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Is Sending Text Reminders Behavioral Economics?

Due to some bait-and-switch, the label is increasingly losing its meaning.

I recently participated as an expert panelist at a symposium on behavioral economics held by the Consumer Financial Protection Bureau (CFPB). The goal of the symposium was to understand how behavioral economics might be useful to policymakers.

To address this question one first has to define behavioral economics. Yet, this is tricky because behavioral economics is now used to refer to just about any intervention aimed at changing behavior.

For example, in a recent intervention to increase the use of hand sanitizer among visitors to a hospital, hand sanitizer was displayed in a prominent spot and a sign was attached to it that stated, “Here we use hand disinfectant in order to protect your relative.” The effect of the intervention compared to the baseline condition (where the sanitizer was tucked away in a corner without a sign attached to it) was huge: the share of visitors using hand sanitizer increased from 3% to 67% (Aarestrup, Moesgaard, and Schuldt-Jensen 2016). This was lauded as a success of behavioral economics.

Yet, labeling this intervention behavioral economics seems like a stretch; more fitting might be to call it design, communication, or common sense, and I can’t see how the design of such an intervention is helped by any specialized knowledge of behavioral economics.

In fact, I would call out some marketing sleight of hand on the part of behavioral economists. Behavioral economics arose from the behavioral decision-making tradition in psychology that sought to identify deviations from normative ("rational") standards of decision-making. These fun “predictably irrational” systematic anomalies—documented in effects such as anchoring, the endowment effect, the compromise effect, and many others—have captured the imagination of businesspeople, policymakers, and the public. In part, the attraction was (and is) that through subtle changes in how information is presented these effects could be used to induce large behavioral changes.

Yet, through a bit of bait-and-switch, “boring” old (but important) information design—and other interventions (like sending people text reminders)—have been sold under the fun and exciting label of behavioral economics. Indeed, as I just noted, the term is now used to describe any intervention intended to influence behavior—rendering it essentially meaningless.

Why has this bait-and-switch occurred? In large part, it is because for interventions to positively influence behavior, we must first be able to clearly identify suboptimal behavior. However, the fun and interesting “irrational” anomalies that gave rise to behavioral economics don’t inherently reveal any suboptimal behavior that needs to be corrected.

Take the case of the endowment effect. In one example of the effect, the majority of people given a mug kept it rather than traded it for a chocolate bar, whereas the majority of people given the chocolate bar kept it rather than traded it for the mug (Knetsch 1989). This apparent preference inconsistency is commonly viewed as an irrational mistake, typically explained via loss aversion. However, the mistake is not in the behavior but in the assumption that preferences are stable and well-defined.

If instead, we assume preferences are fuzzy then the effect can be explained without any resort to error: For instance, many people might have no clear preference between the mug and the chocolate bar and default to the one they already own out of inertia (Gal 2006; Gal and Rucker 2018b). Indeed, most of the systematic preference inconsistencies documented by psychologists and behavioral economists can more parsimoniously be explained by fuzzy preferences than by suboptimal decision-making.

Conversely, when suboptimal behavior can be well-established (e.g., people forgetting their dental appointments, doctors failing to wash their hands in a hospital) and where there is low-hanging-fruit—where no one has given much thought regarding how to improve the behavior—simple interventions, like sending text reminders or improving signage, can positively influence the behavior. That is, good information design can be highly beneficial to the public. Yet, to reiterate, it’s a stretch to refer to such interventions as behavioral economics.

Now, one might argue that if calling such prosaic interventions behavioral economics makes them sexier and increases the likelihood that useful interventions will be adopted so much the better. And I agree that this point has merit. Yet, for the term to have meaning for scientists and policymakers, it is important to delineate what constitutes a behavioral economics intervention. Further, there is a danger that the popularity of behavioral economics is giving inflated importance to relatively simple information design interventions at the expense of other more fundamental changes that might be needed. I will return to this topic in a future post.

References

Aarestrup, Simon Caroe, Frederik Moesgaard, and Johannes Schuldt-Jensen (2016), "Nudging Hospital Visitors’ Hand Hygiene Compliance," ed. iNudgeyou.

Gal, David (2006), "A Psychological Law of Inertia and the Illusion of Loss Aversion," Judgment and Decision Making, 1 (1), 23-32.

Gal, David and Derek Rucker (2018), "The Loss of Loss Aversion: Will It Loom Larger Than Its Gain?," Journal of Consumer Psychology, 28 (3), 497-516.

Knetsch, Jack L. (1989), "The Endowment Effect and Evidence of Nonreversible Indifference Curves," The American Economic Review, 79 (5), 1277-84.

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