Balasubramanian and Cashin (2019) on Gross National Happiness in Bhutan

Sriram Balasubramanian and Paul Cashin, “Gross National Happiness and Macroeconomic Indicators in the Kingdom of Bhutan.” IMF Working Paper WP/19/15, January 2019.

• The population of Bhutan is about 735,000 people, who are much influenced by the state religion, the Vajrayana tradition in Buddhism. "At the core of this philosophy are the key components of compassion and respect for all, and for the government to take care of its citizens [p. 3]." [The promotion of GNH has not stood in the way of alleged horrific behavior towards the ethnic Nepalese population in Bhutan, particularly in the 1990s.]

• Since 1972, Bhutan has emphasized Gross National Happiness (GNH), not Gross National Product (GNP) (or Gross Domestic Product), and that emphasis is now enshrined in Bhutan's Constitution. The Bhutanese commitment to GNH does not imply that GNP is shunned as a development indicator. 

• Pillars of GNH: (1) sustainable, equitable development; (2) cultural promotion; (3) environmental protection; and, (4) good governance. The Bhutanese also apply their GNH approach within nine more specific domains, such as health and the allocation of time. 

• Despite a rather phenomenal increase in per-capita income over the past forty years, GNH in Bhutan has not risen much -- shades of Easterlin. A report on Bhutan's 2015 GNH survey is available here.

• Men are significantly happier (on average) than women in Bhutan; urban dwellers are happier than rural folks. The least happy occupation in Bhutan is farming. 

• Poverty reduction in Bhutan has been significant: "the poverty rate in Bhutan has declined from 23.2 percent in 2007, to 12 percent in 2012, and further to 8.2 percent in 2017 [p. 20]." Urban poverty is quite small. 

Oswald and Winkelmann (2019) on Lottery Wins and Happiness

Andrew J. Oswald and Rainer Winkelmann, “Lottery Wins and Satisfaction: Overturning Brickman in Modern Longitudinal Data on Germany.” In: Rojas M. (ed.) The Economics of Happiness. Springer, Cham., 2019.

• The "Brickman" in the title refers to an influential 1978 article that first questioned the Easterlin claim that, in cross-section data, higher income leads to greater happiness, and in part used the happiness of lottery winners as evidence. Brickman et al. found almost no improvement in happiness for lottery winners. [The article is Brickman, P., Coates, D., & Janoff-Bulman, R. (1978). Lottery winners and accident victims: Is happiness relative? Journal of Personality and Social Psychology, 36(8), 917–927.]

• The (usual) positive relationship that exists between income and happiness might not be causal. That is, more money might not mean more happiness -- it could be the other way around, that happier people earn more, or there could be some other factor that drives both happiness and income.

• Lottery winners to the rescue! The income windfall of lottery winners has a suggestion of exogeneity, it does not arise from unobserved personal traits.  

• The "rescue" provided by examining lottery winners might be limited, in part by the small numbers of such winners, and in part because lottery players might share relevant characteristics that are not possessed to the same degree by the rest of the population. This latter issue can be addressed by comparing only lottery winners, looking to see if winners who win more money are happier than those who win less money.  

• Another problem in terms of generalizing claims about money and subjective wellbeing (SWB) is that it is possible that the source of income, and not just the amount, matters for SWB.

• Lottery winning doesn’t seem to do much for health or for children’s health – perhaps because winners engage more intensely in risky activities like drinking alcohol. Mental health problems and mortality might increase for lottery winners.

• If your neighbor wins the lottery, you are more likely to buy a new car and engage in home renovation -- that is, you make significant expenditures on publicly visible goods. 

• Regular lottery players (in Germany) are drawn disproportionately from the less educated segments of society.

• A (biggish?) lottery win boosts satisfaction with your income, like would occur with a 20% increase in income – but the effect fades within a couple of years. A similar tale, with smaller magnitudes, applies to overall life satisfaction.

Andrew Eric Clark, “Four Decades of the Economics of Happiness: Where Next?” Review of Income and Wealth 64(2): 245-269, June 2018.

• Happiness data allow answers to the questions: (1) what promotes happiness; (2) what activities do happy people undertake?; and, (3) how can we value a public project?

• One common measure of subjective well-being is the Cantril ladder, where respondents are asked to imagine a ladder with eleven numbered levels, from zero on the bottom (worst possible life for the respondent) to ten on the top (best possible life for the respondent).

• Studies of the effect of income on happiness generally indicate diminishing marginal happiness from income, so that the happiness boost from an additional $1000, say, is greater for lower income people than for higher income folks.

• Another nearly universal finding is that unemployment is negatively correlated with happiness. 

• A graph of happiness as a function of age tends to be u-shaped, though the reasons for this relationship are not well understood. 

• The black/white happiness gap in the US – whites tend to have higher subjective wellbeing (SWB) – is shrinking.

• Marriage seems good for happiness (or at least positively correlated with it), and single people who are happy are more likely to get married.

• Children are not a sure-fire happiness booster, though people who are happier are more likely to have kids down the road.

• Aggregate unemployment is worse for national SWB than is inflation, basically (in that a 1 percentage point increase in unemployment lowers SWB by more than does a 1 percentage point increase in the inflation rate) but an individual suffers less from unemployment when the aggregate unemployment rate is high

• Something (like a bigger house) that raises your happiness might undermine someone else’s

• Adaptation (the hedonic treadmill) is limited with respect to unemployment, poverty, disability, lack of job security, and (for something that raises SWB) cosmetic surgery!

• Do happy teachers lead to better student performance? (Some evidence (p. 258) says yes.)

• Happiness promotes health – and voting for incumbents.

• Affective happiness versus life satisfaction: “Would you prefer to live a good life, or to remember having lived a good life? [p. 264].”

Le Grand (2018) on Government Paternalism

Julian Le Grand, “Future Imperfect: Behavioral Economics and Government Paternalism.” Review of Behavioral Economics 5: 281–290, 2018.

• Nudges and even stronger government interventions are often justified on the grounds of allowing long-run, more considered or "truer" individual preferences to assert themselves. But there are problems with identifying and privileging any one set of preferences. This article offers two justifications for paternalistic interventions that do not rely on identifying true or long-run preferences. 

• The defense of paternalism offered here applies (as is usually the case in economics) to means-related paternalism, not ends-related. People's goals are taken as given (and, implicitly, rational); can policies be designed to empower people to better achieve those goals?

 • What if the government sees people engaging in an activity like smoking that the government believes will have future costs for smokers that with a high probability will more than compensate (in terms of the smokers' own values) for the increased value they enjoy from smoking now? 

• The government might reasonably want to dissuade such smoking, but why would smokers make such a mistake? Maybe they lack information, so there is much to be said for ensuring that accurate information is readily available – but this is not the same as justifying a smoking tax or ban. Maybe smokers use a different discount rate than does the government in comparing current with future costs and benefits – again, this difference should not license coercive interventions by the government.

• But maybe (drawing upon Le Grand's 2015 book with Bill New) the problem is that smokers suffer from one or more "reasoning failures": "limited technical ability, limited experience or imagination, limited willpower and limited objectivity [p. 286]." In particular, can a young smoker imagine a realistic portrayal of herself as a 65-year old? The failure of imagination is not a problem of too little information about the health risks of smoking; rather, it is a lack of knowledge of how the well-being of future selves will be affected by current smoking. A paternalistic policy can be justified not only on the basis of better knowledge of true or more-considered preferences, but on a better understanding of health effects on well-being. 

• A second defense of paternalistic interventions might be to consider how a person's future selves might contract with current selves to influence current decision making. Government could serve as a stand-in for those underrepresented future selves. Now the justification for a paternalistic intervention is market failure, in that future selves generally are unable to participate in market transactions that nevertheless implicate their interests.

• Le Grand adapts an example from a 2018 book by Robert Sugden. A young person inherits from an uncle a wine collection, though she has little interest in wine, and does not place much value on her inheritance. But her father suspects that in a few years the young person will feel differently. So he could offer her a low price for the wine today (which she will accept), and after a few years, offer to sell it back to her at a higher price. If the father was right, she will agree to both transactions, and everyone is happy. 

• For goods which, unlike wine, cannot be transferred, the government could arrange a similar (though not voluntary?) deal, by subsidizing smoking avoidance today, with the subsidy repaid by taxes in the future on the now older non-smokers. But does this "contractarian approach" avoid the identification of a true or long-term preference? Le Grand thinks that it does not, as the (imposed) subsidy is designed to override the young person's current preferences.

Špecián (2019) on True Preferences

Petr Špecián, “The Precarious Case of the True Preferences.” Society 56(3): 267-272, June 2019.

• Are voluntary trades (with no spillovers) Pareto improving? To assert that they are suggests a belief in coherent preferences. This is the standard economics approach: choices reveal underlying, true preferences.

• Behavioral evidence undermines the belief that choices reveal true preferences. Nonetheless, nudges aim to make people better off “as judged by themselves," so there is an appeal to some underlying true preferences from which those judgments emerge.

• But when can we know that people's un-nudged choices do not reflect their true preferences? How can we determine which preferences should be disregarded or questioned? Signposts of potential irrationality might include rare choices, intertemporal choices, choices involving temptation goods…

• Can we rely upon cold-state (as opposed to hot-state) preferences, or long-run, considered preferences, as somehow being "true" preferences? But maybe these proclaimed "more considered" preferences reflect social norms and are just marketed for public consumption, even as people really want to be Mr. Hyde, not Dr. Jekyll. 

• Perhaps Sugden (2008) is right, perhaps there are no underlying coherent preferences at all.

• Nudgers might believe that their interventions make matters better in practice even if these fundamental questions about how to judge individual welfare remain unresolved. [That's pretty much my view, too -- JL] Nudgers should be humble, and wary of overconfidence.

Benartzi, Beshears, Milkman et al. (2017) on Government Investments in Nudges

Shlomo Benartzi, John Beshears, Katherine L. Milkman, Cass R. Sunstein, Richard H. Thaler, Maya Shankar, Will Tucker-Ray, William J. Congdon, and Steven Galing, “Should Governments Invest More in Nudging?” Psychological Science 28(8): 1041–1055, 2017.

• Government nudge units have thrived since the British showed the way in 2010; these units have set up canny defaults or streamlined paperwork or otherwise looked to make presumably desirable behavior easy for individuals to implement.

• But nudges, with their definitionally-low impact on "standard" (monetary, say) incentives, are not the only way to alter behavior, nor necessarily the cheapest. They do, however, tend to be cheap, so even a small behavioral impact might be well worth the nudge expense. 

• An e-mail nudge aimed at inducing US military personnel to enroll in a retirement plan increased enrollments in one month from a baseline just above 1 percent to somewhere in the 1.6 to 2.1 percent range; this nudge cannot be said to be wildly effective, but it was so inexpensive that the increased retirement savings per dollar invested were quite large (and orders of magnitude larger than with traditional monetary incentives targeted at inducing savings).

• "To be maximally informative, future policy-oriented behavioral science research should measure the impact per dollar spent on behavioral interventions in comparison with more traditional interventions [p. 1042]."

• The authors identify policy outcomes such as the amount of retirement savings and then scour the academic literature (highly-ranked journals) for relevant studies of both nudge and non-nudge policy interventions, for the purpose of calculating impact (on the chosen outcome variable) per dollar spent. In addition to retirement savings, the outcome variables include energy conservation, college enrollment, and influenza vaccination.

• For each outcome measure, the oomph-per-dollar ratio is highest (easily) with a nudge intervention as opposed to a traditional policy lever aimed at, for instance, monetary incentives. (This is not to say that all nudge interventions are comparative winners, just that the most cost-effective policies are nudges.) Automatic enrollment in retirement plans, for instance, is better at increasing savings (per dollar spent) than is a subsidy such as providing a 50% match for individual contributions.

• Nudges seem to be particularly cost effective when the problem that is being addressed implicates shortfalls in the rationality of individual decisionmaking. In these settings, small changes in the choice architecture can have large effects, whereas monetary interventions to improve the benefit-cost calculus that presumably underlies those individual decisions are both expensive and rather ineffective.

• In some circumstances, nudges and traditional policy interventions might be effective in combination.

• The evidence suggests that the current investment in nudge interventions is suboptimal.

Cronqvist, Thaler, and Yu (2018) on Long-Lasting Nudges

Henrik Cronqvist, Richard H. Thaler, and Frank Yu, “When Nudges are Forever: Inertia in the Swedish Premium Pension Plan.” American Economic Association Papers and Proceedings 108: 153-158, 2018.

• Perhaps nudges such as default settings initially are quite powerful, but over time lose their influence as people get around to shifting to a preferred option.

• The Swedish Premium Pension Plan was initiated in 2000, and by 2016, served more than 7 million Swedes. The nudges that accompanied that plan have proven to have long-lasting consequences.

• One nudge concerned the default pension plan that savers were placed into if they didn't explicitly choose one of the hundreds of options. 

• A second nudge involved trying to convince savers that they indeed should make a positive choice themselves, that is, that they should override the default. This second nudge was surprisingly effective, in that 2/3 of the initial pension participants made an explicit choice of their investment portfolio. 

• But this second nudge only operated at and near the inception of the plan, in which the large initial cohort (4.4 million people) entered the pension scheme. The annual flow of new entrants then became much smaller, with less than 200,000 entering in 2016. As a result, the public and private advertising which constituted the second nudge dissipated within a few years. The percentage of enrollees choosing their own portfolio in subsequent cohorts fell to less than 10 percent by 2003, and after 2007 has always been four percent or below. 

• Those in the initial, large cohort who stayed with the default tended to continue with the default, though more than one-quarter of them did eventually choose a different portfolio. Of those who initially chose to make their own portfolio choice, less than three percent later decided just to go with the default. They also displayed quite a bit of attachment to their initial portfolio choice, even though they could alter it more or less continuously if they so chose. 

• The features of the default fund changed markedly in 2010 and 2011, removing a bias towards investments in Swedish companies (2010) and increasing the amount of leverage significantly (2011). These major reforms did not seem to alter the attractiveness of the default, few people opted out even though the financial characteristics of their pension plan were significantly changed.

• A 2017 corruption scandal at one of the leading pension funds also was not met with the huge abandonment of that fund that might have been expected.

• The Swedish pension nudges have had very significant, long-term effects! Nudge wisely!

Sachs (2019) on Addiction and Happiness

Jeffrey D. Sachs, “Addiction and Unhappiness in America.” Chapter 7 in World Happiness Report 2019.

• In the US, the Easterlin paradox continues to appear: "the average life evaluation in the United States, as measured by the Cantril ladder, has declined during the past dozen years, from 7.2 in 2006 to 6.9 in  2018, despite ongoing U.S. economic growth [p. 124]."

• Sachs hypothesizes that the US is in the midst of an addiction epidemic – with rising unhappiness and depression as consequences. 

• The addiction epidemic includes alcohol, tobacco, and other drugs, of course, but also the internet, food, sex, exercise, work...  

• Co-morbidities are common 

• Causes of the increase in addictions are hard to identify precisely, but there are many candidates: current life conditions, inequality, marketing (and designing more addictive goods, such as slot machines and cigarettes), failure to sufficiently regulate industries such as opioids and sweetened foods and social media...

• "The U.S. has had, by now, two startling wake-up calls: back to back years of falling life expectancy and declining measured subjective well-being [p. 130]." Better public policy is desperately needed, and directions to go are outlined in the Global Happiness and Well-Being Policy Report, 2019.

Allcott, Lockwood, and Taubinsky (2019) on Soda Taxes

Hunt Allcott, Benjamin B. Lockwood, and Dmitry Taubinsky, “Should We Tax Sugar-Sweetened Beverages? An Overview of Theory and Evidence.” Journal of Economic Perspectives 33(3): 202-227, Summer 2019.

• Some US cities, and many nations, tax beverages with added sugar; often such drinks do not receive the favorable tax treatment otherwise provided to groceries, too

• In the US, consumption of sweetened beverages falls with income, and the top 20% of consumers drink a lot of soda

• Associated health risks include weight gain, type 2 diabetes, and cardiovascular disease

• Fiscal externalities abound throughout the health care “system," so someone's unhealthy behavior is in part paid for by others. [Nonetheless, I am very wary of justifying policy on the basis of such fiscal externalities, in part because they seemingly justify any draconian measure. Your lack of exercise is costly to me! You must be coerced to exercise more and to eat in a more healthy way! Perhaps our willingness to provide subsidies for those in health crisis is predicated on the notion that we don't ask too many questions of how they got in such dire straits.] 

• Sugary drinks also present the potential for internalities, perhaps emanating from poor information or present bias or addiction or some other rationality shortfall

• The monetary incidence of a soda tax is likely to be regressive; do the internality benefits reverse the full incidence of such a tax? (That is, those who consume the most will pay the most tax, but (presumably) also receive the lion's share of benefits in the form of better health down the road from reduced soda consumption.)

• Soda tax revenues can be earmarked for programs benefiting people who pay the taxes, but if those programs are desirable, they should be funded anyway, and not have their funding dependent on a single dedicated revenue source. 

• Perhaps 1-to-2.1 cents per ounce is an “optimal” soda tax?

• Lessons? (1) Focus on the externalities and internalities (therefore…); (2) target those consumers who present the largest ex- and in- ternalities; (3) Implement the tax in terms of grams of added sugar; (4) Diet drinks and fruit juices are another story; (5) Be sophisticated about incidence; (6) Reduce avoidance through statewide (not municipal) taxes; and... (7) Reasonable soda taxes probably bring net social benefits.

• Here's a previous outline of an article on the sweetening of diets.

Mueller et al. (2019) on Illusory Preferences

Maximilian W. Mueller, Joan Hamory Hicks, Jennifer Johnson-Hanks, Edward Miguel, “The Illusion of Stable Preferences Over Major Life Decisions.” NBER Working Paper 25844, May 2019; available at http://www.nber.org/papers/w25844.

• Uh, "major life decisions" such as the number of children to have. 

• High-stakes decisions tend to be ones that we have little experience with: they are not like choosing a breakfast cereal. Also, they have major implications down the road, so it is helpful to have a good feeling of what our future preferences will be like. But perhaps people suffer from projection bias, they overestimate the extent to which their future preferences will resemble their current preferences.

• The inquiry looks into the stability over time with respect to women's preferences over the desirable number of children to have. Do women hold accurate forecasts of their own future preferences with respect to children? Do women recall accurately their previous preferences?

• The data are drawn from young Kenyan women, followed over a nine-year span.

• Most respondents, over the course of the nine years, change their desired number of children – and 20% change it by two or more children.

• Almost half of the respondents who do not expect to have a child in the next five years do have a child in that time. Mothers and married women who report that they do not expect to have a child in the next five years do not meet their expectations most of the time.

• Most women cannot correctly recall their desired fertility from three years ago. Indeed, for those whose desired fertility changes, less than 10 percent recall their old preferences correctly. Married women and mothers who have increased their desired fertility are particularly unlikely to recall accurately their old preferences – rather, they think that their current preferences are the same as what they used to be. 

• Average fertility desires are pretty stable over time – but at the individual level, there is lots of movement. This movement is neither foreseen nor, after the fact, recognized: there is both projection bias and retrospection bias. 

Vosgerau and Peer (2019) on Preference Malleability

Joachim Vosgerau and Eyal Peer, “Extreme Malleability of Preferences: Absolute Preference Sign Changes Under Uncertainty.” Journal of Behavioral Decision Making 32(1): 38-46, January 2019.

• The evidence on the extent to which preferences are constructed as opposed to revealed has been challenged. Much of the evidence is based on a person preferring option A to option B in one condition, and then, preferring option B to option A in a somewhat different condition -- where the conditions differ only with respect to supposedly irrelevant factors. 

• The best evidence of preference malleability would be where a person evaluates the same prospect (just A, no B) in opposite directions – is it a good or a bad, is it desirable or undesirable? – in different conditions. 

• The authors conduct two experiments (the second experiment is a near replication of the first with a larger sample size and some other improvements) where subjects indicate whether they have to be paid to accept a prospect (it’s bad), and also whether they would pay for the opportunity to obtain the same prospect (it’s good). If they are both willing to pay and need to be paid for the prospect, then it seems that their preferences are quite malleable. 

• One lottery: you win 30 NIS (Israeli New Shekels) if heads and lose 20 NIS if tails; second lottery: you win 30 NIS if a die toss brings an odd number and lose 20 NIS if the toss yields an even number. These lotteries are thus identical in terms of payoffs and probabilities. 

• The experimenters ask how much subjects would need to be paid (“compensation amount”) for one of the lotteries and how much they would be willing to pay for the other lottery. 

• Most people are willing-to-pay, and even more people demand compensation -- but about half (experiment 1) or about 84% (experiment 2) do both. People do not seem to know whether the lottery is desirable or undesirable or both: they do not seem to possess some underlying, stable preference concerning this lottery. 

• In experiment 1, the more people were willing to pay for the lottery, the more they also required to be compensated to receive the lottery.

•  The experimental design also allows some inferences to be made concerning risk preferences; for instance, if your willingness-to-pay for a lottery is less than the lottery's expected value, that is evidence that you are risk averse. Risk preferences, too, are not clear or stable: about 34% of the participants in experiment 1 (and 61%+ in experiment 2) indicate that they are both risk averse and risk seeking/neutral!

Duckworth et al. (2019) on Academics and Self-Control

Angela L. Duckworth, Jamie L. Taxer, Lauren Eskreis-Winkler, Brian M. Galla, and James J. Gross, “Self-Control and Academic Achievement.” Annual Review of Psychology 70: 373–99, 2019 [pdf here].

• Definitions of self-control vary (bringing on "jingle-jangle fallacies"); here, self-control is defined as “the self-initiated regulation of thoughts, feelings, and actions when enduringly valued goals conflict with momentarily more gratifying goals [p. 374].” 

• The competing actions examined here are the “academic goal-congruent” (AGC) action (like studying) and the academic goal-incongruent (AGI) action (like looking at your phone); the academic-goal congruent action is (in the cases of interest here) the one that would be chosen “upon reflection [p. 376]” 

• Many AGIs are of recent origin 

• Conflict between competing goals is unpleasant 

• Student multitasking is common, but it hinders learning; screens (laptops, phones) in the classroom are bad bad bad, even for college students. [Maybe instructors should make academics more interesting???]

• Average time-on-academic-task is less than 6 minutes (p. 378) 

• Self-control is a solid predictor of school success; preschool marshmallow tests predict SAT scores – but in general, self-control predicts grades better than it predicts standardized test scores

• The process model of self-control: situation attracts attention leads to appraisal and then to response (and a new situation) 

• Many self-control strategies such as rules, plans, and the inculcation of habits (like “study habits”) aim at skipping the assessment and jumping to the AGC response. Assessments can be altered, too, as with cognitive therapy. 

• Other strategies target the situation – eliminate potential distractions, say – or attention. 

• Focusing on the response is where willpower comes in (as opposed to relying less on the need for willpower), and willpower is a weak reed. 

Lowenstein (2019) Responds to Duckworth, Milkman, and Laibson (2019)

George Loewenstein, “Self-Control and Its Discontents: A Commentary on Duckworth, Milkman, and Laibson.” Psychological Science in the Public Interest 19(3): 95-100, 2019.

• Much to admire in Duckworth, Milkman, and Laibson (2019), especially the categorization of strategies to bolster self-control into situational v. cognitive and self-deployed v. other-deployed.

• Two (sort of) implicit assumptions seem to hover around the analysis, however, and I [Loewenstein] want to challenge those assumptions (assumptions which the authors themselves do not accept).

• One assumption that readers might come away with is that worsening problems such as lack of savings or obesity are brought about by self-control shortcomings, and that the strategies presented in Duckworth, Milkman, and Laibson (2019) are appropriate means to solve those problems. But inadequate self-control is not the source of (relatively recent) problems like rises in obesity and declines in savings. Rather, these problems have other, large causes, and thus, other solutions.

• A second assumption that readers might adopt is that self-control is about trying to get people to take a longer-term perspective. But many people suffer from being excessively future-minded (they are "hyperopic") -- these people need enhanced self-control to limit their future focus, to increase their current indulgence.

• The US has only become an outlier among nations with respect to undersaving and obesity in the past 40 years or so -- these problems do not reflect a new wave of a lack of self-control that swept across the land. What has changed is, for instance, a growth in income inequality and in the availability of snack foods and credit cards.

• Self-control is not about the present versus the future; it is about affect (System 1) versus more considered thinking (System 2) – this is why some people indulge insufficiently (“tightwaddism” and workaholism). (Look at the substantial investments people make in education -- do these evince present bias?) Mental accounting (like establishing an entertainment account) can help with future bias, too!

• Behavioral economics research might have a puritanical (or "Calvinist") bias.

Duckworth, Milkman, and Laibson (2019) on Willpower and Beyond

Angela L. Duckworth, Katherine L. Milkman, and David Laibson, “Beyond Willpower: Strategies for Reducing Failures of Self-Control.” Psychological Science in the Public Interest 19(3): 102-129, 2019.

• Higher self-control is associated with many good things -- but people struggle with self-control.

• Various models (such as dynamically inconsistent preferences) have been proposed to try to capture the workings (and failures) of self-control, and many strategies are deployed to try to bolster self-control. Exhortations to show more willpower, to just say no, are not that effective. That is, relying on willpower alone, as opposed to other strategies, is almost to give the game away.

• Strategies that try to make willpower more effective can usefully be categorized. In particular, some try to alter the situation (Situational strategies), and some try to target how the decision maker thinks about a given situation (Cognitive strategies). Further, some are undertaken by the decision maker herself (Self-Deployed strategies) and others are enacted by various outside actors, choice architects, including employers and regulators (Other-Deployed strategies). Self-Deployed strategies require that the decision maker understand, at least to some extent, her self-control shortcomings -- in the usual terminology, she must be somewhat sophisticated (not naive) about her intertemporal inconsistencies.

• Four categories of self-control strategies emerge within this two-dimensional framework, then: Self-Deployed Situational Interventions; Self-Deployed Cognitive Interventions; Other-Deployed Situational Interventions; and, Other-Deployed Cognitive Interventions. The authors list and discuss various strategies within each of these categories.

• Self-Deployed Situational Interventions attempt to manage the environment to reduce the need for self-control; such strategies include: deleting a game from your phone or employing other commitment devices (or commitment contracts) that reduce temptations or raise their effective prices; temptation bundling; removing temptations from view (which is one way to raise their effective price); and behavior therapy, such as removing "cues" from your environment when fighting an addiction.

• Self-Deployed Cognitive Interventions include: goal setting (which might be undertaken in public or in private); dividing the goal into bite-sized subgoals, and allowing for small wins along the way; explicit planning and implementation intentions (developing a detailed map of how a goal will be achieved); intensive self-monitoring (such as weighing yourself every day); psychological distancing from temptations or from interpersonal problems; mindfulness and cognitive therapy (generally provided in the form of Cognitive Behavioral Therapy).

• Other-Deployed Cognitive Interventions (which might not be recognized by the targets) include: descriptive social norms (like energy use by others in your neighborhood); social labeling (which might motivate you to live up to your identity, as a green consumer, say); age-processed renderings or other techniques to make one's own future self more relatable; and fresh-start framing, as with new year's resolutions.

• Other-Deployed Situational Interventions include: hard paternalism (e.g., social security, high sin taxes); microenvironments (healthy food placed at eye level); default settings or active choice mandates; requirements for choices to be made in advance; and planned interruptions (such as a mandated break on a slot machine, say).[Incidentally, as Loewenstein points out, hard paternalism does not bolster self-control but eliminates the need for self-control.]

Fennell (2019), "Personalizing Precommitment"

Lee Anne Fennell, “Personalizing Precommitment.” University of Chicago Law Review 86(2): 433-458, March 2019.

• Achieving long-term goals such as losing weight or writing a book requires the cooperation of many temporal selves of the same individual -- and perhaps the indulgences of some Mr. Hydes will undermine Dr. Jekyll's best-laid schemes. Precommitment can help, and the law might have a role to play in making such precommitments more available.

• Fennell invokes the "scale mismatch" terminology of Drazen Prelec; scale mismatch is when the goal (such as losing weight) is achieved in aggregate terms but the steps (literally?) to achieve the goal are lots of small individual decisions.

• Rigid rules – exercise one hour every day – might work in overcoming these temporal internalities, but such rules might be excessive or so demanding that they are abandoned.

• Perhaps people can fashion their own, less rigid but more sustainable rules? Good choices of “partitions” and “menus” can aid the process. For instance, appropriate serving sizes and types of serving utensils and single-serve packaging: all of these nudges can contribute to achieving a weight-loss goal.

• Segmentation eases metering and monitoring. How much cake did I eat? It might be easier to know the answer when the cake is consumed in segmented units -- I had three cupcakes -- than when I just keep picking at some unsegmented blob o' cake.

• Writing a book might be made manageable by segmenting the task into chapters and sections. But…while smaller chunks are easier to complete, given scale mismatch, they also look less meaningful in terms of progress, and more capable of postponement.

• Instead of segmenting work time, what about segmenting time not spent working – like limiting breaks to ten minutes?

• Monetary issues often can be addressed with precommitments and partitions. Purchasing a home can be a sort of forced saving – but this commitment device can be undone by easily acquired home equity loans. Can programs be provided that allow people to opt into a "no home equity loans" condition? 

• People might try to earmark money for savings by having special accounts or even physical envelopes -- though the commitment can be undone if an emergency arises. In general, setting high savings targets with sub-partitions (so that prematurely opening one savings envelope does not mean that all the others are opened, too) looks like a pretty good strategy. Even precommitting some money to indulgences can aid the larger goal of saving money. Should bank savings accounts come with earmarked sub-accounts that are made salient in web-based representations, say?

• Online menus could be personalized, by removing some excessively tempting items at the consumer’s request. 

• Rigid rules such as “no dessert” prune the menu to two choices: comply or don’t comply: “the reason that they can be so effective – the extreme chunkiness of the choices they present – is also the reason why they often fail” 

• Rules change the effective payoffs: the good choice becomes more automatic, and the wrong choice bears a higher price. 

• Lapses can induce further failures. Ex ante, it often is best to believe that behavior is bundled, that a lapse today will mean a rapid downward spiral. (Fennell calls such notions "behavioral firewalls"; in this case, good behavior today prevents future bad behavior.) Ex post (after a lapse), however, it is best to believe that the lapse was anomalous, that it doesn’t fore-ordain future behavior. Now the firewall changes: future behavior must be sealed off from the lapse.

• As with money set aside for financial indulgences, limited, planned exceptions can be helpful – but perhaps not implementable, perhaps zero tolerance, rigid rules are needed. 

• Receiving an income tax refund can be a form of forced savings or a welcome source of wam – but private firms can offer products that undo the commitment element of tax refunds. The IRS, incidentally, provides a split-refund facility, to allow the funneling of part of a refund into savings.

Quispe-Torreblanca et al. (2019) on Non-fungible Credit Card Bills

Edika G. Quispe-Torreblanca, Neil Stewart, John Gathergood, and George Loewenstein, “The Red, the Black, and the Plastic: Paying Down Credit Card Debt for Hotels, Not Sofas.” Management Science 65(11): 5392-5410, November 2019.

• Is money fungible? Many studies show that the source of money influences how it is spent – for instance, “playing with house money” 

• Consider the repayment of borrowed funds. Presumably the highest interest debt should be most rapidly repaid. 

• But durable goods create a stream of future benefits, so perhaps people can reduce the psychological pain of paying by paying off debts of transient goods more rapidly than debts associated with durable goods. 

• A vacation (a transient good) paid for in advance will be more pleasurable, by this accounting (“prospective accounting”) than the same vacation which is paid for after the fact. 

• People will be more willing to pay interest for a durable good like a clothes dryer. Pre-paying for the dryer does not appreciably raise its hedonic payoff. 

• These mental accounting effects might affect original decisions to make purchases, as well as how repayment occurs.

• A large field experiment is conducted, using UK credit card data. 

• Nondurable goods are indeed much more likely to be paid off at the end of the month than similar bills for durable items – an effect that would be matched by something like a 15% increase in the APR on non-durable debt.

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. 

Sax and Doran (2019) on Ambiguity and Biotechnology

J. K. Sax and N. Doran, “Ambiguity and Consumer Perceptions of Risk in Various Areas of Biotechnology.” Journal of Consumer Policy 42(1): 47-58, March 2019 [gated copy here].

• Biotechnology-driven consumer goods such as vaccines, fluoridated water, and foods produced with GMOs seem particularly susceptible to exaggerated views of health and safety risks. Does ambiguity aversion drive these risk misperceptions?

• A survey with 14 scenarios is administered to 318 American adults with at least a high school education. Four questions attempt to measure the respondent's underlying ambiguity aversion. These questions are followed up with a series of items concerning views on vaccines, organic foods, bottled water, and embryonic stem cells, where at least one response to each item is (treated as) inconsistent with the consensus scientific view. 

• These preliminaries are succeeded by vignettes about fluoridated water, GMO foods, and so on, where the information presented is either conflicting or less-than-complete. The respondents rate the scenarios on the basis of risks and benefits, where the most positive response would view the scenario as one holding great benefit at low risk. 

• The idea is that scientists often are willing to assign low risk/high benefit status to various innovations even in the absence of complete information, or in the presence of some conflicting information. Do the respondents behave similarly, and does being more ambiguity averse in general lead to more pessimistic assessments of such innovations? 

• People view ambiguity concerning food to be particularly off-putting. Nonetheless, respondents who prefer bottled water to fluoridated tap water tend in other domains to go with the scientific consensus.

• The bottom line, from the Abstract (p. 47): "Participants who reported greater aversion to ambiguity tended to respond in a way that signals the assignment of high risk, and low benefit, when presented with some unknown or uncertain risk."

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

Bar-Gill, Schkade, and Sunstein (2018) on Mistaken Inferences

Oren Bar-Gill, David Schkade, and Cass R. Sunstein, “Drawing False Inferences from Mandated Disclosures.” Behavioural Public Policy, published online 15 February 2018.

• When the government mandates that sellers (of food products, say) reveal some information to potential purchasers, the message that the consumers take away from the disclosure might not be what the government intended to convey.

• The perceived motivation(s) behind the government's requirement could affect consumer responses. Some mandates are aimed to convey a verified health risk; others might satisfy a somewhat nebulous consumer "right to know," even if no health risk is involved. Interest group pressures or social values of some sort (e.g., supporting domestic employment) are other motivations for disclosure mandates.

• People are more disposed to be influenced by the information relayed in a mandated disclosure if they believe the motive behind the mandate is new research findings (as opposed to political pressures). Problems arise when consumers are misled by mandated information; such misleading is likely when consumers misperceive the motives behind the mandate.

• The Bar-Gill, Schkade, and Sunstein article itself seems motivated by proposed and sometimes enacted government mandates that require firsm that sell foods including GMOs to indicate that fact. The potential issue is that there seems to be no evidence that GMO-containing foods possess higher health risks than do other foods; nonetheless, the mandated information could lead consumers to believe that GMOs are known to be unsafe.

• The authors’ Mturk survey (n=1675) concerns either GMOs or a fictitious synthetic food preservative, Z25.

• The government could: (1) let voluntary disclosure do all the work (that is, take no action); (2) mandate disclosure; or (3) mandate a warning. Government motives are either: (1) right-to-know; (2) political pressure; or (3) new research.

• After learning the government action, some subjects are told the government motive, while others are asked what they think the motive is.

• Subjects rate perceived risk (ex post and, for GMOs, ex ante, too) on a 0 to 100 scale, and indicate their intentions to purchase.

• False inferences may be a problem: posterior risk changes as much from new research as from right-to-know motivations; perhaps consumers do not trust that right-to-know motives are pure.

• A political pressure motive seems to lower the perceived risk of GMOs after disclosure (relative to no action).

• Subjects with strong prior beliefs about GMOs do not appreciably alter their beliefs based on government actions and motives.

• Can counter-advertising fix the false inference problem?