Banerjee and John (2021) on Nudge Plus

Sanchayan Banerjee and Peter John, “Nudge Plus: Incorporating Reflection into Behavioral Public Policy.” Behavioural Public Policy, 1-16, 2021, available at https://doi.org/10.1017/bpp.2021.6.

• Should we embed a prod for people “to reflect” into System 1 nudges? Such a prod is the “plus.” [The authors themselves seem to equate nudges (or perhaps "classic nudges" with System 1 nudges; the "plus" activates a System 2 element in conjunction with a System 1 nudge.]

• Bundling a nudge with a plus makes nudges more salient.

• People need actual reflection, not just “the potential for reflection [p. 2].”

• Thaler and Sunstein consider that a legitimate nudge must be one that would receive wide assent if everyone were informed about its aim and operation. This restriction would rule out manipulating people in ways that harm them. Nonetheless, such a legitimate nudge might, when it is affecting choice, remain hidden, invoking an automatic, System 1 response.

• Nudge plus wants to extend the transparency, so that just about everyone understands what is going on in the choice moment. Actors maintain their autonomy, though without being required to pay extremely close attention or to engage in strenuous cognitive processing. 

• Commitment devices are a nudge plus, because the need to consider whether to sign up for the device spurs the requisite reflection; likewise with cooling-off periods.

• People often choose not to use GPS on familiar routes – they are thinking, they are not being “tricked into using the device heuristically once again [p. 7].” For them, GPS is a nudge plus.

• Adding a regular prompt to set a future fitness goal turns an otherwise ordinary fitness tracker into a nudge plus.

• But… do people really desire this “experiential learning environment [p. 10],” this near necessity to reflect regularly, at least to some extent?

Holz, List, Zentner, Cardoza, and Zentner (2020) on Nudging Tax Compliance

Justin E. Holz, John A. List, Alejandro Zentner, Marvin Cardoza, and Joaquin Zentner, “The $100 Million Nudge: Increasing Tax Compliance of Businesses and the Self-Employed Using a Natural Field Experiment.” NBER Working Paper 27666, August 2020 (pdf here). 

• The tax authorities send you a message… 

• ...maybe the message just happens to mention the upcoming tax filing deadline: the control arm 

• ...maybe the message also notes the potential for your tax evasion to be publicized – one treatment arm, designed to increase the salience of social penalties for being a tax cheat. 

• ...maybe, instead of highlighting the public nature of identified tax evasion, the message notes the potential for your tax evasion to result in imprisonment – another treatment arm, designed to increase the salience of criminal penalties attached to tax evasion. 

• And for each of the three arms noted above, we can take half of the letter recipients and also mention in the letter that the tax authorities are prepared to potentially view mistakes in tax declarations, even honest mistakes, as intentional. (The notion is to frame evasion as a sin of commission, not of omission.) Mistakes imply that you were trying to be a tax cheat! 

• This very natural field experiment is conducted in the Dominican Republic, circa 2019, n≈56,000 firms and n≈28,000 self-employed people; tax evasion reportedly is rife in the Dominican Republic. 

• The field experiment applies to business entities subject to the corporate income tax and to self-employed taxpayers subject to the individual income tax. 

• The various messages are sent shortly before the tax filing deadline. 

• The threat of public disclosure of tax evasion dissuades tax evasion for both firms and individuals. 

• The “prison” message also reduces evasion, and for firms, about twice as effectively as the “publicity” message. 

• Framing evasion as an active choice, a sin of commission, in itself (without publicity or punishment prompts), does nothing (or worse than nothing), and likewise is ineffective if it is paired with the publicity notice. 

• But the combination of “intentional” framing with the prison message doubles the impact of the prison message. 

• The effectiveness of the interventions seems to arise from a decrease (by 20%) in potential taxpayers who declare (falsely, presumably) that their income is below the minimum required for taxation. 

• Large firms drive the reduced tax evasion – there is little or no compliance gain from the smallest 60% of taxpayers.

Golman, Gurney, and Loewenstein (2020) on Information Gaps

Russell Golman, Nikolos Gurney, and George Loewenstein, “Information Gaps for Risk and Ambiguity.” Psychological Review 128(1): 86–103, 2021; http://dx.doi.org/10.1037/rev0000252 

• The authors argue that risk and ambiguity aversion arise from the desire to avoid unpleasant thinking about unanswered questions. (Risk and ambiguity loving, alternatively, is associated with the prospect of being spurred to think about pleasant matters.) 

• If you have a question with an unknown answer, you have an information gap. The attention that this gap attracts from you depends on salience (contextual factors which highlight the gap) and importance. 

• Gambling raises the importance of certain information gaps – which team will win? – and hence, directs our attention towards them. We therefore like to gamble when we welcome the increased attention, and are dissuaded from gambling on topics we don’t like to think about. 

• A key information gap concerns uncertain outcomes. Risk aversion (even with minimal stakes) can arise from our desire to avoid thinking about the uncertainty. Compound lotteries, er, compound the uncertainty, and the aversion. 

• The previous two bullet points offer new explanations for (1) betting on your favorite team and (2) low-stakes risk aversion. (A risk averse person presumably would want to bet against their favorite team, as a way of buying insurance against the bad outcome that arises if the preferred team loses.) 

• When shown risky prospects one-at-a-time, people seem to respond similarly to more and less ambiguous situations. When there is a choice between prospects, however, ambiguity aversion emerges. The comparison among alternatives presumably makes the information gaps (not knowing the precise probabilities) more salient. 

• People with relevant expertise enjoy ambiguity, as in racetrack betting. But those who feel uninformed find the ambiguity unsettling. 

• Study 1: Pittsburgh Pirates fans choose how much to bet on either their team’s hits or the number of strikeouts suffered by batters on their team. These bets involve no ambiguity – once the fans choose a bet size, their probability of being assigned the “winning” side of the bet is .5. Nevertheless, the fans bet more when hits are the relevant subject. Presumably they do not enjoy having to think about the strikeouts that the players on their team will suffer. 

• Study 2: Carnegie Mellon University alumni are given the opportunity to bet on the future relative rankings of two excellent CMU computer science departments – or on the relative future prospects of two not-so-good natural science departments. In this case, objective probabilities are not known, there is ambiguity in the prospects. The alumni display aversion to the ambiguity; however, they show a lot less aversion to that ambiguity when betting on the great departments. It seems that thinking about the future success of CMU star departments is a happy thought that they, to some extent, welcome.

Evers and Imas (2019) on Mental Accounting

Ellen Evers and Alex Imas, “Mental Accounting, Similarity, and Preferences Over the Timing of Outcomes,” September 12, 2019, available at https://ssrn.com/abstract=3452943.

• Do we experience life events in a bundle – a good day, say – or do we experience life more discretely, like a good work day followed by a nice dinner? Our “valuation” (of a day, for instance) will depend on the bundling, because of prospect-theory-style reference points. If we have a good morning, do we record that "event" as complete, in the hedonic books, as it were, and then start fresh in the afternoon?

• We might get more satisfaction if we could consume a good day in two or more parts, as a good morning followed by a good afternoon, as opposed to one indivisible event, a good day. Given "diminishing sensitivity" to gains and losses (a standard element of prospect theory), we would prefer to take gains discretely, and to bundle losses together.

• But can we actually choose how to bundle our experiences to maximize our well-being, to engage in “hedonic editing”? Maybe our control over the mental accounts is limited, maybe similar things (like a good morning and a good afternoon, both spent at the office) in a day will be bundled together.

• Similarity, here, takes the form of shared salient attributes. Temporal proximity is one salient feature, and hence, all else equal, with diminishing sensitivity, people would prefer losses to occur close together and gains to be spread out – but all else is not always equal, sometimes there are other factors (salient similarities) that lead to losses being mentally separated or gains being mentally bundled.

• Evers and Imas suggest that mental bookkeeping is done to economize on the comparison of attributes. At any rate, their “hedonic accounting hypothesis” is that people prefer to suffer similar losses in a short time span but dissimilar losses in a longer time span; alternatively, similar gains are spread over time and dissimilar gains are taken closer together. The similar losses are in the same mental account, and hence, treating them jointly helps (via diminishing sensitivity) to take away some of their sting. Dissimilar losses are sort of fated to be in different mental accounts, so there is no gain to bundling them, and something to be said for postponing one of them.

• In four online experiments (using mTurk, with more than 100 respondents for each of the experiments), the authors find support for their hypotheses: (1) more similar events are more likely to be bundled into a single event; (2) the more similar two negative events, the greater the desire to bundle them (by choosing to experience them in close temporal proximity); (3) the more similar two positive events, the greater the desire to separate them temporally; and (4) rendering events more similar by increasing the salience of their shared characteristics makes them more likely to be assigned to the same mental account. 

O’Donoghue and Somerville (2018) on Risk Aversion

Ted O’Donoghue and Jason Somerville, “Modeling Risk Aversion in Economics.” Journal of Economic Perspectives 32(2): 91-114, Spring, 2018.

• As Rabin and Thaler (2001) indicate, expected utility (EU) maximization seems incapable of explaining people’s risk preferences – even though it does suggest some nice measures of the degree of risk aversion. 

• Other models of risk aversion, however, might prove more empirically sound, while maintaining tractability. That is, we might not need expected utility to analyze problems involving risk aversion, as alternative models could replicate current standard, EU-based results, while offering still more or avoiding the shortcomings associated with the assumption of EU maximization. 

• Consider standard findings associated with insurance: (1) A more risk averse person is willing to pay more for insurance (than is a less risk averse person); and (2) at a fixed price per dollar of insurance (fixed in excess of the actuarially fair price), a more risk averse person will purchase more insurance (than will a less risk averse person). 

• Consider standard findings associated with financial investments: (1) In a world with one safe (riskless) and one risky asset, more risk averse people invest less in the risky asset; and (2) if the population as a whole becomes more risk averse, the price of the risky asset must fall (equivalently, the expected return from holding the risky asset must rise). 

• Consider standard findings of principal/agent analysis, say, when a risk neutral principal hires a risk averse agent: (1) if the agent’s effort is not observable, then to encourage effort, the agent will have to bear some risk (so that lower output leads to less pay); and (2) the unobservability of effort is costly to the principal, who would prefer to contract on effort directly. 

• The various claims made concerning risk aversion in the three previous bullet points do require risk aversion – but they do not require expected utility maximization. That is, many of the ideas that have been developed around the concept of risk aversion – developed in the context of expected utility maximization – remain valid even when expected utility maximization is not descriptively accurate.

• Consider loss aversion as an alternative approach, one where outcomes are judged against a reference point and “losses loom larger than gains.” For prospects with some loss and some gain outcomes, loss aversion can generate risk averse behavior. (This style of loss aversion does not require "diminished sensitivity," the feature of prospect theory that leads to risk averse behavior in the gains domain and risk seeking behavior in the losses domain.)

• A second alternative, also featured in prospect theory, is probability weighting. The general notion is that, in practice, decision weights might not equal objective probabilities. Specifically, probability weighting typically involves the overweighting of low probability events and the underweighting of high probability events. This type of probability weighting can generate, depending on the options, either risk seeking or risk averse behavior. Lotteries, for instance, might be attractive (induce risk seeking behavior) due to the overweighting of the low-probability outcome of a large win. 

• Finally, consider contextual features and salience. Extreme or vivid outcomes (like deaths in terrorist attacks) might garner intense attention, leading to higher decision weights on those outcomes. The contextual feature of the available (although unchosen) options can exert influence by shifting the salience of other outcomes. Again, choices displaying risk aversion can arise from these factors. Expected utility maximization is neither necessary nor sufficient for explaining risk-averse behavior.

Dai and Luca (2018) on Restaurant Hygiene Scores

Weijia (Daisy) Dai and Michael Luca, “Digitizing Disclosure: The Case of Restaurant Hygiene Scores.” Harvard Business School, Working Paper 18-088, 2018 [pdf of 2019 version here].

• San Francisco does not mandate that restaurants post their hygiene scores – which are public information generated by unannounced inspections – but is willing to facilitate the posting of the scores on Yelp. (The scores already are available on the City's Department of Public Health website -- but people don't usually go there to order food online!) The (common) reluctance to require disclosure by the restaurants themselves might draw in part from restaurant industry opposition.

• Two interventions are examined: (1) Yelp posts the hygiene scores on its restaurant webpages; and (2) Yelp makes low scores salient via a “hygiene alert” box (which covers the customer reviews part of the Yelp listing)

• A “Poor” restaurant hygiene score (70 or below) results from multiple high-risk violations

• The hygiene alert box informs the webpage visitor that food safety is the point of the hygiene score, and that the score is based on government inspection; further, the alert reveals that the restaurant received a Poor rating in its most recent review, which puts it in the bottom 5% of hygiene ratings.

• Prior to the Yelp interventions, less hygienic restaurants see slightly lower consumer purchasing intentions than do their more hygienic counterparts. Those purchasing intentions are measured via Yelp page visits, “leads,” and the number of Yelp reviews. A "lead" is tallied through various behaviors by online shoppers, such as calling the restaurant, seeking directions to the restaurant, or checking out the restaurant's own webpage (as opposed to its Yelp listing).

• Leads and Yelp reviews respond in the expected direction to Yelp posting of the hygiene scores; Yelp (star) ratings do not

• “Poor” restaurants see a 12% decline in leads compared to the non-Poor

• The salience intervention enhances the posting effect: take-out orders for Poor restaurants fall 12.8%. That is, how information is disclosed seems to matter, along with the disclosure itself.

• Poor restaurants seem to be (somewhat) motivated to clean up their act after Yelp posts the alert

Banker et al. (2017) on Sticky Anchors

Sachin Banker, Sarah E. Ainsworth, Roy F. Baumeister, Dan Ariely, and Kathleen D. Voh, “The Sticky Anchor Hypothesis: Ego Depletion Increases Susceptibility to Situational Cues.” Journal of Behavioral Decision Making 30(5): 1027-1040, December 2017 [pdf here].

• “Ego Depletion”: Exerting self-control undermines self-control in slightly later situations. 

• Is ego depletion a thing? Maybe, maybe not (pdf here); like many behavioral concepts (for example, grit [pdf here]), ego depletion has its detractors. 

• In a dictator game-type setting, does less altruistic behavior (from ego depletion) come about because self-controls over selfishness are undermined, or because people are more inclined to follow salient situational cues? This latter possibility is the sticky anchor hypothesis: depleted people are more suggestible or manipulable. 

• Some dictator game experiments show that depleted people do indeed keep more of the monetary stake for themselves. 

• Are the dictator game findings due to unleashed selfishness or to sticking with the default? To test between the two mechanisms, the authors switch the default: they conduct reverse dictator games. The other (anonymous) party is endowed with the full stake, but you, as the dictator, can choose to take some or all of it. The default, now, is the unselfish setting, so if depleted people have a hard time overcoming defaults, they will leave more of the cash with the other player (relative to the amount left by undepleted folks). Alternatively, if depletion makes you selfish, depleted folks will take more of the endowment from the other player. 

• The depletion manipulation (in Experiment 1, with overall N=54) involves writing some text without using the letters A or N. (Those in the “undepleted” camp write without using the letters X and Z. Incidentally, this reminds me of the singular novel Ella Minnow Pea.) That is, it is attention control that is the source of ego depletion within this experiment.

• On average, those in the depleted condition take less money for themselves ($2.62) than do those in the undepleted condition ($3.69). So, ego depletion does not seem to increase selfishness; rather, it makes it harder to overcome the influence of environmental cues: defaults become more sticky. Notice that neither group is particularly generous. 

• But maybe the attention control manipulation means that the depleted also feel like failures, because they perform poorly at writing without A’s or N’s: they don’t deserve the money in the reverse dictator game. Vicarious depletion [pdf here] to the rescue! A waiter is really hungry…(alternatively, not so hungry…) 

• Once again, the depleted folks (that is, the now vicariously depleted folks, who feel no shame) stick more closely to the anchor: it doesn’t seem to be a lack of desert that causes them to take less money (or fewer lottery tickets) for themselves. 

• But maybe it isn’t general environmental cues at work, maybe it is just our old friend, the status quo effect. So now (Experiment 3) the authors offer either a high or a low anchor before subjects decide how much money to take. Note that the default (the anonymous other gets all the cash) is unchanged, but there is a new situational cue, the anchor. (Subjects are first asked whether they want to take more or less than the anchor; only then are they asked for the precise amount they want to take.) Will depleted people respond to the anchor (more than non-depleted people do), or just to the default? 

• Both depleted and non-depleted subjects respond to the anchor. But the depleted respond more, particularly in the low-anchor treatment. The influence of environmental cues, and not the status quo per se, is what leads to different behavior by depleted folk relative to the undepleted.

Morewedge and Giblin (2015) Look to Explain the Endowment Effect

Carey K. Morewedge and Colleen E. Giblin, “Explanations of the Endowment Effect: An Integrative Review.” Trends in Cognitive Sciences 19(6): 339-348, June, 2015 [pdf].

• Endowment effects tend to be demonstrated in one of two ways: (1) the “exchange paradigm,” where people who are endowed with a good are less willing to trade it for another good than pre-endowment preferences would suggest; and, (2) differences between the willingness to pay (wtp) for a good by a non-owner and the willingness to accept payment (wta) by an owner – differences which seem to materialize about the time the non-owner becomes an owner. 

• Loss aversion is a standard underlying explanation for the endowment effect; once you own a good (or even expect to), your ownership becomes your reference point, and situations where you no longer own it are evaluated as losses relative to the reference point. 

• The authors look at five underlying mechanisms that are claimed to give rise to loss aversion and endowment effects, and offer a more general framework: “attribute sampling bias.” 

• Buyers and sellers pay attention to reference prices (low for buyers, high for sellers) that will increase their transactional utility. Prices are just one example of how buying and selling activate different cognitive frames that direct attention and recall to different pieces of information. Buyers and sellers do not have the same information readily in mind, so the endowment effect does not arise because they value identical attributes differently. People even have trouble recalling frame-inconsistent information. 

• Psychological ownership raises wta for two reasons: (1) ownership creates a connection between your identity and the good; the better that you feel about yourself, the better you will feel about the good. Losing the good can seem like a threat to your identity. (2) ownership helps you remember good feelings about the good, which otherwise might be harder to access. 

• Their attribute sampling bias explanation resembles the well-known phenomenon where people seek out information that confirms their current beliefs. 

• Sadness tends to reduce or reverse the endowment effect – it creates an implicit interest in changing your circumstances, so non-owners are more willing to acquire a good and owners are more willing to sell a good. But most frames in the exchange setting (other than sadness) tend to bias people towards maintaining the status quo. 

• People are eager to trade away a “bad”, which can’t be explained by some other approaches to endowment effects, where whatever you own you value more highly. Further, endowment effects are higher for those goods (like environmental goods) that have vague attributes, giving more room for attention to a biased sample of attributes to take effect.

Gilchrist, Luca, and Malhotra (2016) on Salient Workplace Gifts

Duncan S. Gilchrist, Michael Luca, Deepak Malhotra, “When 3 + 1 > 4: Gift Structure and Reciprocity in the Field.” Management Science, published online in Articles in Advance, January 19, 2016 [pdf of earlier version here]. 

• Previous experiments on whether an unexpected gift leads workers to increase their productivity – as a sort of reciprocal response to the gift – generally have not been able to distinguish between whether any productivity boost is due to the additional payment being a “gift,” and just the fact that the worker is being paid more. Perhaps the usual market price establishes a reference point, and any wage above that point is viewed as a gift, even if it is not framed as one. 

• The authors devise a natural field experiment – the subjects do not know that they are taking part in an experiment – to try to disentangle the effect of a higher wage from the effect of a gift. 

• Workers who have indicated interest are recruited for an online data entry position, one that only lasts four hours with no possibility of continued employment. They are offered randomly assigned wages of either $3 per hour, $4 per hour, or, $3 per hour followed by an unexpected bonus of an additional $1 per hour announced after the job has been accepted. Even the $3 per hour wage, incidentally, is a highly competitive wage offer for these workers; about 230 workers are hired. 

• Workers who receive the wage of $3 plus the $1 per hour gift show a 20% higher productivity compared to either the $4 per hour or $3 per hour workers; the productivity boost is maintained throughout the 4-hour length of the work. There is no statistical difference between the productivity of the $3 per hour and the $4 per hour workers. 

• The authors conclude that what matters for productivity is not just how much you pay, but how the payment is framed. Note that the $4 per hour workers and the $3 per hour plus $1 per hour bonus workers receive identical payments, but the workers who receive some of their pay as a gift are more productive.

Bhargava and Loewenstein (2015) Want to Go Beyond Nudging

Saurabh Bhargava and George Loewenstein, “Behavioral Economics and Public Policy 102: Beyond Nudging.” American Economic Review 105(5): 396-401, 2015.

• The early behavioral economics-influenced policy proposals were aimed at internalities, and at nudging decisions quite proximate to the perceived problem. 

• The next stage, Bhargava and Loewenstein argue, should be to influence the design of policies that are more fundamental, but perhaps less proximate, to perceived problems. This approach need not be particularly controversial, given that the targeted problems often implicate externalities or other market failures. 

• Successful nudges have included easing the way to save more for retirement, along with improving the disclosure of information so that people receive useful information in a manner that is easy to understand and respond to. 

• Proposed principle #1: not only should choice environments be simplified, the objects of choice should be simplified. Financial products, for instance, could be required to be simple and to be presented in a standardized form. 

• Proposed principle #2: policy should look to counter nudges by the private sector that are detrimental to consumers. 

• Proposed principle # 3: traditional policy instruments, such as taxes, should be modified in a manner informed by behavioral considerations (framing, salience, inattention, etc.) to maximize the policies’ impacts. 

• Examples that the authors discuss include health insurance (lots of room for simplification and standardization); privacy and disclosure (again, simplification and standardization, along with controls on misleading disclosures); and climate change (contending against the many psychological dispositions that make it hard to recognize or respond to this global public bad).

Engel and Kurschilgen (2014) on Introspection

Christoph Engel and Michael Kurschilgen, “The Jurisdiction of the Man Within – Introspection, Identity, and Cooperation in a Public Good Experiment.” Max Planck Institute for Research on Collective Goods, 2015/1, December 2014 [pdf].

• This paper features a lab experiment involving a repeated public good game, where groups of four players individually decide each round how much of their endowment they will invest in a public good. The choices of every player in every previous round are known to everyone. In such games, contributions tend to fall over time, and a significant minority of people never contribute. The modal behavior is “conditional cooperator,” where people contribute something as long as others do.

• Each round features a second stage as well, where the players are asked about their expectations or beliefs. The various “treatments” in the game differ based on the question that is posed. 

• “Introspection” for the authors involves a comparison of your own behavior with a normative goal. The authors contend that introspection can be induced in the players via the right sort of belief question. 

• One question aims at making salient the “normative ideal,” asking players what they think everyone should contribute. A second treatment attempts to direct focus to the “normative minimum,” where players are asked what is the least amount that players should be expected to contribute. 

• The authors suggest that players will have an element of their utility connected to their “identity.” This term lowers a player's utility to the extent that the player's actual behavior falls short of her ideal. But the extent of such potential lowering depends on how clear it is that the player has not lived up to her professed ideal. 

• Any sort of introspection might increase the mental clarity concerning how a player's behavior falls short of her own ideal. But the Normative Minimum question will, the authors hypothesize, go the furthest in reducing her “moral wiggle room.” Any contribution that does not at least match what she think is minimally required will be a stark piece of hypocrisy. 

• Sure enough, the “normative minimum” question leads to substantially more cooperation, and furthermore, greatly slows down the erosion of cooperation over time.

Florack and Sheffrin (2013) on Psychology and Taxes

Nicole E. Florack and Steven M. Sheffrin, “Psychological Non-Equivalence of Tax Bases: An Empirical Investigation.” Proceedings of the 106th National Tax Association, November 2013; available at SSRN: http://ssrn.com/abstract=2376990.

• Identical tax schedules can be framed either as wage taxes or as consumption taxes. Florack and Sheffrin ask if the framing will influence decision making, as well as preferences for one frame as opposed to the other. 

• They use an internet survey to ask about: (1) the willingness to take a second job and (2) the willingness to alter prospective retirement age and current consumption in the face of higher future taxes. 

• The authors find that the framing matters quite a bit. Wage taxes undermine the willingness to take on a second job to a greater extent than do equivalent consumption taxes. This asymmetry remains (actually, is amplified) even after the equivalence of the two tax schemes carefully is explained to the survey respondents. 

• Retirement ages are more likely to be raised when wage taxes increase as opposed to when (equivalent) consumption taxes increase; the two tax frames also differentially affect the time path of pre- and post-retirement consumption. 

• Though the two frames produce identical effects on budget sets, the longer respondents considered the issue (with respect to the second job scenario), the less likely they were to favor the wage tax framing. In the early going, the wage tax framing was more popular than the consumption tax framing. After the explanation of equivalence, the spending frame is more popular, but oddly, only about one-third of the respondents view the equivalent tax frames as, well, equivalent. The spending frame is more popular with respect to retirement decisions, too. 

• The authors suggest that tax salience is driving some of the results. In particular, when deciding whether to take a second job, a wage tax seems more salient, more relevant, somehow, than a consumption tax – and hence the wage tax deters more people from taking a second job. 

• The (eventual) preference for the consumption tax might be related to a sense of control: perhaps respondents think that they can avoid a consumption tax through increased saving. This view, within the framework of the model, is illusory, but perhaps not so illusory for similar taxes in the real world. The notion of self-administration of taxes (via spending decisions) is a related control-like feature.

Busse et al. (2013) on Salience in Car Markets

Meghan R. Busse, Nicola Lacetera, Devin G. Pope, Jorge Silva-Risso, and Justin R. Sydnor. “Estimating the Effect of Salience in Wholesale and Retail Car Markets.” American Economic Review 103(3): 575-79, 2013 [pdf].

• People have limited attention, and hence, even the provision of full information might not lead to “optimal” decision making. 

• Retail prices for used cars show a significant discontinuity when the mileage on those cars passes from 9,999 to 10,000 miles; similar discontinuities exist at higher multiples of 10,000, too. Apparently buyers focus on the left-most digit of the mileage, and pay less than full heed to the other digits, so they overpay for a car with 69,950 miles on it, for instance. The overpayment is significant, on the order of $300. 

• Car owners respond to this bias by trading in their cars at a higher rate before they reach milestones such as 50,000 miles. That is, left-digit bias affects not only prices of used cars, but also the composition of used cars offered for sale. 

• Wholesale prices for used cars show similar price discontinuities at major milestones, but these seem largely to be reflecting the retail effects of left-digit inattention.

Loewenstein, Sunstein, and Golman (2014) on Disclosure

George Loewenstein, Cass R. Sunstein, and Russell Golman, “Disclosure: Psychology Changes Everything.” Annual Review of Economics 6: 391–419, 2014 (pdf).

• A good deal of information is disclosed through government mandate, and much of this information would not be disclosed in the absence of the mandate. The information would not be disclosed perhaps because it would not benefit sellers, or because information has a public good aspect that lowers the incentive for any single private entity to produce and disseminate the information. 

• Mandated disclosures involve some subtle costs, such as the time they take for consumers to read them, the subsequent loss of attention to other pieces of information, and even the emotional costs associated with graphic warnings, for instance. 

• Mandated disclosures tend to occur when there are significant gaps in the information known to sellers and that known to buyers, and when the informational disadvantage threatens the interests of consumers. Disclosure also can be used to help consumers overcome their own departures from rational decision making: perhaps “behavioral market failures” provide a rationale for policies to limit internalities. 

• Some information – such as a physician’s assertion that a certain treatment is needed – is not verifiable, and hence problems connected with this information cannot be solved simply through disclosure. But physicians might be required to disclose their interests (such as receiving royalties from the recommended treatment) if those interests are not fully aligned with patient interests. 

• Disclosure of conflicting incentives does not fix every problem. The disclosing agent might view the disclosure as allowing for carte blanche, for any sort of self-interested advice. The recipient (principal) might feel compelled to follow the advice, to avoid the inference that the advice giver is viewed as untrustworthy. 

• The technology of disclosure – who makes it, when, and what effort is made to render it noticeable – helps to determine its impact. 

• Sellers have little reason to put effort into those dimensions of a good that potential consumers do not pay attention to. A producer of a less deadly cigarette might not want to disclose its relative safety, because to do so might make the fatal consequences of smoking more salient. 

• Warning labels don’t seem to accomplish much; more generally, see Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure, Princeton U. P., 2014. 

• The absence of information should best be met, perhaps, by assuming the worst, as otherwise the information would have been provided. But people often do not draw this inference, even when it is rational to do so. This presents a potential rationale for mandating disclosure. 

• Sometimes we want to be ignorant, sometimes information can lower our utility – a tendency that motivated the May, 2015 on-air radio killing of a young rabbit in Denmark. 

• The tell-tale heart effect: mandated disclosure might cause producers to up their game, even if no consumers pay attention. Revelation of calorie counts might lead to lower calorie offerings, even if consumers do not respond to the calorie information. Maybe producers suffer from a spotlight effect, a belief that people are observing their disclosures more closely than really is the case. 

• Simplified information, like restaurant health grades, is often more valuable to consumers than is more finely grained information. 

• Comparative information – how does my energy use stack up against my neighbors? – might be more influential on energy usage than other types of usage disclosures. But the potential for perverse outcomes exists, too. 

• Personal policies for information disclosure or non-disclosure on social media, for example, do not seem to be fully rational.

Alemanno (2015) on “Nudging Healthier Lifestyles”

Alberto Alemanno, “Nudging Healthier Lifestyles: Informing the Non-communicable Diseases Agenda with Behavioural Insights.” Chapter 14 in A. Alemanno and A. Garde, eds., Regulating Lifestyle Risks: The EU, Alcohol, Tobacco and Unhealthy Diets, Cambridge University Press, 2015.

• The European section of the World Health Organization has begun an initiative to combat “lifestyle” non-communicable diseases: those associated with tobacco, alcohol, and goods high in salt, sugar, and fat. 

• Regulations that commonly are applied to lifestyle goods include mandatory information disclosure; marketing limitations; taxes and other devices to reduce availability. 

• Behavioral economics-style nudges fit well with lifestyle issues. They tend to be low cost and preserve individual choice. Lifestyle nudges might include disclosure rules; default settings; and, simplification. For instance, the extremely graphic photos required on cigarette packs, and nutrition fact panels, are nudges of a sort. 

• The European Union (oddly) is requiring that cigarette packs not disclose tar, nicotine, and carbon monoxide content. The rationale is that such information might lead smokers to think that some cigarettes are less harmful than others. (There is some evidence that consumers smoke low tar and nicotine cigarettes more intensely, undoing any relative health benefits.) 

• Thaler and Sunstein’s “publicity principle” (borrowed from John Rawls, building on Kant) is that governmental nudges must be supportable if everyone is informed about them. If people will be upset if they were misled, even if the misleading resulted in better choices for them, then the misleading is wrong. 

• Much of the evidence for nudges comes from the laboratory, and might not work in the real world. Or, a nudge might work at first, but then become less effective over time. Notice that marketing experts think that nudges work, however.

Thaler, Sunstein, and Balz (2013), "Choice Architecture"

Richard H. Thaler, Cass R. Sunstein, and John P. Balz, “Choice Architecture.” Chapter 25 in Eldar Shafer, ed., The Behavioral Foundations of Public Policy, Princeton University Press, 2013. 

·  Choice architects are people who arrange the context in which other people make decisions. Contextual details, even seemingly innocuous ones, can have significant effects on choices. “A well-designed system expects its users to err and is as forgiving as possible [p. 7].”

·  Default settings matter; sometimes a mandated choice (as opposed to a default setting with an override option) might be a good idea. Alerts and checklists help to prevent errors.

·  The provision of feedback helps people to overcome mistakes.

·  Do people know the relationship between their choices and their welfare? Do people know the costs of using a credit card? Perhaps standardized disclosures – Record, Evaluate, and Compare Alternative Prices (RECAP) – would lead to better decision making.

·  Can choice be structured so as to facilitate learning? Do you want all your book recommendations to be based on what people similar to you have enjoyed?

·  The salience of a choice dimension goes a long way to determining its impact. Do people make optimal taxi v. car ownership decisions?