Description
The study of behavioral economics includes how market decisions are made and the mechanisms that drive public choice, such as biases towards promoting self-interest.
Behavioral Economics and ISIS:
Insights and Lessons from the Behavioral Interventions to Advance Self-Sufficiency (BIAS) Project
Emily Schmitt, Jason Despain and Brendan Kelly Office of Planning, Research and Evaluation Administration for Children and Families U.S. Department of Health and Human Services
Overview
• What is “behavioral economics”? • Why should policymakers and program operators care about behavioral economics? • How can insights from behavioral economics and the BIAS project be helpful to ISIS and ISIS partners? • Discussion
What is “behavioral economics”?
Behavioral Economics En Vogue
Two views on human behavior
Traditional view (neoclassical economics): • Well-informed • Stable preferences • No problems with selfcontrol • Completely self-interested • Good at making Behavioral view (behavioral economics) • • • • • • • Imperfect information Shifting preferences Imperfect self-control Procrastinate Choice overload Mental shortcuts Small factors can influence big decisions
decisions that maximize well-being
What is “behavioral economics”?
• Based on the work of Kahneman and Tversky (1979) “Prospect Theory: An Analysis of Decision Under Risk.” • 4 fundamental elements of prospect theory
– – – – Reference Dependence Loss Aversion Diminishing Sensitivity Probability Weighting
• Now incorporates more from behavioral psychology and game/decision-theory. ? People are human.
Key Concepts and Insights: Reference Dependence and Loss Aversion
• Gains and losses are compared to a reference point, rather than absolute value.
– “Pain” of losses are weighted more than the “pleasure” of gains.
• Possession is valued more than acquisition. • Coffee mugs and pawn shops.
Key Concepts and Insights: Social and Emotional Aspects of Behavior and Decision-Making
• Choices, decisions and behavior are both highly sensitive to and seek alignment with our emotional state and their social context and cues. • Hot vs. Cold Emotional State.
– Identity priming of Asian female test-takers
• Social Proof
– Decline in energy consumption based on a comparison of neighbors
Key Concepts and Insights: Social and Emotional Aspects of Behavior and Decision-Making
Key Concepts and Insights: Incentives, Willpower & Cognitive Dissonance
• Brains are not computers.
– And even if they were, we don’t always follow them.
• Channel Factors and Defaults
– Organ donations – Retirement savings
• Sunk Cost Effects
– Econ and Accounting 101: “Sunk costs don’t matter to future decisions.” – Price becomes the benchmark. – Sunk costs strengthen “ownership” and reinforce loss aversion
Why do organ donation rates differ so dramatically among relatively homogenous nations?
Why do some people participate more in 401(k) plans than others?
(Choi, Laibson, Madrian, and Metrick, 2004)
Why should policymakers and program operators care about behavioral economics?
Or, “Why are you doing BIAS and why is this relevant to ISIS partners?”
Why should policymakers and program operators care about behavioral economics?
• Evidence from other policy-relevant domains indicates promise and prospects for application. • Social problems remain despite the dominant (neoclassical) paradigms. • Nudges can be more targeted, cost-effective, easier to implement and less politically-charged than large scale policy reforms. • Even with large scale reforms, very often the exact mechanisms that generate impacts are unknown. • It’s is cool, fun, cutting-edge and generates it’s own momentum because it is intuitive and relatable.
– We are all “predictably irrational.”
Why BIAS?
• BIAS seeks to answer the question:
– How can behavioral economics apply to human services policies and programs?
• The purpose of the BIAS project is to apply insights from behavioral economics to issues related to the operations, implementation, structure, and efficacy of social service programs and policies. • Most of OPRE’s evaluations – like ISIS – are about big, blackbox policy or program changes. BIAS is specifically and explicitly focused on getting inside the black-box of programs. • BIAS isn’t about one or another view of human behavior; it’s concerned with correcting consistent errors or deviations by integrating the two views of human nature. • The ultimate goal is to learn how insights and tools from behavioral science can be used to improve the well-being of low-income children, adults, and families.
BIAS Overview
• Phase I: Knowledge Development (2011)
• Phase II: Behavioral Mapping and Peer Learning Practicum (2012) • Phase III: Pilot testing (2012-2013) • Phase IV: Scale-Up and Evaluation of most promising pilot interventions (2013 – 2014)
Why is this relevant to ISIS? #1 – Intervention Scoping Exercise
• Surveyed literature of a set of behavioral field experiments to understand what behavioral insights are most often applied and tested in real-world settings.
– Not a formal or conventional literature review. – Intended to inform future work of the project, not publication or dissemination.
• Reviewed behavioral interventions in consumer finance, nutrition, marketing, voting, charitable giving, energy/environment, health, and workplace productivity; • Developed a glossary of widely deployed interventions which differentiate from behavioral concepts or insights.
– Default Rule – a behavioral intervention – Status Quo Bias – a behavioral concept – Interventions can be used with or linked to more than one behavioral insight.
• KEY INSIGHT: Widely tested interventions and concepts differ from those that are most prominently discussed and cited.
Knowledge Development: Behavioral Literature Review
• Commonly deployed interventions:
– – – – – – – Reminders Feedback Channel Factors Environmental Cues Small Financial Incentives Social Proof Defaults (not as common as often thought)
• Commonly targeted concepts:
– – – – – Identity Status Quo Bias Commitment and Consistency Anchoring Loss Aversion
Why is this relevant to ISIS? #2 - Behavioral Maps & Pilot Tests
• Behavioral interventions seem like possible solutions to many of the programmatic challenges described by ACF stakeholders. • BIAS has been working with a few programs to delve deeper into program challenges, possible behavioral bottlenecks, and potential behavioral solutions. • This exercise is called “behavioral mapping.” • Behavioral mapping programs and policies is the first step of an iterative process of identifying, developing and implementing potential interventions.
Behavioral Mapping Example 1: Work First Referral & Program Experience from Client’s Perspective
IL DHS Level
Client applies for TANF at the local DHS Office
Client assigned to Asian Human Services
Employment Provider Level
Dropoff? Dropoff?
Assess TANF participant / family
Wednesday: Client orientation / intake
Dropoff?
Not “Job Ready”
Meet with job developer to receive subsidized placement / work experience assignment
Develop individualized service plan
Monday: Client reports for program
Childcare secured
Job Developer assesses client
• Meets with job developer • Prepares resume • Secures transportation, child care, etc. • Searches/applies for jobs
“Job Ready”
Dropoff?
Dropoff?
** Not comprehensive process map
Client applies for jobs, goes on interviews, etc.
Client secures and shows up for full-time employment work
Drop-off? – could also be non-compliance (not doing enough hours)
(Back)
Behavioral Mapping Example 2: Modifying a Child Support Order for Incarcerated Non-Custodial Parents
OAG selects eligible incarcerated NCPs; sends letter
NCP doesn’t get letter
OAG forwards application to appropriate CS field office
NCP receives letter; goes to law library
NCP doesn’t open/can’t read letter
Field office staff act on application
F. Office staff think mod not warranted
NCP fills out application
NCP doesn’t understand application
CP is served
Law Librarian notarizes application
Attorney from field office brings application to court
NCP mails application to OAG
Law Librarian fails to notarize
Judge rules on order modification
2/14/2013
21
How can behavioral economics and insights from BIAS be useful for ISIS partners or applied to ISIS programs?
Applying Behavioral Economics to ISIS: Marketing and Recruiting: The Power of Identity
Neutral: Please describe what you might eat at each meal of a typical day Affirmation: Please think of a personal experience where you have felt successful or proud
Neutral
Stopped to consider pamphlet 44%
Affirmation
58%
Took information 36%
79%
(Crystal Hall, Princeton U. dissertation)
Applying Behavioral Economics to ISIS: Choice Complexity, Channel Factors and Personal Assistance.
Financial aid is a complicated process involving multiple steps and forms.
Percent
60 50 40 30 20 10 0 FAFSA Completion Control Information Only College Enrollment FAFSA & Information
If the FAFSA is automatically completed for low-income tax filers with college age children dramatically increased college enrollment. Effect is due, entirely, to choice simplification, channel factors and personal assistance.
Applying Behavioral Economics and Lessons from BIAS to ISIS: Summary
• Minor elements can have a major impact. • Context matters.
– It is important to identify the proper context in complex and multi-staged programs.
• Forms, letters, reminders and defaults are not enough.
– Personal assistance and delivery of services still matters.
• BE can be fun, innovative and motivating.
Contact Information
Office of Planning, Research and Evaluation
ISIS & BIAS Project Officers:
Brendan Kelly 202-401-5695 [email protected] Emily Schmitt 202-401-5786 [email protected]
doc_425362099.pdf
The study of behavioral economics includes how market decisions are made and the mechanisms that drive public choice, such as biases towards promoting self-interest.
Behavioral Economics and ISIS:
Insights and Lessons from the Behavioral Interventions to Advance Self-Sufficiency (BIAS) Project
Emily Schmitt, Jason Despain and Brendan Kelly Office of Planning, Research and Evaluation Administration for Children and Families U.S. Department of Health and Human Services
Overview
• What is “behavioral economics”? • Why should policymakers and program operators care about behavioral economics? • How can insights from behavioral economics and the BIAS project be helpful to ISIS and ISIS partners? • Discussion
What is “behavioral economics”?
Behavioral Economics En Vogue
Two views on human behavior
Traditional view (neoclassical economics): • Well-informed • Stable preferences • No problems with selfcontrol • Completely self-interested • Good at making Behavioral view (behavioral economics) • • • • • • • Imperfect information Shifting preferences Imperfect self-control Procrastinate Choice overload Mental shortcuts Small factors can influence big decisions
decisions that maximize well-being
What is “behavioral economics”?
• Based on the work of Kahneman and Tversky (1979) “Prospect Theory: An Analysis of Decision Under Risk.” • 4 fundamental elements of prospect theory
– – – – Reference Dependence Loss Aversion Diminishing Sensitivity Probability Weighting
• Now incorporates more from behavioral psychology and game/decision-theory. ? People are human.
Key Concepts and Insights: Reference Dependence and Loss Aversion
• Gains and losses are compared to a reference point, rather than absolute value.
– “Pain” of losses are weighted more than the “pleasure” of gains.
• Possession is valued more than acquisition. • Coffee mugs and pawn shops.
Key Concepts and Insights: Social and Emotional Aspects of Behavior and Decision-Making
• Choices, decisions and behavior are both highly sensitive to and seek alignment with our emotional state and their social context and cues. • Hot vs. Cold Emotional State.
– Identity priming of Asian female test-takers
• Social Proof
– Decline in energy consumption based on a comparison of neighbors
Key Concepts and Insights: Social and Emotional Aspects of Behavior and Decision-Making
Key Concepts and Insights: Incentives, Willpower & Cognitive Dissonance
• Brains are not computers.
– And even if they were, we don’t always follow them.
• Channel Factors and Defaults
– Organ donations – Retirement savings
• Sunk Cost Effects
– Econ and Accounting 101: “Sunk costs don’t matter to future decisions.” – Price becomes the benchmark. – Sunk costs strengthen “ownership” and reinforce loss aversion
Why do organ donation rates differ so dramatically among relatively homogenous nations?
Why do some people participate more in 401(k) plans than others?
(Choi, Laibson, Madrian, and Metrick, 2004)
Why should policymakers and program operators care about behavioral economics?
Or, “Why are you doing BIAS and why is this relevant to ISIS partners?”
Why should policymakers and program operators care about behavioral economics?
• Evidence from other policy-relevant domains indicates promise and prospects for application. • Social problems remain despite the dominant (neoclassical) paradigms. • Nudges can be more targeted, cost-effective, easier to implement and less politically-charged than large scale policy reforms. • Even with large scale reforms, very often the exact mechanisms that generate impacts are unknown. • It’s is cool, fun, cutting-edge and generates it’s own momentum because it is intuitive and relatable.
– We are all “predictably irrational.”
Why BIAS?
• BIAS seeks to answer the question:
– How can behavioral economics apply to human services policies and programs?
• The purpose of the BIAS project is to apply insights from behavioral economics to issues related to the operations, implementation, structure, and efficacy of social service programs and policies. • Most of OPRE’s evaluations – like ISIS – are about big, blackbox policy or program changes. BIAS is specifically and explicitly focused on getting inside the black-box of programs. • BIAS isn’t about one or another view of human behavior; it’s concerned with correcting consistent errors or deviations by integrating the two views of human nature. • The ultimate goal is to learn how insights and tools from behavioral science can be used to improve the well-being of low-income children, adults, and families.
BIAS Overview
• Phase I: Knowledge Development (2011)
• Phase II: Behavioral Mapping and Peer Learning Practicum (2012) • Phase III: Pilot testing (2012-2013) • Phase IV: Scale-Up and Evaluation of most promising pilot interventions (2013 – 2014)
Why is this relevant to ISIS? #1 – Intervention Scoping Exercise
• Surveyed literature of a set of behavioral field experiments to understand what behavioral insights are most often applied and tested in real-world settings.
– Not a formal or conventional literature review. – Intended to inform future work of the project, not publication or dissemination.
• Reviewed behavioral interventions in consumer finance, nutrition, marketing, voting, charitable giving, energy/environment, health, and workplace productivity; • Developed a glossary of widely deployed interventions which differentiate from behavioral concepts or insights.
– Default Rule – a behavioral intervention – Status Quo Bias – a behavioral concept – Interventions can be used with or linked to more than one behavioral insight.
• KEY INSIGHT: Widely tested interventions and concepts differ from those that are most prominently discussed and cited.
Knowledge Development: Behavioral Literature Review
• Commonly deployed interventions:
– – – – – – – Reminders Feedback Channel Factors Environmental Cues Small Financial Incentives Social Proof Defaults (not as common as often thought)
• Commonly targeted concepts:
– – – – – Identity Status Quo Bias Commitment and Consistency Anchoring Loss Aversion
Why is this relevant to ISIS? #2 - Behavioral Maps & Pilot Tests
• Behavioral interventions seem like possible solutions to many of the programmatic challenges described by ACF stakeholders. • BIAS has been working with a few programs to delve deeper into program challenges, possible behavioral bottlenecks, and potential behavioral solutions. • This exercise is called “behavioral mapping.” • Behavioral mapping programs and policies is the first step of an iterative process of identifying, developing and implementing potential interventions.
Behavioral Mapping Example 1: Work First Referral & Program Experience from Client’s Perspective
IL DHS Level
Client applies for TANF at the local DHS Office
Client assigned to Asian Human Services
Employment Provider Level
Dropoff? Dropoff?
Assess TANF participant / family
Wednesday: Client orientation / intake
Dropoff?
Not “Job Ready”
Meet with job developer to receive subsidized placement / work experience assignment
Develop individualized service plan
Monday: Client reports for program
Childcare secured
Job Developer assesses client
• Meets with job developer • Prepares resume • Secures transportation, child care, etc. • Searches/applies for jobs
“Job Ready”
Dropoff?
Dropoff?
** Not comprehensive process map
Client applies for jobs, goes on interviews, etc.
Client secures and shows up for full-time employment work
Drop-off? – could also be non-compliance (not doing enough hours)
(Back)
Behavioral Mapping Example 2: Modifying a Child Support Order for Incarcerated Non-Custodial Parents
OAG selects eligible incarcerated NCPs; sends letter
NCP doesn’t get letter
OAG forwards application to appropriate CS field office
NCP receives letter; goes to law library
NCP doesn’t open/can’t read letter
Field office staff act on application
F. Office staff think mod not warranted
NCP fills out application
NCP doesn’t understand application
CP is served
Law Librarian notarizes application
Attorney from field office brings application to court
NCP mails application to OAG
Law Librarian fails to notarize
Judge rules on order modification
2/14/2013
21
How can behavioral economics and insights from BIAS be useful for ISIS partners or applied to ISIS programs?
Applying Behavioral Economics to ISIS: Marketing and Recruiting: The Power of Identity
Neutral: Please describe what you might eat at each meal of a typical day Affirmation: Please think of a personal experience where you have felt successful or proud
Neutral
Stopped to consider pamphlet 44%
Affirmation
58%
Took information 36%
79%
(Crystal Hall, Princeton U. dissertation)
Applying Behavioral Economics to ISIS: Choice Complexity, Channel Factors and Personal Assistance.
Financial aid is a complicated process involving multiple steps and forms.
Percent
60 50 40 30 20 10 0 FAFSA Completion Control Information Only College Enrollment FAFSA & Information
If the FAFSA is automatically completed for low-income tax filers with college age children dramatically increased college enrollment. Effect is due, entirely, to choice simplification, channel factors and personal assistance.
Applying Behavioral Economics and Lessons from BIAS to ISIS: Summary
• Minor elements can have a major impact. • Context matters.
– It is important to identify the proper context in complex and multi-staged programs.
• Forms, letters, reminders and defaults are not enough.
– Personal assistance and delivery of services still matters.
• BE can be fun, innovative and motivating.
Contact Information
Office of Planning, Research and Evaluation
ISIS & BIAS Project Officers:
Brendan Kelly 202-401-5695 [email protected] Emily Schmitt 202-401-5786 [email protected]
doc_425362099.pdf