Choice Architects and Behavioral Economics

Behavioral economics for decision support systems researchers

Marine Natsvaladze
 Ivane Javakhishvili Tbilisi State University
 Georgia
 https://orcid.org/0000-0002-7635-8565
 
 The Covid-19 pandemic has led to unprecedented changes in people's social and economic behavior, They had to struggle to maintain their health and earn a living at the same time. Behavioral economics has been found to be highly relevant in explaining the behavior of economic agents during the Covid-19 pandemic, under the "new normal" conditions to explain real human economic behavior [9].
 Behavioral economics is an important paradigm in modern economics, and it has revolutionized the standards of economic theory and instead of rational decisions, it offers more realistic alternatives for decision-making and management - any decision should be based not on rational and mathematical calculations, but on the study of human behavior patterns, the analysis of causes and the awareness of whether how people think and how we can influence their choices by changing the content or environment during the decision-making process, without restricting the choices (Using "Nudge Theory" of behavioral economics).
 The Covid-19 pandemic has raised several questions about how market participants are responding to the global pandemic. The Covid-19 pandemic was able to spread rapidly around the world, indicating that extreme measures were needed to bring it under control. The policies of governments around the world have had a significant negative impact on the economy. Taking into account these factors, the issue of studying the economic behavior of market participants in the conditions of the pandemic was put on the agenda.
 Making real economic decisions based on rationality seems to be extremely difficult for all economic agents under the conditions of the Covid-19 pandemic. Therefore, when economic agents are faced with the extremely difficult situation created by the pandemic, rational economic decisions are likely to become ineffective or inefficient, and therefore the principle of "bounded rationality" described in the field of behavioral economics may become ineffective in the implementation of strategies to mitigate the consequences of the pandemic [15].
 The article discusses the use of the "Nudge Theory" in the public and private sector to implement incentives in economic decision-making.
 
 The purpose of the study: To consider a new economic policy using the approaches of behavioural economics and give recommendations on its development and implementation in the public and private sectors. Studying scientific experiments and articles by leading scientists, adapting the main conclusions, analysing the implications for policy implementation.
 
 Methodology/approach: Analysis of field data and review of laboratory experiments based on a bibliographic review of behavioral economics.
 
 Scientific news: Author's assessments or recommendations.
 
 Practical value: For new courses and disciplines.
 
 Keywords: Behavioral Economics, Economic Policy, "Nudge Theory", Incentives, Economic decision-making.

This thesis contributes to the field of behavioral economics. Research in behavioral economics investigates whether predictions of theoretical models and their underlying assumptions hold. It thereby enhances the predictive power of economics. While the first chapter provides an introduction and overview, Chapter 2 of this thesis studies whether an intergenerational transmission of risk preferences revealed by occupational choice from parents to children can be observed. The analysis shows that different male generations of a family indeed exhibit similar risky behavior, however, the link is rather weak. Chapter 3 answers the question of whether subjects are aware of the correlation between risk preferences and sociodemographic characteristics and attach informational value to sociodemographics when assessing the risk attitudes of others. The results of the experiment show that subjects recognize the correlation between the sociodemographic variables age, gender, parenthood and family status and risk preferences. Furthermore, subjects attach informational value to sociodemographic characteristics. Chapter 4 analyzes the process of the assessment of risk preferences of others in detail. A major asset is that our sample for the experiments in Chapter 3 and 4, besides student subjects, includes individuals that professionally make decisions on behalf of others every day: senior and junior advisors with differing years of counseling experience in the financial sector. In particular, it is studied whether professional and non-professional advisors are capable of correctly assessing the risk preferences of a specific advisee given sociodemographic information. The results of the experiment show, that when forming beliefs about the risk preferences of others, a false consensus bias of the advisors is present; the advisors' own risk preferences positively correlate with their beliefs about the advisees' ones. The precision of advice increases if more information is available. Professionals outperform non-professionals significantly when forecasting the risk attitudes of others. Chapter 5 of this thesis analyses whether herding out of reputational concerns exists in financial markets. Therefore, the subjects' behavior is studied in two treatments. First, in the role of financial investors, subjects take the decision which of two assets to buy without career concerns. In a second treatment, career concerns are incorporated. While in the first treatment, according to the theory, investors should always follow their own signal and buy the respective asset, in the second treatment with career concerns, investors should engage in herd behavior and neglect their own signal. However, the experimental results indicate that a similar herd behavior can be observed in the treatment with reputational concerns as well as in the treatment without reputational concerns. Moreover, we provide further evidence for investors (irrationally) imitating predecessors.

The conceptualization of environmental policies aiming to promote pro-environmental behavior has long been based mainly upon the theoretical inputs provided by standard economics. As a result of a growing awareness about the limited effectiveness of such concepts there is to be observed a re-orientation of environmental policy toward “soft-policy” instruments. In this connection, social scientists and policymakers have increasingly given attention to behavioral economics as a basis for designing more effective policy instruments. Research concerning this approach and especially its actual application are, however, still at an early stage, and, moreover, the field of behavioral economics is still developing.

Nudging has emerged as an alternative policy for managing water demand in the residential sector. Indeed, numerous field studies have been recently published to assess the impact of nudges on water consumption. In parallel, a substantial body of literature has developed in the field of behavioral economics, including laboratory experiments to evaluate the effects of nudge-type or boost treatments on individual behavior. However, the corresponding results are frequently overlooked in field studies. In this context, focusing on the residential water sector, the aim of this survey paper are, first, to review field experiments and address key issues in behavioral economics; and second, to present results obtained from laboratory experiments that could enhance nudging policies. We conclude by discussing additional unexplored areas and their policy implications.

Behavioral Law & Economics Goes to Court: The Fundamental Flaws in the Behavioral Law & Economics Arguments Against No-Surcharge Laws

Since the concept of “nudge” was introduced in 2008 by Thaler and Sunstein, proposing that small interventions based on changesin choice architectures can alter people’s behavior and make it easier for them to achieve their desired goals, the application in public policy ofbehavioral economics has gained significant attention. This has led to the emergence of different types of policies based on behavioral insights,which have been used in a variety of areas, including health or finance, with the goal of promoting well-being and addressing social and economicissues. After providing a basic theoretical background as a frame of reference to understand gender violence, this study explores the use of tools from the field of behavioral economics as it is applied in public policy. Regulatory (paternalistic) and non-regulatory (libertarian) interventions based on behavioral insights will be considered: nudges, boosts, shoves, budges, or sludge audits, are examined as potential interventions to use in matters related to this type of violence. After evaluating these behavioral policy instruments and their potential effectiveness, the limitations ofthe behavioral perspective are recognized, and the need for a multifaceted approach to combating gender violence is acknowledged. The article concludes by arguing that public policies addressing gender violence should not only utilize behavioral tools but should also incorporate strategies related to education, legislation, and social norms.

People are faced with numerous decisions every day. Whether we must choose our outfit for the day, which cell phone brand to buy, what college to attend, to buy a car or house insurance, or even when or to whom to get married, decisions are a permanent presence in our daily activities. Behavioral economics is a multi-disciplinary field of study investigating how people make judgments and decisions (Camerer and Loewenstein, 2004; Heilman, 2014). Even though, from a historic point of view, behavioral economics is considered to be a relatively young field of research, the large number of studies that were undertaken and their theoretical and practical implications have made the field of behavioral economics increasingly visible among scholars. More importantly, they have also facilitated contexts to transform behavioral results into social policy programs. Starting in 2010, the UK government launched the Behavioral Insights Team, also known as The Nudge Unit, which was then followed by the Social and Behavioral Sciences Team (SBST), established by the Obama administration in 2014. Both teams aim to apply behavioral sciences, including behavioral economics, in governmental programs in order to increase people's quality of life at lower costs. The efforts of the Nudge Unit and the SBST or other agencies and individual researchers who are trying to improve people's overall quality of life should be supported by the research community through relevant scientific projects and by constantly finding new ways to capitalize research derived knowledge for the general use of a community.

BackgroundIndividual behavior change is a critical ingredient in efforts to improve global health. Central to the focus on behavior has been a growing understanding of how the human brain makes decisions, from motivations and mindsets to unconscious biases and cognitive shortcuts. Recent work in the field of behavioral economics and related fields has contributed to a rich menu of insights and principles that can be engineered into global health programs to increase impact and reach. However, there is little research on the process of designing and testing interventions informed by behavioral insights.MethodsIn a study focused on increasing household participation in a Chagas disease vector control campaign in Arequipa, Peru, we applied Datta and Mullainathan’s “behavioral design” approach to formulate and test specific interventions. In this Technical Advance article we describe the behavioral design approach in detail, including the Define, Diagnosis, Design, and Test phases. We also show how the interventions designed through the behavioral design process were adapted for a pragmatic randomized controlled field trial.ResultsThe behavioral design framework provided a systematic methodology for defining the behavior of interest, diagnosing reasons for household reluctance or refusal to participate, designing interventions to address actionable bottlenecks, and then testing those interventions in a rigorous counterfactual context. Behavioral design offered us a broader range of strategies and approaches than are typically used in vector control campaigns.ConclusionsCareful attention to how behavioral design may affect internal and external validity of evaluations and the scalability of interventions is needed going forward. We recommend behavioral design as a useful complement to other intervention design and evaluation approaches in global health programs.

This paper was published in 1999, a few years before Daniel Kahneman and Vernon Smith won the 2002 Nobel Prize in economics. Many of us in the field of behavioral economics suspected that a Nobel Prize was in the works for our field, and we worried that it would be jointly conferred on behavioral economics and experimental economics by people who couldn’t tell the difference between them. The paper starts by pointing out that behavioral economics and experimental economics are entirely different enterprises. Behavioral economics is the application of insights from psychology (and sometimes other disciplines) to economics. Experimental economics is the application of experimental methods to economics.

Leading experts on tax policy examine the complex issues involved in fundamental tax reform, including the relative merits of income-based and consumption-based taxation. Reform of the federal income tax system has become a perennial item on the domestic policy agenda of the United States, although there is considerable uncertainty over specifics. Indeed the recent report of the President's Advisory Panel on Federal Tax Reform recommended not one but two divergent policy directions (and included extensive discussion of a third). In Fundamental Tax Reform, top experts in tax policy discuss a wide range of issues raised by the prospect of significant tax reform, identifying the most critical questions and considering whether the answers are known, unknown—or unknowable. The debates over tax reform usually concern the advantages and disadvantages of income-based taxation as opposed to any of the several alternative forms of consumption-based taxation. The book opens with chapters that discuss the strengths, weaknesses, and political feasibility of these options. Other chapters consider the effect of tax reform on businesses, especially their investment behavior, and include a discussion of possible problems in any transition to a consumption-based tax; international taxation issues arising in an era of globalization; and individual behavioral response to tax reform, including a view of the topic from the perspective of the relatively new field of behavioral economics. Contributors Rosanne Altshuler, Alan J. Auerbach, John W. Diamond, Harry Grubert, Arnold C. Harberger, Kevin A. Hassett, Thomas J. Kniesner, Laurence J. Kotlikoff, Edward J. McCaffery, Kathryn Newmark, David Rapson, Daniel Shaviro, Joel Slemrod, James P. Ziliak, George R. Zodrow Discussants James Alm, Henry J. Aaron, Charles L. Ballard, Leonard E. Burman, Robert S. Chirinko, Robert D. Dietz, Malcolm Gillis, Roger H. Gordon, Jane G. Gravelle, Timothy S. Gunning, James M. Poterba, Thomas S. Neubig, Alan Viard, George Yin

В настоящей статье на основе междисциплинарного подхода в рамках развития области знаний «Трудовое право и экономика» проводится анализ эмпирических данных, полученных в результате проведения экспериментов в сфере поведенческой экономики, и их значения для права. Рассматривается вопрос установления и изменения заработной платы как условия найма, которое является одним из ключевых с точки зрения обеспечения государством (в рамках законодательного регулирования) и работодателями (на локальном уровне) субстанциональных и процедурных аспектов справедливости в восприятии работников для повышения производительности их труда. In this article on the basis of an interdisciplinary approach within the framework of the development of the “labor law and economics” field of knowledge we analyze the empirical data obtained as a result of experiments in the field of behavioral economics and their implications for law. The issue of setting and changing wages as a condition of employment is considered, which is one of the key from the point of view of ensuring by the state (within the framework of legislative regulation) and employers (at the local level) substantive and procedural aspects of justice in the perception of employees to increase their labor productivity.

The purpose of the conducted research is to form a classification group of behavioral factors inherent in the participants of the Russian financial market. The subject of the research is a theoretical concept in the field of behavioral finance. During the study, an analysis of scientific papers in the field of behavioral economics was conducted, a classification was made and characteristic features of each factor influencing the behavior of financial market participants, including their decision-making, as well as the identification of methodological features of assessing these factors were presented. As a result of the conducted research, such classification groups of behavioral factors as emotional, cognitive distortions, social factors, cultural and national characteristics were formed. The final part of the article describes a number of key features of the methods for assessing behavioral factors in the financial market. New research in the field of behavioral finance is used in various fields, such as financial consulting, investment management and development of financial products. The main focus of research in the field of behavioral finance are cognitive distortions, which include heuristics, limited rationality, framing, and choice architecture.

Existing studies on disaster relief operations pay limited attention to acts of spontaneous volunteerism by local citizens in the aftermath of disasters. The purpose of this paper is to explore how social preferences motivate citizens to help during post-disaster situations; above and beyond their own self-regarding interests. The paper begins by synthesising the literature on social preferences from the field of behavioural economics and social psychology with the discourse surrounding behavioural operations management and humanitarian operations management. By doing so, we identify the motivators, enablers and barriers of local citizen response during disaster relief operations. These factors inform a theoretical framework of the social preferences motivating spontaneous volunteerism in post-disaster situations. We evidence facets of the framework using archival and unstructured data retrieved from Twitter feeds generated by local citizens during the floods that hit Chennai, India in 2015. Our model highlights the importance of individual-level action during disaster relief operations and the enabling role of social media as a coordination mechanism for such efforts.

The effort to answer questions concerning whether international law relevantly reflects the reality of international community, especially in terms of the explanatory capability, goes hand in hand with the study on the methodologies of international law. Twenty years ago, the interesting opportunity was given to seven methodologies of international law to express their respective strengths and weaknesses to handle with a given same international law questions. Positivism, policy-oriented jurisprudence, critical legal studies were invited at the feast of international law methodologies. Surprisingly, law and economics was also invited to it. Despite of its strength to explain cause and effect of international actors’ behavior through empirical approach, law and economics is not fully welcomed by international law scholars because its approach does not seem to pay due attention to the normative aspect of international law. Contrast with the passive reception of law and economics approach in the field of international law, law and economics is actively employed to improve effectiveness and efficiency of legal norms and institutions in the area of domestic law including contract law, criminal law and litigation procedure. Shared with the fundamental assumptions of neo-classical economics, law and economics explores effectiveness and efficiency of legal norms and institutions through the lens of the perfect rationality. Put it differently, law and economics usually begins its analysis on assumptions that Homo economicus has the perfect rationality which enables Homo economicus to make a rational choice at any circumstance. However, empirical and psychological experiments give much reason to doubt over assumptions of law and economics: Homo economicus is undoubtedly subject to the bounded rationality rather than the perfect rationality. With the help of cognitive psychology, behavioral law and economics based on behavioral economics fiercely challenges the unreality of law and economics. The core concepts including heuristics, framing effect, loss aversion and status quo bias are used as the powerful weapons by behavioral law and economics to expose the bounded rationality embodied in Homo economicus. As yet, international law does not appear to take behavioral law and economics seriously as a method of international law. There are lots of reasons to explain this phenomenon. Generally, the reluctance of international law scholars to apply economic analysis to international law can be suggested as the main reason. International law scholars criticize law and economics as an empty method because it does not focus on the normative nature of international law. In this sense, behavioral law and economics, which is harshly criticized by neo-classical economics, seems to have a hard time to occupy the right place in the international law methodologies. But this should not be the end of story. The main purpose of this article is to explore the usefulness of behavioral law and economics as a method of international law. Despite of its above mentioned weaknesses, advantages of behavioral law and economics clearly exist in the field of studies concerning how to design treaty text for the purpose of effective compliance, and to create a new international institutions’ mechanism to assist the cooperation of states regardless of their respective interests. Moreover, behavioral law and economics makes a bold attempt to redirect the path towards the studies of international law methodologies which is overwhelmingly dominated by the mainstream international law methodologies. In other words, behavioral law and economics discloses the hidden reason why international law scholars ardently sticks to the mainstream international law methodologies, especially positivism, despite of its incapability to address international law problems effectively. Behavioral law and economics can serve as a visible, enriching alternative and complement