(Nudging as Part of Behavioural Economics cont. 4)
Biases as Nudges
Some examples:
i) anchoring and adjustment, (ie
"...you start with some anchor, the number you know, and adjust in the direction you think is appropriate......even obviously irrelevant anchors creep into our decision-making process......anchors can even influence how you think your life is going..."
Richard Thaler et al, 2021
You can be influenced in your decision by ever so subtlly suggesting a starting point for your thought process, eg charities asking for donations like $100, $250, $1,000 & $5,000 or others will receive more than if the options are $50, $75, $100 & $150.
"...the more you ask for, the more you tend to get..."
Richard Thaler et al, 2021)
ii) availability (eg risk - if the risk is familiar, eg homicides, will be seen as more serious than a risk that is less familiar, eg suicides. Linked with availability is accessibility and salience. If you have personally experienced an event, you are more likely to expect to happen again. The more vivid and easily imagined event will often receive inflated estimates of probability than less-vivid ones; even if the latter occurs with far greater frequency. Additionally, the more recent the event, the greater impact on your behaviour.
This bias encourages you to take precautions, like buying insurance against natural disasters, especially if you experienced one recently or know somebody who has just experienced it - regardless of the risk you actually face. However, if a natural disaster has not occurred recently, you are less likely to purchase insurance.
"...biased assessment of risk can perversely influence how we prepare for and respond to crises, business choices, and the political process..."
Richard Thaler et al, 2021
Some examples:
- if the stock market is doing well, ie stock prices are rising, this will encourage more people to invest even if it has already peaked.
- governments are more likely to allocate their resources in a way that fits with people's fears, rather than in response to the most likely danger:
"...decisions may be improved if judgements can be nudged back in the direction of true probabilities. A good way to increase people's fear of bad outcomes is to remind them of related incidents in which things went wrong; the way to increase people's confidence is to remind them of a similar situation in which everything worked out for the best..."
Richard Thaler et al, 2021)
iii) representativeness or similarity heuristic (this is based on stereotyping; can cause serious misperceptions of patterns in everyday life; people try to see pattern in randomness, when there are no patterns)
iv) unrealistic optimism (people are generally overconfident about their own abilities, ie academic, job wise, socially, etc.
"...People are unrealistically optimistic even when the stakes are high..."
Richard Thaler et al, 2021
For example, around 50% of marriages end in divorce. However, at the time of the wedding almost all couples believe that there is around zero chance of their marriages ending in divorce. Similar statistics apply to new businesses, where there is a 50% failure rate; yet most entrepreneurs think there is zero chance of their business failing at the start.
NB if people are reminded of a bad event, they may not continue to be so optimistic)
v) loss aversion (people hate losses:
"... Roughly speaking, losing something makes you twice as miserable as gaining the same thing makes you happy..."
Richard Thaler et al, 2021
Loss aversion is linked with inertia, ie
"...meaning a strong desire to stick with your current holding......operates as a kind of cognitive nudge, pressing us not to make changes, even when changes are very much in our interest..."
Richard Thaler et al, 2021
vi) status quo (people have a general tendency to stick with their current situation; like loss aversion, it involves inertia; it is linked to procrastination; one of its causes is lack of attention; some examples include automatic renewal of subscriptions, keep watching same TV channel rather than switching to another, etc; it is made harder to cancel than to renew the subscription, ie default option
vii) temptation (it is easier to recognise than define
"..most people realise that temptation exists, and may take steps to overcome it..."
Richard Thaler et al, 2021
Resisting temptation requires self-control as we can underestimate impact, ie arousal. Arousal is sometimes referred to as the 'hot' state when it is hard to resist temptation; in contrast the 'cold' state is at the other end of the spectrum, ie when in slow thinking mode we are better able to resist temptations. In the cold state you are trying to promote your long-term welfare and cope with feelings, arousal temptations, etc of short thinking.
There is a 2-system concept of self-control, ie
"... Some parts of the brain get tempted, and other parts are prepared to enable us to resist temptation by assessing how we should react to the temptation..."
Richard Thaler et al, 2021)
viii) mindlessness (linked with inertia;
"...people put themselves into an 'automatic pilot' mode, in which they are not actively paying attention to the task at hand..."
Richard Thaler et al, 2021.
Most times eating is a mindless activity, ie most people eat what is put in front of them, and with large plates/packages that means more eating.
"...If you want to lose weight, get smaller plates, buy little packages of what you like, and don't keep tempting food in the refrigerator..."
Richard Thaler et al, 2021
"...when self-control problems and mindless choosing are combined, the result is a series of bad outcomes for real people..."
Richard Thaler et al, 2021
Some examples include:
- smoking (despite its dire health consequences, many people still smoke even though they would like to quit)
- obesity (despite the dire health consequences, many people are overweight and realise it and yet don't change their eating habits)
- retirement saving plan (despite it being heavily subsidised, many people fail to join)
ix) social influence (what other people are doing, especially if you respect them, can influence your choices; need to encourage other social-beneficial behaviours; social influences come in 3 types
a) information (thoughts and actions convey useful information)
b) peer group or social pressure (when you care what other people think about you so that you do, think, etc to please them; the desire not to face the disapproval of the group, ie group conformity/herd mentality/social contagion or converting to a group norm can be a very powerful nudge; some examples:
- obesity
"...Obesity is contagious. If your best friends get fat, your risk of gaining weight goes up..."
Richard Thaler et al, 2021
- allocation of dormitory and/or roommate (at universities, the allocation of dormitory and/or roommates has a significant impact on students' grades)
- USA judicial voting in 3-judge panels (when 2 conservative judges are with a liberal, the 2 conservative judges will show a more liberal voting pattern; similarly, when 2 liberals are with a conservative judge, the 2 liberal judges will show more conservative voting patterns.)
- maintaining of Communism in the Soviet era (starting after World War 1) and Nazism (starting after 1930s) can be partly explained by group conformity/herd mentality/social contagion
- spotlight effect (people are paying less attention to you than you believe
"...in part, because people do think that everyone has their eyes fixed on them, they conform to what they think people expect..."
Richard Thaler et al, 2021
- misperceptions (sometimes people have misperceptions about what others are doing, eg college students with binge drinking as most students incorrectly thought that alcohol abuse was the norm amongst students, yet it wasn't)
- boomerang impact (most people like to conform to the group norm, ie below-average will try to increase to the average and above-average will try to reduce to the average, eg energy usage.
- mere-measurement effect (when you measure people's attention can affect their choice and behaviour, ie
"...when people are asked what they intend to do, they become more likely to act in accordance with their answer..."
Richard Thaler et al, 2021.
For example,
"...if you ask people, the day before the election, whether they intend to vote, you can increase the probability of the voting by as much as 25%..."
Richard Thaler et al, 2021
Beyond asking people what they intended to do, the effect can be reinforced by asking them when and how they plan to do it. This can be called the channel factor, ie small influences can either facilitate or inhibit certain behaviours. This can include removing obstacles.
"...if you dig a channel for them to slide down that removes the seemingly tiny barriers that are they getting in the way, the results can be quite dramatic..."
Richard Thaler et al, 2021.
- priming (using simple and apparently irrelevant cues, like words, objects, aroma, etc to encourage certain forms of behaviour, eg sight of
"...briefcases and boardroom tables makes people more competitive, less cooperative and less generous......mere exposure to the scent of an all-purpose cleaner makes people keep their environment cleaner while they eat..."
Richard Thaler et al, 2021
In both these cases, people were not consciously aware of the effect of the cue on their behaviour.
- stimulus response capability ("...the idea is that you want the signal you receive (the stimulus) to be consistent with the desired action. When there are inconsistencies, performance suffers and people blunder..."
Richard Thaler et al, 2021)
- post-completion error ("...when you have finished your main task, you can forget things related to previous steps..."
Richard Thaler et al, 2021
Some examples:
i) leaving your bank card in an ATM machine after getting cash out
ii) leaving the original in the copying machine after making a copy
Strategies for avoiding this error behaviour include forcing function (in order to get what you want, you have to do something else first, eg to get your cash, you must remove the card first)
c) impact of a few influential people (strong signals about appropriate behaviour from admired people can have a significant impact on the rest of the community. this is illustrated by the use of popular Dallas Cowboys football players and of folk music icons, such as Willie Nelson, turned a failed anti-litter campaign, in Texas, into a great success; it used the slogan 'Don't mess with Texas' and, after 6 years on deploying these influencers, there was a 72% production of visible roadside litter)
NB
"...consistent and unwavering people, in the private and public sector, can move groups and practices in their preferred direction......the group's judgements become thoroughly internalised, so that people will adhere to them, even when reporting on their own - indeed even a year later, and even when participating in new groups with members of the different judgements......the initial judgements were also found to have effects across 'generations'..."
Richard Thaler et al, 2021
Views can become entrenched over time despite changing membership, ie collective conservativism (the tendency of groups to stick to established patterns despite changing situations), like the convention of men wearing ties. Generally, it is very hard to change these conventions unless they are causing serious problems.
This could lead to a problem called pluralistic ignorance, ie ignorance about what other people think.
Many social practices persist, and people assume that most people like them. However, a small shock or nudge can dislodge them.
(for more detail, see elsewhere in the Knowledge Base)