting research that connects inattentional blindness to neural regions in the brain (C. M. Moore & Egeth, 1997), and that identifies key independent variables that affect the probability of not seeing the obvious (Mack, 2003). Here, we ask whether inattentional blindness generalizes from the visual world to the broader array of information that is readily available in the environment, yet overlooked by most decision-makers, including negotiators. For guidance, we consider behavioral decision research on the related issues of focalism and the focusing bias.
Our argument was applied to a particular type of ethical challenge- conflicts of interest. We discussed the ways in which decision-makers fail to see easily visible information – that is, evidence of the conflict of interest – due to the strong psychological motivations to maintain a particular view of self. We described this failure to see ethical challenges, even when they are clearly visible to others, as bounded ethicality. Today, we are broadening this concept to that of bounded awareness, retaining the central idea.
- Shafir Feb 11, 2010
- Shafir Feb 11, 2010
WWS312/PSY321 Intro 9/17/09 pilot studies…
- Shafir Feb 11, 2010
- Shafir Feb 11, 2010
- Shafir Feb 11, 2010 Us today… Abu Ghreib A very recent lesson about human behavior / nature… Which is hard fully to appreciate.
- Shafir Feb 11, 2010 And the importance of understanding construal… You help soldiers in Abu Ghreib: Not through ethical training, but the design of better contexts…
- Shafir Feb 11, 2010
- Shafir Feb 11, 2010 Laibson & Colleagues: almost twice as many save when automatic enrolled as opposed to not, even 4 years later!! 401(k) enrollment: Madrian & Shea (2001): If want to enroll, call number..; vs. If don’t do anything - automatically enrolled (money market fund; at 2% savings rate) 38% vs. 86% (Libertarian Paternalism..) No child left behind… Bank of America - default minimum payment…
Financial education … - Shafir Feb 11, 2010
- Shafir Feb 11, 2010
- Shafir Feb 11, 2010 Retirement savings – save twice as much as those who got no advise, or declined it…
- Shafir Feb 11, 2010
- Shafir Feb 11, 2010 Other nudges / contextual features – whether intentional or not, conscious or not – can have substantial impact…
- Shafir Feb 11, 2010
- Shafir Feb 11, 2010 Large subsidies, Costly education, Change in values and “culture” behavioral insights may provide a different view… minor situational details can have a large impact
Dec. 15, 2009 Channel Factors (Lewin) Rather than needing education, further subsidies, change of values…
- Shafir Feb 11, 2010 Time management issues, etc. Contrast w. rational choice; cultural norms; distrust… After all is said & done: a minor situational nuance… Cf. “Save More Tomorrow” (Benartzi & Thaler)
- Shafir Feb 11, 2010 The context of social welfare benefits programs… And personal identity: incompetent, ineffective, resigned..
Capitalism/Poverty-Chicago Context of poverty = high material hardship Oct. 29
- Shafir Feb 11, 2010 Attention and coding/bracketing…
Simulation of low vs high slack…(among otherwise NON poor) JDM-Chicago
Poor borrow a bit less absolutely but more relatively AND do not differentiate much between interest rates… JDM-Chicago
Windfall rounds were randomized, shown evenly distributed for ease of understanding For each condition, the MINIMUM number of rounds is shown (if people exit rounds early, then there will be more rounds)
Raw data shown, but if you compare the relative decrement in performance within each slack condition, then the interaction is significant.
Studies on depletion, cognitive load,.. Poor are not different; but their context is, which renders their state worse..
Disclosure vs. Product regulation
Relationship to firms – nontrivial… SMaRT – Save More Tomorrow
Since can’t really control: Change Scoring! (reasonable man standards ex post...) Scoring will alter profit calculus - firm wants to abide by “juries” scoring decisions…(Administrative judges; consumer finance judges.) Scoring: instead of telling you what to do; changing your outcomes (profits, etc..) Vanilla options – Mortgages (30 yr, fixed rate, standard LTV minima…), credit card, etc. Opt-out, alternative offers require heightened disclosures & suitability protections
Dec. 15, 2009
- Shafir Feb 11, 2010
- Shafir Feb 11, 2010 What do the poor know?.. Temptations may not scale with income…
- Shafir Feb 11, 2010 Self-reports (adhering to our theory)… does not scale with income
- Shafir Feb 11, 2010 Tradeoff thinking, etc.: Time for us…who are time poor.
- Shafir Feb 11, 2010
- Shafir Feb 11, 2010
Capitalism/Poverty-Chicago South Station Boston (Poor: better economists..) Oct. 29