Behavioural Economics - EzyEconomics CPD events June 2017
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A huge thank you to all of the teachers who attended our EzyEconomics CPD workshops in Bolton, London, Southampton and Worcester! Additional thanks must go to both Bolton School and RGS Worcester who kindly hosted us for two of these events. There was a dual focus to the workshops. They focused partly on exploring different perspectives of looking at two of the new content areas for the current specification: Behavioural Economics and Banking & Finance. The remainder of the workshops was spent discussing the power of digital platforms to support teaching and the various models used to achieve this. If you didn't manage to make it along then take a look at some of the slides used in the presentations here.
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Behavioural Economics - EzyEconomics CPD events June 2017
- 3. ezyeducation.co.uk Big Picture AQA 4.1.2.1 – Consumer Behaviour •Rational economic decision making and economic incentives •Utility theory: total and marginal utility, and the hypothesis of diminishing marginal utility •Utility maximisation •Importance of the margin when making choices 4.1.2.2 – Imperfect Information •Importance of information for decision making •Significance of asymmetric information 4.1.2.3 – Behavioural Economic Theory •Bounded rationality and bounded self-control •Biases in decision making: rules of thumb, anchoring, availability and social norms •Importance of altruism and perceptions of fairness 4.1.2.4 – Behavioural Economics and Policy •Choice architecture and framing •Nudges •Default choices, restricted choice and mandated choice Homo Economicus Information Irrationality Policy
- 4. ezyeducation.co.uk Big Picture EDEXCEL 1.2.1 – Rational Decision Making •Underlying assumptions of rational economic decision making •Utility max. and profit max. 1.2.10 – Alternate Views of Consumer Behaviour •The reasons why consumers may not behave rationally: •Consideration of the influence of other people’s behaviour •Importance of habitual behaviour •Consumer weakness at computation 1.3.4 – Information Gaps •Symmetric and asymmetric information •How imperfect information may lead to a misallocation of resources Homo Economicus Information PolicyIrrationality
- 11. ezyeducation.co.uk Big Picture Homo Economicus 1 4 5 3 2 Improve Information • Quantity • Quality/Clarity • Accessibility
- 12. ezyeducation.co.uk Big Picture Homo Economicus Improve Information Understand human decision making • Counter-bias • De-bias • Quantity • Quality/Clarity • Accessibility
- 13. ezyeducation.co.uk 4Ps Framework Yale School of Management: Zoe Chance, Margarita Gorlin, Ravi Dhar
- 14. ezyeducation.co.uk 4Ps Framework Yale School of Management: Zoe Chance, Margarita Gorlin, Ravi Dhar
- 15. ezyeducation.co.uk 4Ps Framework Yale School of Management: Zoe Chance, Margarita Gorlin, Ravi Dhar
- 16. ezyeducation.co.uk 4Ps Framework Yale School of Management: Zoe Chance, Margarita Gorlin, Ravi Dhar Vs
- 17. ezyeducation.co.uk 4Ps Framework Yale School of Management: Zoe Chance, Margarita Gorlin, Ravi Dhar
- 18. ezyeducation.co.uk 4Ps Framework Yale School of Management: Zoe Chance, Margarita Gorlin, Ravi Dhar
- 19. ezyeducation.co.uk 4Ps Framework Yale School of Management: Zoe Chance, Margarita Gorlin, Ravi Dhar
- 22. ezyeducation.co.uk Google Staff Health Stocking water bottles at eye level and moving fizzy drinks to the bottom of the fridge, behind frosted glass, increased water consumption by 47 %. Accessibility
- 23. ezyeducation.co.uk Google Staff Health A study of a breakroom found that users of the beverage station near the snacks were 50 % more likely to eat a snack with their drink. Accessibility
- 24. ezyeducation.co.uk Google Staff Health Traffic-light system for food choices helps to grab attention and simplify information provision. Vividness/Comparisons
- 25. ezyeducation.co.uk Google Staff Health Vegetable of the Day initiative with colourful photos and trivia facts at the moment of truth – meal selection Moments of Truth
- 26. ezyeducation.co.uk Google Staff Health Loose M&Ms were originally self-served from large containers. Replaced with small individual packages. Smaller drinks cups and take-out boxes. Quantity
- 27. ezyeducation.co.uk Google Staff Health Study with google employees. Control group; group given info on link between blood glucose and weight gain; group given info and tools to measure blood glucose and weight and data sheets to record. 27% more progress on their diet goals. Reported healthy choices became automatics Habits
- 30. ezyeducation.co.uk UK Pensions Saving Savings Rate Life Expectancy Source: OECD
- 31. ezyeducation.co.uk UK Pensions Saving 1991 Average of 11 years of life beyond 65. 2011 Average of 16 years of life beyond 65. 2011 45 % increase in retirement time Source: OECD
- 32. ezyeducation.co.uk UK Pensions Saving Public Pillar Occupational Pillar Voluntary Pillar Three Pillars of Pension Provision Pay As You Go Ripe for Influence Minor Sector
- 33. ezyeducation.co.uk UK Pensions Saving Auto-enrolment for workplace pensions one of the most significant impacts of B.E. within a market. Defaults
- 34. ezyeducation.co.uk UK Pensions Saving Auto-enrollment roll-out - 2012 Source: ONS
- 35. ezyeducation.co.uk UK Pensions Saving Too Low Too High UK Process Initial: 1 % / 1 % 2019: 4 % / 3 % / 1 % Level of Auto-Enrollment Savings “Government has thought about this for me” Loss aversion stimulates opt-outs Significant Increases
- 36. ezyeducation.co.uk UK Pensions Saving Save More Tomorrow – Auto-Escalation
- 37. ezyeducation.co.uk UK Pensions Saving Complexity of savings instruments puts off potential savers. Simplify options available, focusing on long-term beta trackers. Assortment
- 39. ezyeducation.co.uk UK Pensions Saving Making it clear what the implications of savings or a lack of means for quality of life by exemplifying focuses the mind. Vividness
- 40. ezyeducation.co.uk UK Pensions Saving “People like me” – explains how much others in a similar situation are saving. Comparisons
- 41. ezyeducation.co.uk UK Pensions Saving Provision of information when receiving pay slip? Moments of Truth
- 42. ezyeducation.co.uk UK Pensions Saving Process of determining goal retirement income which calculates required contribution. Goals
Editor's Notes
- Homo Economics is an amazing creature. He collects all the available information on a topic and given this constraint, uses it to make perfect decisions. He decides upon his preferences across the range of available outcomes; then he decides upon the best way to reach that outcome and voila. Several places this process could go wrong
- Firstly, there could a problem with the information available to the agent. Perhaps, information is not complete and therefore, decisions will have to be made under a condition of uncertainty. How you reach a particular outcome, may not be obvious.
- Alternatively, humans may not quite be the computational machines that we would like them to be. We will succumb to ‘shortcuts’ and ‘rules of thumb’ in order to make sense of complex information. Another dimension to consider is the time cost of digesting information. We place huge value of our time and cognitive efforts; just look at how much we pay workmen to complete DIY tasks that we could teach and complete ourselves.
- Other places where this could go wrong: your preferences may not match up with what an economist believes they should be.
- Other places where this could go wrong: your preferences may not match up with what an economist believes they should be. Altruism or social norms may hold weight within your preference decision, but not be reflected within an economist’s model.
- So from a policy-makers perspective, there are two main strands to focus on in order to improve outcomes. The first is to improve the information available to economic agents. In some cases, this may be about removing information gaps and increasing the quantity of information available. Often, however, it is about making information easily understood or reducing the economic costs of accessing it.
- If we begin to think more deeply about how humans compute information and make decisions, engaging with nuances and building a more effective model of utility maximisation, we can begin to manipulate that process to achieve what we view as better outcomes.
- 3 economists have come up with an exceptionally useful framework for considering how you might improve outcomes using B.E. techniques. The motivating force behind the creation of this framework was to provide a guide to implementing all of the B.E. insights researchers have accumulated into real situations.
- The order in which options are presented makes a significant difference to the choices made. “extremeness aversion” leads to the middle options in a set of 3 being chosen: especially prevalent when it comes to portion sizes.
- For longer lists, the first and last options occupy ‘privileged positions’. Koppell & Steen politician listed first gains 3.5 percentage points advantage. We should all be aware of the power of default options. Having an opt-in or an opt-out system for organ donation is a classic example. Human bias is towards inactivity. This can be extended towards the whole area of choice architecture. Finally, the accessibility of options can nudge people towards making certain decisions. This comes back to the human bias for inactivity. It is why shops stock their value brand on the top or very bottom shelfs. How much this starts conflicting with literarian paternalism depends upon the extent of the inaccessibility.
- The factors which the academics have categorised under ‘persuasion’ could be similarly described as ‘good marketing’. It comprises effectively drawing attention to ‘good’ options. Vividness includes using eye-catching images, using descriptive language and easy-to-understand visual cues. Quantitative comparisons provide a dose of realism and make absolute values easier to process and compute. Finally, the timing of messaging is important. Catching attention at the so-called ‘moments of truth’, when people are contemplating or about to make a decision, is far more effective than providing messaging at less opportune times.
- One over-looked area is the possibilities that are available. In many situations, the policy maker does have control over what choices are possible. Whether this is consistent with the concept of libertarian paternalism is very debateable. However, restrictions on the selection available can be done subtly. The total ‘assortment’ of options matters. That is, how many choices are available. Variety encourages sampling and more consumption. A subtle way of encouraging ‘good choices’ is to offer a wider variety of positive options than negative and to rotate these more regularly. Bundling involves combining good and bad options to make the negative choice inaccessible without balancing through the good choice. A self-help version is “I can’t watch Game of Thrones until I’ve been for a run”. Finally, it is not just the specific option we choose; it is also about the quantity we consume. This can be influenced by reference quantities. With regards to food: humans tend to consider one portion as the right quantity to consume. Therefore, plate size is significant. Other areas matter as well, however. Calling a certain amount of pensions savings ‘1 unit’ and making people choose the level in proportion to the unit, makes that 1 unit the reference point.
- The creators of this framework are very clear that, whilst attention to process, persuasion and possibilities can make significant differences to outcomes through active interventions; the key to long-term success is impacting human behaviour, even without these active interventions. They focus on 3 key areas for personal behaviour: goals, precommitment and habits. Goals help to reduce the cost of humans rationalising why they are making a short-term painful decision each and every time they come to it. Voluntary precommitment can be used to increase the private costs of negative choices, without contradicting the principle of libertarian paternalism. The nirvana, however, is to attempt to ingrain within the system 1 decision making process, ensuring that making the ‘good’ choice becomes a habit, done without requiring cognitive reflection. This is how you achieve long-term, hysteresis effects from a short-term intervention. All of the factors in this framework can potentially contribute towards changing habits. Two important findings, however, are that good habits are promoted by asking people to decide when, where, and how they plan to take action. This stimulates association between trigger points and the intended action. The second is that habits are more easily formed and broken in new environments where contextual cues have changed. Therefore, initiatives which are launched when subjects are moving location or changing jobs are more likely to be effective.
- So there we have it, something to guide application of B.E. policy!
- We are going to apply this to two interesting case studies.
- Googlers enjoy free, homemade food all day long, in their beautiful offices. One of the main reasons is to give googlers as little reason as possible to leave the office; to encourage ‘lightbulb’ moments of interaction as they snuggle into a comfy chair and enjoy a panini in the company of teammates. As the vast majority of googlers receive their nutrition from google, it make google itself the policy-maker for their nutrition.
- So what worked for Google? Our friends from Yale have highlighted the following initiatives which nudged googlers towards making healthier choices.
- So what worked for Google? Our friends from Yale have highlighted the following initiatives which nudged googlers towards making healthier choices.
- So what worked for Google? Our friends from Yale have highlighted the following initiatives which nudged googlers towards making healthier choices.
- So what worked for Google? Our friends from Yale have highlighted the following initiatives which nudged googlers towards making healthier choices.
- Reduced number of M&Ms individuals served themselves by 58 %.
- Questions to discuss in class?
- We are going to apply this to two interesting case studies.
- We are going to apply this to two interesting case studies.
- We are going to apply this to two interesting case studies.
- We are going to apply this to two interesting case studies.
- So what worked for Google? Our friends from Yale have highlighted the following initiatives which nudged googlers towards making healthier choices.
- We are going to apply this to two interesting case studies.
- We are going to apply this to two interesting case studies.
- Richard Thaler’s initiative.
- Aviva Survey: 22 % of UK adults understand what a defined contribution pension is. This is 4% less than the number of people who can explain the offside rule.
- Aviva Survey: 22 % of UK adults understand what a defined contribution pension is. This is 4% less than the number of people who can explain the offside rule.
- Aviva Survey: 22 % of UK adults understand what a defined contribution pension is. This is 4% less than the number of people who can explain the offside rule.
- Aviva Survey: 22 % of UK adults understand what a defined contribution pension is. This is 4% less than the number of people who can explain the offside rule.
- Aviva Survey: 22 % of UK adults understand what a defined contribution pension is. This is 4% less than the number of people who can explain the offside rule.
- Aviva Survey: 22 % of UK adults understand what a defined contribution pension is. This is 4% less than the number of people who can explain the offside rule.
- Questions to discuss in class?