Newall, Walasek, Hassanniakalager, et al. (2023) on Gambling Risk Warnings

Philip W.S. Newall, Lukasz Walasek, Arman Hassanniakalager, et al., “Statistical Risk Warnings in Gambling.” Behavioural Public Policy 7(2), 219-239, 2023 [pdf available here].

• Warning messages in the gambling arena, when they are provided, tend to be generic and do not facilitate comparison across various betting options.

• Theoretical loss = (house edge) times (total amount bet), or, the expected price of a bet or bets; for instance, in European roulette, the house edge is 2.7%, so the theoretical loss of betting $100 is $2.70.

• Theoretical loss is a long-run concept and not salient for bettors, while their recent gambling experience is quite salient. But given that most of the social harm from gambling is tied to bettor losses, theoretical loss is a decent metric for the social risks of alternative wagers. 

• Expected prices (or theoretical loss) of gambling tends to be hidden from gamblers – but it would be possible to provide (sometimes approximate) theoretical loss information, or other related metrics such as house edge. (For games where player behavior affects the odds, the risk could even be personalized based on player characteristics.) Presumably gamblers (all else equal) would be dissuaded from forms of gambling with high theoretical losses. 

• Should gambling warnings also note volatility and the slow convergence to theoretical loss levels?

• Gamblers cannot identify vast differences in expected price on seemingly identical games.

• Some jurisdictions mandate “return to player”-style info; but players often do not understand it. And sometimes the info is hard to find and to see.

• Should the automatic reinvestment of small wins into a player's available gambling account be banned?

• In sports betting, longshots and “exact score” or other prop bets tend to have higher house edges – and these are heavily advertised.

Folkvord, Codagnone, Bogliacino, et al. (2019) on Online Gambling

Frans Folkvord, Cristiano Codagnone, Francesco Bogliacino, et al., “Experimental Evidence on Measures to Protect Consumers of Online Gambling Services.” Journal of Behavioral Economics for Policy 3(1): 20-29, 2019 [pdf here]. 

• Internet gambling might be particularly likely to induce problematic play. 

• The outcome variables tracked in both a laboratory (n=522) and an online (n=5997) experiment are the average amount bet, the time between plays, and the likelihood of ending a gambling session when given the opportunity. 

• In the first stage of the laboratory experiment, gamblers receive one of four interventions: a pop-up warning with a picture about gambling addiction; the warning without a picture; a task to reveal overconfidence; and a picture of a logo of a gambling treatment service. A control group skips those pre-play interventions. 

• None of the first-stage (pre-play) interventions reduce the extent or speed of play, though two of the interventions seem to speed up play! 

• The second stage of the laboratory experiment and the online experiment expand the number of treatments, including the possibility to set monetary limits and using pop-up messages requiring an action to continue gambling. 

• Most of the interventions have no effects. Monetary limits and the warnings that require a response reduce average bet amounts and slow down the rate of play. Registration forms incentivize people to quit.

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

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

• The tax authorities send you a message… 

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

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

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

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

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

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

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

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

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

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

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

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

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

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."

Sunstein (2018) on "Misconceptions About Nudges"

Cass R. Sunstein, “Misconceptions about Nudges.” Journal of Behavioral Economics for Policy 2(1): 61-67, 2018.

• Professor Sunstein examines seven mistaken or misleading – but frequently voiced – complaints about nudges. 

• (1) “Nudges are an insult to human agency” But…compared to what?; how can the provision of information, for example, be such an insult?; try active choosing if defaults make you nervous – but people often prefer a default!

• (2) “Nudges are based on excessive trust in government” But…compared to what?; governments must nudge; nudges, by definition, have low “error” costs; the private sector engages in lots of nefarious nudging; nudges can (and should) be made transparent.

• (3) “Nudges are covert” But…aren’t GPS devices and warning labels transparent?; is this misconception based on concerns about randomized field experiments?; transparency doesn’t seem to undermine the effectiveness of nudges.

• (4) “Nudges are manipulative” But…how is a reminder manipulative?; maybe a graphic warning is a little manipulative, ok?; but in general, manipulation should be made of sterner stuff. 

• (5) “Nudges exploit behavioral biases” But…do GPS and other technologies that improve navigability exploit a bias in a nefarious way?; many nudges counteract behavioral biases, such as inertia; nonetheless, defaults might indeed work because of inertia.

• (6) “Nudges wrongly assume that people are irrational” But…well, let’s say boundedly rational; nudging is inevitable; we needn’t resolve every philosophical issue to make pragmatic progress. 

• (7) “Nudges work only at the margins; they cannot achieve a whole lot” But…millions of additional school meals consumed?; billions in increased savings?; sigh.

Popkin and Hawkes (2016) on Sweetening of Diets

Barry M. Popkin and Corinna Hawkes, “Sweetening of the Global Diet, Particularly Beverages: Patterns, Trends, and Policy Responses.” The Lancet Diabetes & Endocrinology 4(2): 174–186, February 2016.

• Added caloric sweeteners in beverages seem to involve special health risks, such as diabetes. (The jury is still out on low-calorie sweeteners and 100% fruit juices.) Chile, Mexico, and the US lead the league table.

• Most food and most beverage calories consumed in the US come from items with added sweeteners. In recent years, the US has seen some movement away from beverages with added caloric sweeteners. 
 
• As incomes rise, much of the rest of the world is adopting US-style added-caloric-sweetener habits. 

• Early studies of sweet taxes suggest that they do dissuade consumption, and possibly even lead to changes in the composition of food items. 

• Sustained public information campaigns employing multiple channels of dissemination can dissuade unhealthy behaviors. The precise right approach (or approaches) to label information and warnings remains unresolved.

• Many jurisdictions have imposed restrictions on sugar marketing and in-school availability, as well as promoting public awareness and requiring nutritional information and warnings on packaging.

Schall, Doll, and Mohnen (2017) on Useless Warnings

Dominik L. Schall, Dominik Doll, and Alwine Mohnen, “Caution! Warnings as a Useless Countermeasure to Reduce Overconfidence? An Experimental Evaluation in Light of Enhanced and Dynamic Warning Designs.” Journal of Behavioral Decision Making 30(2): 347-358, April 2017.

• Two experiments look at over-precision in guessing the answers to factual questions. People tend to choose 90% confidence intervals that are much, much too narrow: people are overly optimistic about their precision. 

• Warning people to be wary of over-precision in itself (even when the warning takes a fairly fancy form) seems useless, but… 

• …a dynamic (pop-up) warning significantly reduces over-precision. Effective warning content and the dynamic element seem to both be required. 

• Effective warning content is rather involved: it consists of a highlighted signal word ("Caution"); an explanation of the hazard (overconfidence); the consequence of the hazard (the truth lying outside of the chosen confidence interval excessively); and instructions (widen your intervals) about how to overcome the hazard.

Disclosing Conflicts of Interest: Loewenstein, Cain, and Sah (2011)

George Loewenstein, Daylian M. Cain, and Sunita Sah, “The Limits of Transparency: Pitfalls and Potential of Disclosing Conflicts of Interest.” American Economic Review 101(3): 423–428, 2011 [pdf available here].

• Disclosure of conflicts of interest to customers would presumably eliminate any potential problems with such conflicts, if customers were standard rational actors. 

• But how do people respond to mandated disclosures? Those providers who have conflicts might increase the bias in their advice, realizing that their advice will tend to be discounted. They might even feel that the disclosure provides them with a “moral license” to mislead. 

• The recipients of the disclosure might think that the disclosure itself is a signal that the provider must be trustworthy. Further, they recognize that the rejection of the provider’s advice is now a sort of tacit accusation that the provider is corrupt – and people are wary of sending such signals. The desire to help out the provider might also push consumers to accept the conflicted advice. 

• The authors describe some experiments in which mandatory disclosure of conflicts of interest did indeed lead to worse advice, and acceptance of worse advice, with degraded outcomes for consumers (relative to when conflicted advisors were not required to disclose their conflicts.) 

• If the disclosures were not made by the provider, but by someone else, then consumers were better able to respond appropriately. It appears that it is when there is “common knowledge” of the conflict – the provider knows it, the consumer knows it, the provider knows that the consumer knows it, etc… – that the consumer’s incentive to go along with the biased advice is maximized. More time to respond to biased advice – a sort of cooling-off period – also is helpful to consumers. 

• An in-depth follow-up article on disclosure previously received the BE Outlines treatment.

Loewenstein, Sunstein, and Golman (2014) on Disclosure

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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