Michael D. Grubb, “Overconfident Consumers in the Marketplace.” Journal of Economic Perspectives 29(4): 9-36, Fall 2015.
• Overconfidence encompasses both excessive optimism and flattering views of the precision of beliefs. For instance, people are overconfident about their future ability to exercise self-control or to pay attention to the potential of looming high fees.
• Overconfidence harms consumers, and competitive markets do not necessarily mitigate overconfidence – they may even exacerbate its costs; rebates and gym memberships are canonical instances.
• Complex contract terms can take advantage of overconfident consumers.
• Overconfident consumers can be the source of a subsidy to fully rational consumers.
• Price controls could serve consumer and social welfare in the presence of overconfident consumers.
Saturday, April 28, 2018
Arad and Rubinstein (2015) on the People’s Perspective on Nudges
Ayala Arad and Ariel Rubinstein, “The People’s Perspective on Libertarian-Paternalistic Policies,” July 2015. This outline draws on the July, 2015 version of the paper, but a later version (October, 2017) of the paper is available here, as a pdf.
• Two online studies (each n>1000) are conducted with university students in Israel, Germany, and the US.
• In Study 1, subjects either are presented with an opt-in employee savings plan, or a government-mandated opt-out version with an 8% savings default.
• A large percentage (28-53% across the three countries) of subjects have a negative view of the opt-out version (especially if they are aware of the opt-in alternative), even if they intend to save 8% monthly. Indeed, fewer people indicate that they will take up the 8% savings rate when it is presented as the default than would take it up on an opt-in basis.
• Study 2 concerns attempts to decrease the consumption of fatty foods. Some measures (taxes, one-day-per-week ban) are hard paternalism, one is a System 1 nudge (shifting the placement of food items on menus), and two are System 2 nudges involving information provision (media campaign, smartphone app).
• The effectiveness of each of the measures in reducing consumption of fatty foods is presented to the subjects, with seven variations.
• Up to 25% of subjects think that government shouldn’t be in the business of trying to change diets.
• Most subjects (among those who do not object to the government being involved) seem to prefer whatever measure is most effective.
• But 19 to 54% of subjects prefer the info provision, even when it is less effective than the System 1 nudge.
• The “hard” interventions attract little support.
• The October 2017 version of the paper includes these two sentences in the abstract: "The opposition to soft interventions appears to be driven by concerns about manipulation and the fear of a 'slippery slope' to non-consensual interventions. Opposition to soft interventions is reduced when they are carried out by employers rather than the government."
• Two online studies (each n>1000) are conducted with university students in Israel, Germany, and the US.
• In Study 1, subjects either are presented with an opt-in employee savings plan, or a government-mandated opt-out version with an 8% savings default.
• A large percentage (28-53% across the three countries) of subjects have a negative view of the opt-out version (especially if they are aware of the opt-in alternative), even if they intend to save 8% monthly. Indeed, fewer people indicate that they will take up the 8% savings rate when it is presented as the default than would take it up on an opt-in basis.
• Study 2 concerns attempts to decrease the consumption of fatty foods. Some measures (taxes, one-day-per-week ban) are hard paternalism, one is a System 1 nudge (shifting the placement of food items on menus), and two are System 2 nudges involving information provision (media campaign, smartphone app).
• The effectiveness of each of the measures in reducing consumption of fatty foods is presented to the subjects, with seven variations.
• Up to 25% of subjects think that government shouldn’t be in the business of trying to change diets.
• Most subjects (among those who do not object to the government being involved) seem to prefer whatever measure is most effective.
• But 19 to 54% of subjects prefer the info provision, even when it is less effective than the System 1 nudge.
• The “hard” interventions attract little support.
• The October 2017 version of the paper includes these two sentences in the abstract: "The opposition to soft interventions appears to be driven by concerns about manipulation and the fear of a 'slippery slope' to non-consensual interventions. Opposition to soft interventions is reduced when they are carried out by employers rather than the government."
Sunday, April 1, 2018
Jung and Mellers (2016) Look at US Attitudes Towards Nudges
Janice Y. Jung and Barbara A. Mellers, “American Attitudes toward
Nudges.” Judgment and Decision Making 11(1): 62-74, January 2016.
• System 1 nudges are those that take advantage of our relatively automatic, unthinking mechanism for making decisions – canny default settings are an example of a System 1 nudge.
• System 2 nudges enhance our cognitive abilities, perhaps by providing more information – calorie counts on food items are an example of a System 2 nudge.
• Study 1 conducted by Jung and Mellers looks at nine System 1 nudges and four System 2 nudges, in an internet-based survey (n=250). Subjects are asked if they are for or against nudges, and then rate the intensity of their feelings on the subject. (If you are unsure, you will be asked to explain why!) Subjects also rate nudges on various scales, such as whether they are a threat to autonomy.
• Jung and Meller's Study 2 manipulates the “framing” of the nudges, sometimes emphasizing individual effects, sometimes social effects; sometimes highlighting the benefits, sometimes highlighting the avoidance of costs. Attitudes also are collected about companies that institute nudges.
• System 2 nudges receive more support than System 1 nudges – but one System 2 nudge, where government provides a website that tracks people’s expenditures on food, energy, and so on, is disliked in a System 1-like manner.
• Also disliked are opt-out organ donation lists, those misleading white lines on Lake Shore Drive, one-click charitable donation opportunities at store check-outs, and credit card online payment mechanisms that default to fully paying off the debt.
• Empathic folks tend to support System 1 and System 2 nudges; conservatives and individualists tend to oppose both types of nudges. (“Reactant” people oppose System 1 nudges.) System 2 nudges are viewed as more effective, though evidence generally supports the superior effectiveness of System 1 nudges.
• Framing doesn’t matter much on average, but does matter with some sub-groups; for instance, “reactant” people oppose nudges more strongly when the frame points out the individual costs of not going along. Feelings about companies that nudge basically track the feelings about the nudges the companies implement.
• System 1 nudges are those that take advantage of our relatively automatic, unthinking mechanism for making decisions – canny default settings are an example of a System 1 nudge.
• System 2 nudges enhance our cognitive abilities, perhaps by providing more information – calorie counts on food items are an example of a System 2 nudge.
• Study 1 conducted by Jung and Mellers looks at nine System 1 nudges and four System 2 nudges, in an internet-based survey (n=250). Subjects are asked if they are for or against nudges, and then rate the intensity of their feelings on the subject. (If you are unsure, you will be asked to explain why!) Subjects also rate nudges on various scales, such as whether they are a threat to autonomy.
• Jung and Meller's Study 2 manipulates the “framing” of the nudges, sometimes emphasizing individual effects, sometimes social effects; sometimes highlighting the benefits, sometimes highlighting the avoidance of costs. Attitudes also are collected about companies that institute nudges.
• System 2 nudges receive more support than System 1 nudges – but one System 2 nudge, where government provides a website that tracks people’s expenditures on food, energy, and so on, is disliked in a System 1-like manner.
• Also disliked are opt-out organ donation lists, those misleading white lines on Lake Shore Drive, one-click charitable donation opportunities at store check-outs, and credit card online payment mechanisms that default to fully paying off the debt.
• Empathic folks tend to support System 1 and System 2 nudges; conservatives and individualists tend to oppose both types of nudges. (“Reactant” people oppose System 1 nudges.) System 2 nudges are viewed as more effective, though evidence generally supports the superior effectiveness of System 1 nudges.
• Framing doesn’t matter much on average, but does matter with some sub-groups; for instance, “reactant” people oppose nudges more strongly when the frame points out the individual costs of not going along. Feelings about companies that nudge basically track the feelings about the nudges the companies implement.
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