Behavioural Public Policy Journal

The new journal "Behavioural Public Policy" edited by Adam Oliver, Cass Sunstein, and George Akerlof is a very welcome addition to the intellectual environment in this area. Forthcoming article titles for 2017 are below, including many leading figures in the field.

Sarah Conly: ‘Paternalism, Coercion, and the Unimportance of (Some) Liberties’.

Shaun Hargreaves Heap: ‘Behavioural Public Policy – The Constitutional Approach’.

David Hirshleifer and Siew Hong Teoh: ‘How Psychological Bias Shapes Accounting and Financial Regulation’.

Michael Jones-Lee and Terje Aven: ‘Weighing Private Preferences in Public Sector Safety Decisions: Some Reflections on the Practical Application of the Willingness to Pay Approach’.

Dan Kahan, Ellen Peters, Erica Dawson and Paul Slovic: ‘Motivated Numeracy and Enlightened Self-Government’.

George Loewenstein and Nick Chater: ‘Putting Nudges in Perspective’.

Pete Lunn and Aine Ni Choisdealbha: ‘The Case for Laboratory Experiments in Behavioural Public Policy’.

Sunita Sah: ‘Policy Solutions to Conflicts of Interest: The Power of Professional Norms’.

Barry Schwartz and Nathan Cheek: ‘Choice, Freedom, and Well Being: Considerations for Public Policy’.

Cass Sunstein: ‘Nudges that Fail’.

Society for the Advancement of Behavioural Economics

The Society for the Advancement of Behavioural Economics (SABE) has a new website and twitter page. I will be the country representative for Ireland and we will work with SABE to coordinate the events we are hosting here with the wider global network. SABE is also taking submissions for the recently formed Journal of Behavioural Economics for Policy and the first issue is available here.

Nudging and Boosting: Steering or Empowering Good Decisions

It’s a great pleasure to have Professor Till Grüne-Yanoff from the Royal Institute of Technology (KTH), Stockholm in Stirling on Tuesday April 11. He will give a talk on Tuesday this week (11th April 2017) at 2pm. He will focus on “Boosts” whose objective is to foster people’s competence to make their own choices. The talk will take place in the Stirling University "Court Room" on the fourth floor of the Cottrell Building. All are welcome.

“Nudging and Boosting: Steering or Empowering Good Decisions”.

Abstract:

Insights from psychology and behavioral economics into how people make decisions have attracted policymakers’ attention. These insights can inform the design of nonregulatory and nonmonetary policy interventions—as well as more traditional fiscal and coercive measures. To date, much of the discussion of behaviorally informed approaches has emphasized “nudges,” that is, interventions designed to steer people in a particular direction while preserving their freedom of choice. Yet, behavioral science also provides support for a distinct kind of nonfiscal and noncoercive intervention, namely, “boosts.” Their objective is to foster people’s competence to make their own choices—that is, to exercise their own agency. Building on this distinction, we further elaborate how boosts are conceptually distinct from nudges: The two kinds of interventions differ with respect to (i) their immediate intervention targets, (ii) their roots in different research programs, (iii) the causal pathways through which they affect behavior, (iv) their respective assumptions about human cognitive architecture, (v) the reversibility of their effects, (vi) their programmatic ambitions, and (vii) their normative implications. We discuss each of these dimensions, provide an initial taxonomy of different boosts, and address some possible misconceptions about boosts.

Jobs and Studentships in Behavioural Science at UCD

1. See this link for some details of our new behavioural science and policy group at UCD

2. See this link for information on part-time and/or employer sponsored options for our new MSc in Behavioural Economics

3. We are currently advertising a 2-year postdoctoral position with a closing date of May 31st 2017

4. There are a number of PhD scholarships available at the UCD School of Economics, including in this research area.

5. Details of the MSc in Behavioural Economics are available here.

Hume's Treatise of Human Nature and Behavioural Economics

I posted before on a remarkable quotation from the Treatise of Human Nature. The quote captures beautifully one of the core areas of behavioural economics, namely present bias and the role of various mechanisms to promote future oriented and otherwise productive decision-making. 

"In reflecting on any action, which I am to perform a twelve-month hence, I always resolve to prefer the greater good, whether at that time it will be more contiguous or remote; nor does any difference in that particular make a difference in my present intentions and resolutions. My distance from the final determination makes all those minute differences vanish, nor am I affected by any thing, but the general and more discernible qualities of good and evil. But on my nearer approach, those circumstances, which I at first over-looked, begin to appear, and have an influence on my conduct and affections. A new inclination to the present good springs up, and makes it difficult for me to adhere inflexibly to my first purpose and resolution. This natural infirmity I may very much regret, and I may endeavour, by all possible means, to free my self from it. I may have recourse to study and reflection within myself; to the advice of friends; to frequent meditation, and repeated resolution: And having experienced how ineffectual all these are, I may embrace with pleasure any other expedient, by which I may impose a restraint upon myself, and guard against this weakness."

As I noted in the previous post, the Scottish Enlightenment is a historical antecedent to the development of a wide range of modern thought. Ashraf, Camerer and Loewenstein's "Adam Smith, Behavioral Economist" provides an account of the ideas of one of the era's main figures. As well as Smith, over the years I have become increasingly struck by how much of the philosophical essence of the modern behavioural turn in economics is captured in Hume's Treatise of Human Nature.

The Treatise is divided into three books: "Of the Understanding", "Of the Passions", and "Of Morals". The final sentence of the introduction already gives a sense of the grounded empiricism that characterises his approach and has such an affinity with current emerging literatures.

"We must therefore glean up our experiments in this science from a cautious observation of human life, and take them as they appear in the common course of the world, by men's behaviour in company, in affairs, and in their pleasures. Where experiments of this kind are judiciously collected and compared, we may hope to establish on them a science which will not be inferior in certainty, and will be much superior in utility to any other of human comprehension."

Book 1 examines how people make sense of the world and establish causal connections and other relationships. It is one of the founding documents of modern cognitive science and, by implication, the type of behavioural economics work that grew from the cognitive revolution. The difficulty in establishing causal ordering in the world and the necessity for humans to attempt to do this based on their limited experiences is of course at the essence of behavioural accounts of how people make economic decisions. Furthermore, the extent to which decisions are influenced by the interplay of reasoning and emotions is core to the Treatise, with the second book dealing in detail with the role of "passions" in human decision making. As with Smith's "Theory of Moral Sentiments", Hume deals with a variety of human emotions and their effects. The call by Jon Elster to bring emotions back into the heart of the study of human decision making finds a philosophical home in this book.

To some extent the relation of Hume to modern behavioural economics and behavioural science could be seen as coming through the implications he had for the psychological literatures that emerged from philosophy in the 20th century. For example, to the extent that Hume's work is the philosophical antecedent to cognition research, then he obviously affected behavioural work through this. But I think, the third book of the Treatise, from where I found the original quote shown above, has a more direct link. In this book, Hume moves from describing human nature to discussions of what we should do. In particular, he examines the role of government, law and institutions in pushing people toward the common and longer-term good. The style of reasoning is almost directly related to modern behavioural theories of commitment devices and related mechanisms of policy. Section VIII "Of the origin of government" shows this most closely. As well as the quote above that motivated this post, see also below (and apologies for the length). The passage below directly precedes the first quote above. It is a remarkable argument for the limits of individual decision making and the importance of wider deliberative action to promote both common interests and long-term welfare. In total, the interplay in Hume of reason and emotions in influencing decisions, the problems of limited understanding of the world, our tendency toward short-termism, and the role of institutions as co-ordinating mechanisms, as well as his belief in the importance of grounded empiricism, makes his work in my view the most cogent philosophical antecedent to current behavioural economics and behavioural science and policy work. This was my motivation for using "Back to Hume" as the title of a recent lecture.

"Nothing is more certain, than that men are, in a great measure, governed by interest, and that even when they extend their concern beyond themselves, it is not to any great distance; nor is it usual for them, in common life, to look farther than their nearest friends and acquaintance. It is no less certain, that it is impossible for men to consult, their interest in so effectual a manner, as by an universal and inflexible observance of the rules of justice, by which alone they can preserve society, and keep themselves from falling into that wretched and savage condition, which is commonly represented as the state of nature. And as this interest, which all men have in the upholding of society, and the observation of the rules of justice, is great, so is it palpable and evident, even to the most rude and uncultivated of human race; and it is almost impossible for any one, who has had experience of society, to be mistaken in this particular. Since, therefore, men are so sincerely attached to their interest, and their interest is so much concerned in the observance of justice, and this interest is so certain and avowed; it may be asked, how any disorder can ever arise in society, and what principle there is in human nature so powerful as to overcome so strong a passion, or so violent as to obscure so clear a knowledge?
It has been observed, in treating of the passions, that men are mightily governed by the imagination, and proportion their affections more to the light, under which any object appears to them, than to its real and intrinsic value. What strikes upon them with a strong and lively idea commonly prevails above what lies in a more obscure light; and it must be a great superiority of value, that is able to compensate this advantage. Now as every thing, that is contiguous to us, either in space or time, strikes upon us with such an idea, it has a proportional effect on the will and passions, and commonly operates with more force than any object, that lies in a more distant and obscure light. Though we may be fully convinced, that the latter object excels the former, we are not able to regulate our actions by this judgment; but yield to the sollicitations of our passions, which always plead in favour of whatever is near and contiguous.
This is the reason why men so often act in contradiction to their known interest; and in particular why they prefer any trivial advantage, that is present, to the maintenance of order in society, which so much depends on the observance of justice. The consequences of every breach of equity seem to lie very remote, and are not able to counter-ballance any immediate advantage, that may be reaped from it. They are, however, never the less real for being remote; and as all men are, in some degree, subject to the same weakness, it necessarily happens, that the violations of equity must become very frequent in society, and the commerce of men, by that means, be rendered very dangerous and uncertain. You have the same propension, that I have, in favour of what is contiguous above what is remote. You are, therefore, naturally carried to commit acts of injustice as well as me. Your example both pushes me forward in this way by imitation, and also affords me a new reason for any breach of equity, by shewing me, that I should be the cully of my integrity, if I alone should impose on myself a severe restraint amidst the licentiousness of others.
This quality, therefore, of human nature, not only is very dangerous to society, but also seems, on a cursory view, to be incapable of any remedy. The remedy can only come from the consent of men; and if men be incapable of themselves to prefer remote to contiguous, they will never consent to any thing, which would oblige them to such a choice, and contradict, in so sensible a manner, their natural principles and propensities. Whoever chuses the means, chuses also the end; and if it be impossible for us to prefer what is remote, it is equally impossible for us to submit to any necessity, which would oblige us to such a method of acting.
But here it is observable, that this infirmity of human nature becomes a remedy to itself, and that we provide against our negligence about remote objects, merely because we are naturally inclined to that negligence. When we consider any objects at a distance, all their minute distinctions vanish, and we always give the preference to whatever is in itself preferable, without considering its situation and circumstances. This gives rise to what in an improper sense we call reason, which is a principle, that is often contradictory to those propensities that display themselves upon the approach of the object."

Lecture on Identity, Motivation and Incentives

I am currently giving a set of lectures as part of modules on behavioural economics in Stirling and Dublin. I am posting brief informal summaries of some of these lectures on the blog to generate discussion. Thanks to Mark Egan for a lot of help in putting these together online. 

The section on Identity, Motivation and Incentives contains a lot of interlocking aspects. Many of these topics are very heavily connected to the idea that emotions influence behaviour and peoples responses to outcomes and we will revisit some of these ideas in the next topic - also many of them are connected to other topics in the course such as rationality more broadly and well-being, which we will look at also. 

1. Introduction

The basic idea behind the lecture is that self-interest is generally conceived as the main motivation for different types of behaviour such as saving, investing, working and so on but that, increasingly, behavioural economics is examining how other motivations such as altruism and the desire to conform might influence economic behaviour and outcomes. The first point we make in the lecture is that self-interest is an "add-on" to rationality. Technically, it is quite possible to be rational, as outlined in the first few lectures, and also be motivated by concern for others and so on. However, there are a number of points during the lecture where wider influences on behaviour clash with the idea that people are rational, as defined by having stable preferences and making consistent choices. A way of thinking about this topic is to ask some questions like: do I care about other people outside my family so much that I would genuinely give up things to help them? Do I change my core preferences as those around me change theirs? Would I be independent in situations where I was asked to do something wrong by someone in a position of authority?

2. The influence of peers and groups

The first aspect of motivation that goes beyond self-interest is the idea of herding and peer effects. There is a high correlation between an individual's behaviour in any economic domain and the behaviour of their peer group. We looked at the very famous "Dartmouth paper" that showed that the pre-college characteristics of flatmates that students were randomly assigned to live with had big effects on their behaviour. If you are randomly assigned to someone who drank before coming to college, you are more likely to drink during college - similarly, you are more likely to study if you are assigned to someone who did well at school. These results raise questions about the idea of fully stable economic preferences. 

Fig 1. The set-up

Moving on from this, we examined the idea that "group processes" may influence behaviour. The most striking example of this is Milgram's 'Behavioural Study of Obedience'. During the most famous of these experiments, Stanley Milgrim had 40 male participants between the ages of 20 and 50 play the role of 'teacher' to the 'learner' in the adjacent room. In the room with the teacher was a stern looking experimenter wearing an official looking coat (Fig 1). The task of the teacher was to administer increasingly powerful electric shocks to the learner whenever he made a mistake on the ostensible memory task he was working on - in reality the learner was a confederate working with the experimenter. There were no real electric shocks being administered, although the learner was trained to react to them as if they were real.

Anticipating that many of the participants would become uncomfortable as they heard increasing pained screams from the next room, the experimenters were allowed to prod them. In the case of objections, the experimenter told the teacher "Please continue". If objections continued, they would reply in the following order: "The experiment requires that you continue", followed by "It is absolutely essential that you continue" and lastly "You have no other choice, you must go on".

Fig 2. The results

Before running the experiment, Milgram polled 40 psychiatrists who agreed that "only 0.1% of the subjects would administer the highest shock on the board" - essentially it was thought that only a psychopath would continue all the way to the end where the voltage level was marked XXX and clearly hazardous. In reality (Fig 2), almost 2/3rds of participants went all the way to the end, even when some of them were clearly uncomfortable with the process.

It seems, from a long line of psychological research, that people will do extreme things well beyond what they would predict they would if they are told to do so by someone in a position of authority. In terms of historical context this study came out in the same year as Eichmann in Jerusalem, which popularized the concept of the 'banality of evil'.

As an addition factor, conformity to norms and reaction to persuasion may also have complex effects on individual behaviour. The Zimbardo prison experiment is a classic example of how randomly assigned social categories can have strong effects on people's actions.

3. Motivation to Behave in Group Situations

Fig 3. The Ultimatum Game

We focus on complex social and economic situations, as are represented in the Prisoner's Dilemma and Ultimatum (Fig 3) bargaining games which are two of the most famous experiments in economics.

The key paper for this topic is the paper by Ernst Fehr on Trust. While this paper does not discuss every aspect of how people behave in group situations, it serves as a good example of how this works and is sufficient to use to explain these concepts. Fehr provides a very useful working definition of trust and explains how trust can help to solve social problems that mirror those of the prisoner dilemma. He argues that trust, in some sense, involves processing risk but that it involves more than just risk preferences. Specifically, trust contains elements of an emotional engagement with others and that "betrayal aversion" can lead people to feel a lot worse if they lose in a game involving trust than simply if they lose a gamble. This is a key insight for behaviour economics; namely that one solution to cooperative games is that people trust each other and reach the pareto-optimal solution.

Fehr argues that countries with better social institutions arguably grow better and have better all-round outcomes, basically because in such countries it is easier to do business and interact in economic and social contexts because there is a basic degree of confidence in other people. We have spoken a lot about the difference between libertarianism and paternalism. This is another concept that we will talk a lot about - namely that markets are not perfect and a pure libertarian solution has many flaws but the state is not the only solution. The basic idea is that many economic problems are solved not by contracts but by social norms and implicit cooperation that is regulated not by laws or by fines but rather by complex social emotions such as trust. Trust is the example you should focus on, but in the next section of the lecture we will look at other examples of complex emotions and motivations that regulate economic behaviour in different ways. The basic idea is still the same.

4. Other Emotions & Economic Behaviour

We will look at this topic in more depth in the Emotion lecture. One consequence of relaxing the assumption of pure self-interest as a driver and looking at a broader range of emotions is that we open up a number of facets of human economic behaviour and attitudes that may have seemed outside of the realm of economics beforehand. As discussed above, trust and the emotions surrounding it are involved in some of the most important non-financial motivations of behaviour - but there are many other different types of motivations and emotions that arguably play a role in regulating complex economic situations involving groups. A few of them are discussed below:

(i) Discrimination and Hate: One consequence of being in different groups is that we may form a preference for our group over other groups. I referred in the lecture to a series of experiments that show that women and ethnic minorities are less likely to get called back to job interviews compared to whites even when the characteristics of each group have been randomly assigned on the CVs. Furthermore, we know that many people dislike people not of their own ethnicity and that many people favour restrictions in trade and migration. The real question (and one we will speak about in the Emotion lecture also) is whether such preferences are actually just irrational hangovers from the fact that we are basically animals with faulty cognitive equipment or whether they are rational preferences (albeit selfish preferences). For example, I may oppose globalization because of an irrational fear of foreigners but I may also oppose it because my industry has lots of nice protections from competition that would be eroded if restrictions were lifted. The Ku Klux Klan may have outwardly behaved in very silly and deplorable ways but as well as spreading hate it is arguable that their members may have been using the situation to improve their economic position.

(ii) Abhorrence: We discussed the idea that we may have motivations beyond just self-interest. For example, we may have strong beliefs that some markets simply should not exist. Al Roth, who won the Nobel Prize partly for his work on market design in organ donation, has a paper called "Repugnance as a constraint on markets" that addresses this in the context of whether it should be legal for a person to sell their own organs. 

(iii) Reference Effects: Another consequence of being in groups is that we evaluate ourselves relative to others. We will look at this in more depth in the well-being lecture.

(iv) Intrinsic Motivation: As discussed by Fehr and Falk and others, many people engage in tasks because they are intrinsically interested. Furthermore, people may have a desire to keep control over their own behaviour. 

5. Identity & Economics

The key paper for this is the paper on Economics and Identity by Akerlof and Kranton. This paper takes the view that looking at identity is vital to understand a wide range of economic phenomenon such as welfare dependency, ghettos, integration into the labour market, globalisation and economic growth. Identity emerges from the social categories we identify with or are members of by default. They outline a very simple model, which we will cover in the lecture, where membership of social categories enters directly into utility functions and use this to explain a range of economic phenomena such as gender discrimination 

Recommended Readings:

1. Akerlof & Kranton (2010), Identity Economics: How Our Identities Shape Our Work, Wages, and Well-Being.

2. Akerlof (1998), Men without Children, The Economic Journal.
4. Fehr (2008), On the economics and biology of trust, IZA Discussion Paper.

3. Fehr & Falk (2001), Psychological Foundations of Incentives, Schumpeter Lecture at the European Economic Association Meeting.

4. Falk, Fehr & Fischbacher (2005), Driving Forces Behind Informal Sanctions, Econometrica.

5. Falk & Kosfeld (2006), The Hidden Costs of Control, American Economic Review.

6. Andreoni (1995), Cooperation in Public-Goods Experiments: Kindness or Confusion?, American Economic Review.

7. Milgram (1963), Behavioral Study of Obedience, Journal of Abnormal and Social Psychology.

8. Sacerdote (2001), Peer effects with random assignment: results for Dartmouth roommates, Quarterly Journal of Economics.

Supplementary Material:

1. Steven Levitt's TED Talk discussing the motivation of drug dealers.

2. Benjamin Polak's excellent Yale lecture on Ultimatum games and bargaining
3. George Akerlof discusses his book Identity Economics.

Cass Sunstein at UCD - Video

The video of Professor Cass Sunstein's recent talk "New Directions in Behaviourally Informed Policy" at UCD is available at this link and is embedded below. The event was hosted jointly by the UCD College of Social Science and UCD Geary Institute for Public Policy in conjunction with the Irish Behavioural Science and Policy Network.




Biography

Cass R. Sunstein is currently the Robert Walmsley University Professor at Harvard. From 2009 to 2012, he was Administrator of the White House Office of Information and Regulatory Affairs. He is the founder and director of the Program on Behavioral Economics and Public Policy at Harvard Law School. Mr. Sunstein has testified before congressional committees on many subjects, and he has been involved in constitution-making and law reform activities in a number of nations. Mr. Sunstein is author of many articles and books, including Republic.com (2001), Risk and Reason (2002), Why Societies Need Dissent (2003), The Second Bill of Rights (2004), Laws of Fear: Beyond the Precautionary Principle (2005), Worst-Case Scenarios (2001), Nudge: Improving Decisions about Health, Wealth, and Happiness (with Richard H. Thaler, 2008), Simpler: The Future of Government (2013) and most recently Why Nudge? (2014) and Conspiracy Theories and Other Dangerous Ideas (2014). He is now working on group decisionmaking and various projects on the idea of liberty

Relevant Readings: 

Professor Sunstein's publications are available on his website 

His recent book "Ethics of Influence" covers many of the themes of his talk. 

We put together a reading list on behavioural science and public policy for the audience. It is geared toward the Irish environment but the majority of the links are broadly relevant. See also here for a wider set of readings on the debates surrounding nudging.

The mailing list for the Irish Behavioural Science and Policy Network can be signed up at this link. We will host several more meetings this year.

Details of our new MSc in Behavioural Economics at UCD are available at this link.