Assorted links

1) Atlanta is testing out an incentivized recycling program where residents can earn and exchange points for “rewards, gift cards, groceries, and products” with participating retailers. (Hat tip: Mike Erskine)

2a) Rewarding first-graders for eating fruits and vegetables with small prizes.

2b) “‘If you want to know if an urban environment supports cycling, you can forget about all the detailed ‘bikeability indexes’—just measure the proportion of cyclists who are female,’ says Jan Garrard, a senior lecturer at Deakin University in Melbourne, Australia, and author of several studies on biking and gender differences.” From Scientific American.

(Hat tips: Christopher Daggett)

3) A scale that tells the world how much you weigh via Twitter. (Hat tip: Justin Holz)

4) Photos of calorie counting nudges at Freakonomics.

What do Kenyan farmers and American workers have in common?

1) They both pay a price for their procrastination. American workers pay when it comes to planning and saving for their retirements; Kenyan farmers pay when it comes to planning and purchasing fertilizer for their harvests.

2) They both love free shipping.

In a working paper titled “Nudging Farmers to Use Fertilizer: Theory and Experimental Evidence from Kenya,” three economists from MIT, Harvard, and the University of California-Santa Cruz weigh in on a contentious policymaking debate with some interesting findings. Many policymakers consider fertilizer subsidies to be a standard tool for boosting agricultural productivity and economic growth in developing countries. Many economists criticize these subsidies as inefficient mechanisms, which are instead used to line politicians’ pockets and keep them in power. If Kenyan farmers behaved like econs, the economists’ argument goes, they would be able to figure out the exact amount of fertilizer necessary for generating more crops and more profits, all without the need for any subsidies. After all, it’s hardly a secret that fertilizer yields more crops, and since it can be bought and sold in almost any amount, farmers should easily be able to purchase the exact amount necessary for their plot of land.

But it turns out that most farmers behave like humans–71 percent of them according to the paper–by thinking they’ll buy fertilizer, which they’ll absolutely, positively buy…tomorrow. They overestimate their patience and planning talents, waiting until the last possible moment to buy fertilizer and ending up with not much of any. It is possible, authors Esther Duflo, Michael Kremer, and Jonathan Robinson say, that large subsidies could spur fertilizer purchases, but it is also possible that these subsidies could lead to wasted purchases, extra transaction costs, and fertilizer overuse among impatient buyers. (The consequences of saving too much seem less damaging than buying or using too much fertilizer.)

What if there was a commitment strategy that could help farmers use fertilizer more efficiently and boost crop yields?

Working with a non-government organization called International Child Support, the economists developed a plan to offer small, limited-time discounts right after the harvest when farmers have extra money from recent sales. The simplest form of the discount wasn’t much of a discount. Farmers were offered a voucher allowing them to pay full price for the fertilizer and get free delivery at a date of their choosing. But free delivery is a powerful incentive for a farmer who typically has to spend time and money going to town to purchase fertilizer. Farmers were also given the option to commit to these discounts before the harvest. The program could have offered discounts at different points during the harvest season, but the economists thought that earlier discounts would not need to be as big as later discounts in order to spur purchases. They tested the idea against a standard 50 percent subsidy and simple reminders about the importance of fertilizer (without discounts). Neither performed as well as the nudge. Simply offering free delivery early in the season increased actual fertilizer use by 46 to 60 percent, a bigger boost than with a half-off subsidy offered later in the season.

The Kenyan farmers example may offer some ideas for banks here in the U.S., which could certainly benefit from a healthier deposit base. There are many commitment strategies for saving – Save More Tomorrow being the favorite one from Nudge. The savings nudge with the closest resemblance to the fertilizer nudge is a debit card loaded with your tax refund. Aimed at Americans without bank accounts, the card provides a way to put cash aside without paying huge check cashing fees. Perhaps some marketing campaigns for special savings accounts or certificates of deposit with slightly higher interest rates could be offered around New Years Day, when people are always trying to make commitments, or tax day, when people have a few extra dollars in their wallet.

Of course, the real lesson from this nudge may be the power of free shipping. Would Americans accept lower interest rates or commit to locking up their money for longer periods if banks offered to pay the shipping costs (up to some amount) on their DVD and book purchases for the year?

Interested readers can find a full copy of the June version of the paper can be found here. A gated copy of the August version can be found here.

Richard Thaler’s interview in Qn

Question: Who decides what the best outcome is?
Thaler: Well, there’s the question. Clearly it’s not Richard Thaler and Cass Sunstein. One criticism I frequently hear is that we think we know what’s best for people and this is elitist thinking. I think in many situations, it is pretty easy for the choice architect to have a good idea what choices people would really prefer. I think if we go back to default options in the open enrollment period, do we think that people who forget to enroll are going to want no healthcare? Probably not. So it’s not that we think we know what’s best for them. It’s that we have a pretty good idea of what they would want the default to be if they were the choice architect. Sure, there may be some tough cases, but I think most of us would rather be healthier. We’d rather have our kids be well educated. We would rather not starve in retirement. We would rather not wake up some morning and have our mortgage doubled because of some term that was buried in the fine print. So I think we can make a lot of progress without much controversy. And there will be a few cases where it’s harder, and that’s what the politicians are elected to deal with.

Question: How do politicians sort out those hard cases amid conflicting interests?
Thaler: It’s difficult. I want to emphasize that we don’t envision a larger role for government. Government has to make decisions. They have to nudge. So why not do it effectively and transparently? And if we don’t like the way the government is doing it, then throw the bums out and elect somebody who will do a better job.

For more of the wide-ranging interview, check out the latest special behavioral issue of the Yale School of Management’s journal Qn.

What are the behavioral implications of a value added tax?

Establishing a value added tax (VAT) in the United States is a topic of considerable debate and controversy. Such a tax, which would add a fixed percentage to every product or service, is standard in many European countries. There has been discussion about whether to add a VAT on top of existing taxes, or whether to reduce income taxes and offset the revenue losses with a VAT. Ted Gayer, Co-Director of Brooking’s Economic Studies, wonders what the behavioral implications of such a tax would be.

Traditionally, economists view the structure and application of a tax as unimportant. All that matters is the change in relative prices. But (economists Raj Chetty, Adam) Looney, and (Kory) Kroft find that structure and application do matter. For example, they find that consumers are less likely to buy an item if a sales tax is explicitly listed on the product than if the same tax is instead added at check-out.

The economists’ argument stems from a recent American Economic Review paper of a field experiment in a grocery store that varied the displayed prices of alcohol (gated copy here). The VAT raises interesting questions for policymakers who might be able to manipulate the salience of taxes in ways that would bring in more tax revenue, but potentially harm consumers. Check out the link to Brookings (Hat tip: Amol Agrawal).

Putting the special in special teams: Perceived value and football at the University of Texas

Frequent Nudge blog readers might have watched Rory Sutherland’s TED talk about the intangible “perceived value” that advertising adds to products. Sutherland cites some historical examples of counter intuitive ways to change behaviors. For instance, the King of Prussia wanted his subjects to eat potatoes so he ordered people to eat them. Complete failure. Undeterred, he got the idea to restrict potato consumption to the royal family and set up a special King’s potato garden. Suddenly everyone wanted one.

A version of this strategy is alive and well on the University of Texas football team. Football fans often refer to three phases of the game – offense, defense, and special teams. Of these, special teams is the ugly duckling. Typically, special teams players aren’t offensive or defensive starters, special teams plays are after thoughts for most fans because scoring is so rare, and special teams skills involve a lot of unglamorous “dirty work” like blocking and tackling. Nevertheless, great special teams play can be a huge advantage for teams through turnovers, touchdowns, field position, and momentum swings (plenty of economists don’t buy the momentum swings argument).

Noting the importance and structural problems associated with special teams units, Duane Akina, the special teams coach of the Longhorns since 2001, has added a ton of “perceived value” to the forgotten phase. In a fascinating piece in today’s Austin American-Statesman, Alan Trubow reports on changes Akina has made:

1) He convinced many of the Longhorn’s superstars to play special teams. Superstar 0 was wide receiver Roy Williams, the seventh pick in the 2004 NFL draft, who now plays for the Dallas Cowboys. This year, star wide receiver Jordan Shipley returns punts.

2) He created a point system like to the one used by Marriott hotels in which players earn points for making certain plays, which lead to special perks like membership in “block party,” “gold,” and “diamond” clubs.

3) He kept the clubs exclusive. Subjectively, of course.

“I can’t tell you too much about the block party because it’s a team thing. Really you have to be a member of the block party to understand it,” said Akina, who came up with the idea in 2003 or 2004.

Quarterback Colt McCoy, the biggest superstar on this year’s team, has supposedly lobbied for a membership.

“I’ve tried and I’ve tried to get on that unit,” Texas quarterback Colt McCoy said. “When I’m walking by their office on the way to the offense I always stop and say, ‘Hey, I’m ready. I’m here. (No.) 12 is always ready.’ You walk by there and they’re all happy, yelling and excited. You just want to be a part of it.”

But despite being a Heisman Trophy runner-up, McCoy’s not welcome as a member of the block party.

“The rules are strict,” (special teams member) Curtis Brown said. “You only get in if you earn your way in. That’s just the way it is. We’ve got to keep it that way. If we didn’t, everybody would be a member.”

The result: Texas’ special teams have blocked 45 punts since 2002, the second most in the nation, including three this season. They have also scored six touchdowns in 2009, and have the highest kickoff return average (31 yards) of all FBS teams.

Social media meets the traffic report

Reader Jack Harding passes along news of a free iPhone app that tries to put crowd wisdom behind the wheel by allowing drivers to directly tell other drivers about road conditions. The app does have professional traffic reports, but its most innovative feature is enabling drivers to leave “shouts” about what kind of traffic they are seeing for themselves along certain routes. There are even special “shout” rooms for road ragers who need to blow off some steam, and American Idol wannabees who need a little practice.

Unlike a simple crowd signal such as a poll, drivers do have to wade through people’s “shouts” to find out what’s happening on the highway. Maybe a future version will include an aggregation mechanism for rating the sluggishness of traffic. So far, the app’s developers say it works in the top U.S. traffic markets including Los Angeles, San Francisco, Washington DC, New York, Boston, Chicago, Dallas, Houston, Atlanta, Miami, and Seattle. On iTunes, there are reports of repeated crashes–the app, not autos–which will hopefully be fixed with more time.

Addendum: Hopefully drivers won’t use this app as they speed down the highway.

A nudge at the Patent and Trademark Office

Of interest to lawyers, the PTO has switched the default procedure with respect to the handling of what are called Requests for Continued Examination, which are essentially appeals to the patent board to keep considering an application. Dennis Crouch of the Patently-O blog reports on this change:

In the past, one benefit of RCEs was that they were quickly examined as part of the theory of compact-prosecution – in essence, RCE filings were treated almost just like an office action response. Under a new procedure, the PTO will now be placing RCE applications in the same queue as divisional and continuation applications. Although that category is identified as “special new,” cases are typically taken-up more slowly than ones already on the docket and in-prosecution. According to a memo from Director Kappos, “The change to the docketing of requests for continued examination means that examiners are no longer required to act on a request for continued examination within two months of the entry of the request for continued examination on their docket. This change to the docketing of requests for continued examination is being made to allow examiners greater flexibility in managing their workload and allocating their time among requests for continued examination and new applications.”

Freakonomics co-author Stephen Dubner explains why he started writing about economics…

The reason that I started writing about economics, maybe ten years ago, is Richard Thaler, co-author of Nudge. When one starts to read the behavioural literature, one gets very, very excited. It’s so sexy and counter-intuitive. The insights gained from behavioural economic research, when put in the hands of someone like Thaler, can work practically. For example, he came up with the idea that every time people get a raise, they should contribute a slightly larger amount to their pension and still take home more money at the same time. You basically hide the pain of saving more, and it works well for everybody. To design a good nudge, it helps to know what the research in behavioural economics has said in the past.

From New Statesman interview.

Assorted links

1. A cell phone targeted at elderly customers includes a dial tone that mimics a cordless landline. The sound is meant to tip off elderly users that the phone is working. (Hat tip: Justin Holz)

2. Debating the healthcare coverage mandate in the Washington Post. What does behavioral economics have to say?

3. Does showing pictures of a healthy salad give people an excuse to pick the fries? (Hat tip: Richard Kenworthy)

4. Safeway has instituted a health insurance premium surcharge for obesity. Or a premium discount for healthy living, depending on your frame.

Safeway CEO Steve Burd tells NPR that employees receive a discount on their health insurance if their body mass index is below 30 (a higher number is considered obese). “If it’s above 30, that means they pay about $318 more than someone who is in the other camp,” says Burd. “But the beauty of our plan is that if you make a reduction of, let’s say 10% of your body mass index, we write you a check at the end of the year for making that progress.”

(Hat tip: Christopher Daggett)

5. Street signs that tell you how many people have died on the road in the last year. Too scary? Is an absolute number useful? Would some kind of deaths per 10,000 drivers figure be better? (Hat tip: Simon Davies)

6. “Nudging recycling” is catching on, says the New York Times. (Hat tip: Suzanne Danforth)