Lessons from fan appreciation night

The origins of economics

Richard Thaler, speaking recently at a World Economic Forum panel.

“Let’s go back to Adam Smith,” Mr. Thaler suggested on a high-profile panel on Rebuilding Economics. “No, actually, let’s go back to Adam.”

“When it was just the demand for apples, the model still worked pretty well,” he said. “But today we have Apple and the iPhone pricing strategy.”

“Adam could deal with apples — as long as there were no serpents and women,” Mr. Thaler added. “When you add serpents and women, you get self-control problems that the model cannot deal with.”

Is Oscar voting tilted against Avatar?

The Academy of Motion Picture Arts and Sciences has adopted a new voting system for the 2010 race, and an article in this week’s New Yorker argues that it’s likely to harm Avatar’s chances. (Hat tip: Kare Anderson)

Instead of a simple ballot system where the movie with the most votes wins, the Academy is using a what is known as an instant-runoff system. It works like this: Voters rank the ten nominees in order of preference from 1 to 10. If no movie gets a majority of first place votes (which isn’t likely to happen, especially in early rounds), the last-place movie is dropped and the second choices on each of its ballots are redistributed to the other nine movies. This process continues until one movie finally has a majority of first choices.

Continue reading the post here.

The bank as lottery idea gains momentum in Michigan

Anne Stuhldreher follows up on the results of Save to Win in the Washington Post.

More than 11,000 Michigan residents opened accounts through the contest, saving $8.6 million throughout 2009. People can open the accounts — they’re like certificates of deposit — with as little as $25. They need to keep their money in for at least a year and can make deposits as small as $1 as often as they like.

More than half of the participants said they hadn’t saved regularly before opening their accounts. About 60 percent admitted they played the lottery during the past six months. And 44 percent earned less than $40,000.

With banks acting like lotteries, maybe it’s time for lotteries to act like banks. For people who can’t give up the thrill of a scratch off game, state lotteries could sell a, say, $5 ticket where $4.50 would be sent to a bank account. Seven other Michigan credit unions have adopted the model. One manager explained that the lottery style bank account proved more successful than a short-term CD with a 10 percent interest rate!

“We were very surprised,” Hubbard said. “It’s a breathtaking penetration rate, especially for a new product and one focused on saving, since that’s something our members don’t do.”

Keep the change is good for you, great for Bank of America

Readers have been interested in Bank of America’s Keep the Change program, which began in 2005, as a vehicle for boosting savings, and possibly charitable donations. There’s no charity option yet, but what about the savings benefits to participants? A 2008 Peter Tufano and Daniel Schneider paper has some answers.

Bank of America attributes 1.8 million new savings accounts to the Keep the Change program…and as of April 2007, its 4.3 million program participants had saved approximately $400 million collectively or about $93 on average – a steady rise from average savings of $30 in April 2006 and $67 in October of 2006.

How much has KTC benefited BofA?

Bank reports indicate that the program is a valuable customer acquisition tool, bringing in 1.8 million new savings accounts and 1.3 million new checking accounts over 19 months of program operation…The program has the potential to increase debit card use, can reduce bank costs associated with processing paper checks, and generate incremental interchange revenues from each debit card transaction…While the deposits generated by Keep the Change pale relative to Bank of America’s total assets of $1.46 trillion, the funds currently earn an interest rate of just 0.20 percent in the bank’s regular savings account permitting the bank to profit from the net interest margin.

Nudging truckers

Marc Gunther at the Energy Collective reports on two interesting case studies of greening company truck fleets. The first strategy was to spark friendly competition

When Chris McKenna, who manages a fleet of trucks for Poland Spring, learned that the company’s drivers were racking up as much as 1,400 hours a month of idle time, he saw an opportunity to make a difference. Running truck engines in winter kept the cabs warm — the company is based in Maine — but it cost Poland Spring money and polluted the air.

To see which of the company’s 65 drivers were racking up the most idle time, McKenna ranked them, based on data from onboard computers. “All we did was talk to them about it, and put a list up in the break room,” he told me. “Human nature, no one wants to be at the bottom of the list.” To sweeten the deal, the 10 drivers with the lowest idling time got a gift card for fuel they could use for their own cars.

The results were dramatic. Idle time dropped from 1,400 hours in February 2007 to 1000 hours in February 2008 to just 380 hours in February 2009. Depending on fuel costs, cutting idle time has saved the company thousands of dollars a year—roughly $20,000 during 2008, for example.

The second strategy was to change the default rule.

I also spoke with fleet managers at Carrier, the global manufacturing firm that’s part of United Technologies, and at health-care firm Novo Nordisk. At all three companies, dedicated fleet managers came up with simple, win-win strategies that saved their companies money and reduced GHG emissions. Carrier took unnecessary parts and tools out of its repair vans, reducing weight. At Novo Nordisk, Donna Bibbo, manager of fleet and travel, made small changes to the list of company cars made available to sales people; those who wanted an SUV or minivan could still get one, but they needed approval from a supervisor. “For the whole year, I don’t think I ordered 25 minivans,” Bibbo says. In past years, she would order 300 to 350.

Homeowners are thinking about walking away from their mortgages. Banks are thinking about which homeowners are most likely to walk away.

Richard Thaler recently asked why so few people have walked away from their mortgage. Today, the New York Times reported that more homeowners are thinking about it. They aren’t the only ones thinking about it. Banks are trying to figure out who is strategically defaulting.

Sometimes lenders go after borrowers walking away from their homes if they have other assets, according to Florida real estate attorney Larry Tolchinsky.

“Banks are pulling credit reports to see if it’s a strategic default,” he said. “If you’re behind on all your other payments, you’re okay. But if you’re not, they’ll come after you.”

The paradox of choice…now in 2D

As Nudge blog readers know well, the paradox of choice is the paralysis that accompanies decision making as the number of available options increases. It’s harder to pick a prescription drug plan when there are 60 plans than when there are four.

Three marketing researchers think there’s more to the paradox of choice than, well, choice. In the paper “Variety, Vice and Virtue: How Assortment Size Influences Option Choice,” they argue that the object consumers are making a decision about matters too. Through five experiments that explore choices involving ice cream and fruit, and MP3 players and printers, they find that increasing the number of available options leads people to choose the more sensible goods–the fruit instead of the ice cream, the printer instead of the MP3 player–because they are easier to justify.

Continue reading the post here.

Sendhil Mullainathan on behavioral economics and the hardest social problems

MacArthur winner and Harvard behavioral economist Sendhil Mullainathan talks about a tricky set of social problems — those we know how to solve, but don’t. We know how to reduce child deaths due to diarrhea, how to prevent diabetes-related blindness and how to implement solar-cell technology … yet somehow, we don’t or can’t. Why?