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Lecture notes Economics of Consumption, Welfare and Society
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Given at Wageningen University. Lecture notes from the course Economics of Consumption, Welfare and Society (UEC22306).
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Economics of Consumption, Welfare and Society1. Introduction & Behavioral economics and policy making part 1
Qualitative vs. quantitative research
• Qualitative research
- Verbal data
- Content analyses
- Interviews, focus groups
→ A lot of coffee
• Quantitative research
- Numerical data
- Statistical analyses
- Surveys, experiments
→ 5 cups of coffee
Surveys vs. experiments
Surveys: questions for both independent and dependent variables
Experiments: manipulation of independent variable(s) and measurement of dependent variable(s)
Surveys
- Cup of coffee per day
- Questions on concentration, boredom, tiredness
Experiments
- 2 vs. 4 cups of coffee per day
- Time spend on a task that requires concentration
Cases and examples
- Nibud vraagt overheid en bedrijven sparen makkelijker te maken
- How to reduce smoking? → tax increases on tobacco sales, warnings on packages, limitations on
advertising, regulations against smoking in public buildings. Still, many people smoke…
- Tax experiment in Belgium – wat de Belgische fiscus ons kan leren over effectieve nudging. Nine
strategies to increase number of people who pay their taxes on time. Decrease administrative
costs. → 18.7 million euros in two weeks. 1 million euros saved on administrative costs.
Wanbetaler wordt bij naam aangesproken, eenvoudig en duidelijk geschreven, different
manipulaties.
The added value of BE for…
- Science – decreasing the intention-behavior gap (Theory of Planned Behavior)
- Business – effectiveness of different kinds of incentives (e.g. marketing strategy of Domino’s
Pizza)
- Policy – behavioral insights team in the UK, the Netherlands, but also worldwide
Behavioral economics, what is it? How did it develop?
Behavioral economics: economists using insights from psychology
Economic psychology: psychologists using insights from economics
Different starting point, similar work.
, Thaler
Limited rationality:
• Limited rationality
- Mental accounting
- Endownment effect (loss aversion)
• Social preferences
- Fairness
• Lack of self-control
- Planner/doer model (long-term planning/short-term doing)
- Nudging
Nudging
A nudge, as we will use the term, 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.
• Changing the choice architecture
• Enabling people to make better choices and decisions
What is behavioral economics
The combination of psychology and economics that investigates what happens in markets in which
some of the agents display human limitations and complications
• Improving the explanations of behavior by investigating differences with the standard economic
model:
- Bounded rationality
- Bounded willpower
- Bounded selfishness
Applying behavioral economics to policy
What are the problems? Which types of policy instruments?
• Problem: reaching suboptimal outcomes and acting against own objectives. People often don’t
know what’s best for themselves (and when they do, often have trouble getting themselves to do
it).
• Policy aim: help people to reach better solutions
Traditional classification policies
- What kind of policy belongs to which aspect?
- Can you think of an example?
Preek (sermon) Providing information – almost never enough
Wortel (carrot) Providing incentives
Stok (stick) Setting rules and regulations
Behavioral economics and policy
Policy is traditionally based on economics, but not (or less) on psychology or behavioral science.
Psychologists may play a larger role in policy by helping economics develop more valid assumptions
and intuitions for the science that would underlie policy in the future.
BE makes it possible to develop a different kind of policy.
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