Behavioral economics lect 7: nudge part 1
Agenda
Save More Tomorrow
Welfare criteria
Behavioral welfare economics
Exam
Choice architecture
Example: status quo bias.
Choice architecture:
“A choice architect has the responsibility for organizing the
context in which people make decisions.” (Thaler and Sunstein)
Lesson from this course:
The context in which people make choices influences their
decisions.
Policies to enhance welfare
Financial incentives (e.g. taxes)
Nudge:
“A nudge is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid.” (Thaler and Sunstein, 2008)
Laws (e.g. smoking bans)
Nudge
Healthy instead of unhealthy snacks near the counter of a cafeteria
Organ donation
Ex youtube taking the stairs
Libertarian paternalism
Also called:
Nudging is libertarian paternalism:
-Paternalism: by influencing the choice context, you try to influence
people’s behavior
-Libertarian: people are free to deviate from the nudge
Soft/light paternalism
Asymmetric paternalism: impose little or no costs on individuals who are fully rational and informed, and having potentially large benefits for the others. (Angner)
Saving for retirement
Employees now have to actively join the pension plan and select their own savings rate.
More choices of funds.
Pensions in the US: move from defined benefit to defined contribution
Do people benefit from being able to choose their own retirement portfolios and having more choice?
Is your own responsibility and choice good?
asked to rate the attractiveness of three portfolios
based on projected range of retirement income
(a) own portfolio
(b) average portfolio
(c) median portfolio
UCLA pension plan participants
Findings:
No difference between (a) and (b)
. (c) preferred to (a).
Follow-up study showed similar results for people who explicitly rejected a portfolio customized for them by experts.