Wanting what works to work

A book with the title is very enticing. Could the author, behavioural economist Iris Bohnet, really have the effective, evidence-based techniques for improving the earnings and job market outcomes of women relative to men? Does she have the answer to the dilemma that a woman can get on by acting like a man, only to be criticised and disliked for being unfeminine.

[amazon_image id=”0674089030″ link=”true” target=”_blank” size=”medium” ]What Works: Gender Equality by Design[/amazon_image]

Well, Bohnet’s list of interventions is very persuasive and she cites plenty of supporting evidence. The first part of the book sets out the evidence of bias, conscious and unconscious. Part 2 is about people management, and focuses on businesses’ hiring, promotion and management. Part 3 is about education. The final part is a set of broader insights about ‘designing’ diversity and covers topics such as the importance of role models, the effectiveness of diverse groups in decision-making contexts (boards and elsewhere), and the role of social norms, of transparency, and indeed of ‘design’, a mnemonic for ‘data, experiment and signpost’. Bohnet argues that use of data uncovers bias, experimenting with changes, and using signposts – largely behavioural nudges – to change people’s behaviour. Do this, she promises, and gender inequality could be overcome within years, not decades.

i’m inclined to agree. The book’s evidence seems solid. There are many examples, such as Google’s discovery that its female employees were twice as likely to quit as the average. It mined its data to discover that the issue was really that parents were more likelt to leave, and it therefore extended both maternity and paternity leave. Now there is no difference between male and female quit rates. The Kennedy School’s own points system (Bohnet is a professor there) looks reasonably effective.

However, the question doesn’t address is what will get institutions and businesses to bother. Even those paying lip service to gender equality don’t have a strong incentive to change their ways, run (largely) by men (largely) for men. Why would they care if profits could be a bit higher in the long run if they acted differently? Things suit them very well as they are. It is hard to see organisations implementing the ‘what works’ measures described here unless they happen to be run by men (or women) who are already converts to the cause. It’s like the old joke about how many psychiatrists it takes to change a lightbulb (only one, but the lightbulb has to really want to change).

So I am ever more certain that tougher legislation will be required to get things moving. Targets for women on the boards of listed companies. Mandated minimum quotas for women and members of minorities in the senior ranks of bodies funded by taxpayers. When that day comes, all those institutions will be able to turn to this book to find out how to do it.

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Taxing you healthy

A guest review by Koen Smets.

Policymaking is increasingly turning to behavioural insights: the Nudge Unit, set up nearly six years ago in the UK, is going from strength to strength, and numerous other countries have followed suit. So it is remarkable to find a new book advocating a boring, conventional economic instrument to influence consumer behaviour: the tax incentive. In , ‘recovering economist’ David Fell argues for what he calls a ‘SmartVAT’ to make people choose healthier food and drink.

[amazon_image id=”1907994505″ link=”true” target=”_blank” size=”medium” ]Bad Habits, Hard Choices: Using the Tax System to Make Us Healthier (Perspectives)[/amazon_image]

It is a short book, the length and readable style of which belie both the complexity of the subject matter and the radical nature of the core idea: “a bold proposition that goes well beyond a sugar tax or a fat tax.”

To build his argument, Fell introduces a large number of concepts involved in what he sees as problematic consumption: VAT and excise duties, information asymmetry, market theory and consumer choice theory, externalities, commitment strategies and many more. It is impossible to cover them all in depth in a mere 120 pages, but Fell does a remarkable job in the book in describing and illustrating the various – often conflicting – forces at play.

He discusses the fine balance government needs to strike with its surreptitious taxes, managing the disquiet of businesses, media and consumer while still trying to maximize revenue; as Colbert said, “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” Fell also highlights the limitations of the conventional wisdom that says taxation will depress the demand for taxed goods, for example when the demand is inelastic – as it is for petrol.

However, while Fell may be a self-confessed recovering economist, he is clearly not the kind of two-handed economist who drove Harry Truman to distraction. He paints a decidedly one-handed picture, populated with economists as dogmatic market fundamentalists, food manufacturers as manipulative seducers, and hapless consumers whose choice is restricted to products that deliver the returns demanded by ‘capital’. Even for someone agreeing that the suppliers play a significant role in influencing our consumption habits, this becomes increasingly irritating.

The informed consumer, according to Fell, is as much a myth as the hyper-rational homo economicus. The messages we get are biased, partly due to our own cognitive limitations (few people consult the nutrition labels), and partially because what benefits the suppliers is emphasized. Marketeers extol the virtues of luxury goods (another recurring bugbear), but don’t promote the free and healthy activity of walking – leading to the author’s somewhat bizarre claim that, “Capital doesn’t like it when you walk because it gets no reward.” Would we conclude that, say, the Women’s Institute doesn’t like us windsurfing because it does not promote this activity?

Fell uses his own research in , showing for example that 31% of his sample agrees that they “buy more than they need most times they visit the supermarket”. The vagueness of such surveys (for example, how do we define ‘what we need’?) doesn’t stop him drawing strong conclusions.

In short, the author blames information asymmetry, orchestrated by ‘capital’, as the main cause of obesity, and argues that what we need is a collective commitment device. If, as a society, we agree to subsidize ‘good’ food and slap a hefty tax on ‘bad’ food, then that will help us stick to our commitment to eat more healthily – much like setting our alarm clock tonight commits us to getting up on time tomorrow morning.

Fell sets out a 4-step approach to execute his radical proposal. The first two steps rest on a deliberative process: citizens and experts come to a consensus, not only on what constitutes healthy and unhealthy foods, but also on what the subsidy and tax rates should be. Will this work? Fell refers to a few cases where a similar process was used, but these differ both in scope and scale from what he himself calls a “dauntingly difficult” task.

Once it is clear which goods needs to carry which tax, the third step is quite straightforward: implement the new rates, and make the taxes and subsidies salient at the point of sale. The final step is to correct the mistakes the author believes will inevitably be made.

The author confesses to little confidence in the practical adoption of his plan: too much resistance from vested interests: the dreaded economists, the Treasury, the government, the media… and the consumer. That may be so, but there are two even bigger problems.

Fell’s SmartVAT assumes that consumers are rational, responding to the tax incentives. But citizens are resourceful, as the consumption of tobacco illustrates. It is mostly the less well-off who smoke, which suggests that they drop other purchases in order to be able to buy cigarettes. And if people can find ways of importing cheap smokes (legitimately or otherwise), they will do the same for ‘bad’ foods. Ironically, Fell personally illustrates the futility of raising the cost of unhealthy products: the price of cigarettes has risen twice as fast as inflation in the last 25 years, but he is still buying them.

But the most serious criticism that should be levelled at Fell’s idea is that he attaches no value at all to the pleasure people might derive from consuming foods he considers as unhealthy. There is, in his view, no trade-off to be made, and he explicitly rejects the notion that there are no unhealthy foods, only unhealthy diets. So the majority of people who consume ‘bad’ foods in moderation will be penalized, having to pay more for a harmless form of enjoyment.

It is this disregard for the core of all economic thinking, the trade-off, which makes the book ultimately a disappointment for this reviewer.

Koen Smets is an accidental behavioural economist, who works as an organization development specialist. He uses elements from both orthodox microeconomics and behavioural economics to bring about behavioural change. He is on Twitter as @koenfucius

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People and economists

There’s a chapter online from a forthcoming book, Economic Psychology edited by Robert Ranyard, called How Laypeople Understand Economics, by David Leiser and Zeev Krill. Although not entirely surprising, the chapter is very interesting. Those of us who are economists long ago internalised the subject’s distinctive way of thinking and understanding of how variables are related. Most people find economics difficult, even mysterious, however. There are some excellent demystifications, from John Lanchester’s to Tim Harford’s , and all the rest of the popular economics literature. But as this chapter points out, laypeople – including many politicians – will use one of three strategies for trying to make sense of economic discussions: use heuristics; use metaphors; fall back on teleological or causal explanations.

One example of a common heuristic is ‘good begets good’ – if there is a change in one variable perceived to be good, it is assumed it will cause good changes in other variables. On metaphors, the authors comment: “Understanding of financial marketsrelies onseven metaphors: the market as a bazaar, as a machine, as gambling, as sports, as war, as a living being and as an ocean. Crucially, each metaphor highlights and hides from view certain aspects of the foreign exchange market. Some of themetaphors imply market predictability, others do not. For instance, the sports and themachine metaphors were found to be associated with fixed rules and predictability, whereas the bazaar and war metaphors with unpredictability.”

[amazon_image id=”039335170X” link=”true” target=”_blank” size=”medium” ]How to Speak Money: What the Money People Say-And What It Really Means[/amazon_image]  [amazon_image id=”0349119856″ link=”true” target=”_blank” size=”medium” ]The Undercover Economist[/amazon_image]

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So you want to be a superforecaster?

On my travels to and from the fabulous Kilkenomics Festival this weekend, I read by Philip Tetlock and Dan Gardner. It’s a very interesting book. If you liked Daniel Kahenman’s , Nate Silver’s and Gerd Gigerenzer’s , you’ll like this book too.

[amazon_image id=”184794714X” link=”true” target=”_blank” size=”medium” ]Superforecasting: The Art and Science of Prediction[/amazon_image]

Essentially the book describes the outcome of the research project that followed on from Tetlock’s famous demonstration in that experts are not good at predictions. One group of experts failed to do better than random guesswork – and did worse for long term forecasts. Another group did better than this but could rarely beat a simple rule of thumb such as ‘predict no change’ or ‘extrapolate the trend’. The follow up project was stimulated by the introspection of the US intelligence community post 9/11, looking to see whether it would be possible to make forecasts of political or economic events any better than the earlier dispiriting results suggested.

The bulk of the book explains that yes, it is, but it’s hard work requiring techniques and habits that help people avoid the normal cognitive short cuts (‘fast thinking’) we humans take. For example, make sure you start with what the authors call ‘the outside view’. Looking at the drop in popularity of a prime minister after an election? Start out by seeing what has happened to the ratings in the past. Watch out for the ‘bait and switch’ habit of answering an easy question rather than the hard one. Break up complex questions into smaller questions to narrow the territory of your ignorance. Take as many different perspectives as you can. Consult others and welcome diverse views – be on the alert for groupthink.  Be prepared to change your mind. Be alert to conclusions based on your strong feelings or beliefs about an issue (the Keynesians vs Austerians debate is singled out as one where the participants are captive to their prior beliefs). All of the tips are gathered in a how-to-be-a-superforecaster appendix to the book.

Summarised like this, it sounds obvious perhaps. But the book is stuffed with examples demonstrating how hard it is to put the advice into practice. Indeed, the experiment showed that some people can do far, far better than the majority, including ‘experts’ – but there are not many of them. They have specific characteristics: for example, clever (but not Mensa geniuses), open-minded, self-critical, numerate, comfortable with probabilities, willing to change their mind – plus determination. Tetlock is still looking for volunteers to have a go (www.goodjudgment.com).

The book ends with a discussion of two critiques. One is whether Nassim Taleb’s Black Swans imply superforecasting is a chimera – if history moves in jumps because a black swan appears, that must be unforecastable. The other is Daniel Kahneman’s hypothesis that even superforecasters will lose their mojo because their very success will make them as vulnerable to the same cognitive patterns as the ‘experts’ who did no better than randomness or algorithms; we are all vulnerable to complacency or ‘fast thinking’. Tetlock concludes that history does show that the possibilities for the future are radically open but nevertheless argues that his results show that: “People can, with considerable effort, make accurate forecasts about at least some developments that really do matter.”

He does, for me, describe his results convincingly, although the ‘considerable effort’ bit seems a huge barrier to seeing superforecasting habits spreading more widely. But it doesn’t matter if you end up agreeing more with the critiques; this is still a very useful guide to cultivating your own good cognitive habits and critical thinking abilities. I’ll be trying to put the lessons here into practice myself – although not to the extent of starting anything foolish like macroeconomic forecasting.

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What’s new about nudges?

As I prepare to lecture on behavioural economics in public policy tomorrow, I’ve been riffling through the books I have in the room here & am struck by how similar they all are. The most recent is Richard Thaler’s , which is as the subtitle suggests about the debate within economics about foundational assumptions as well as the content of behavioural economics. It’s very good and accessible. Daniel Kahneman’s Thinking Fast and Slow is still my favourite. There’s , of course, by Thaler and Sunstein. The Dan Ariely books – I have here – are jolly reads. Mullanaithan and Shafir’s is an important book. A more scholarly volume is Eldar Shafir’s edited volume . Somewhere too in here is Colin Camerer’s . And I have by Julian LeGrand and Bill New, somewhat cautious in its embrace of behavioural policies.

[amazon_image id=”1846144035″ link=”true” target=”_blank” size=”medium” ]Misbehaving: The Making of Behavioural Economics[/amazon_image]  [amazon_image id=”0141040017″ link=”true” target=”_blank” size=”medium” ]Nudge: Improving Decisions About Health, Wealth and Happiness[/amazon_image]  [amazon_image id=”0007256531″ link=”true” target=”_blank” size=”medium” ]Predictably Irrational: The Hidden Forces that Shape Our Decisions[/amazon_image]  [amazon_image id=”0141049197″ link=”true” target=”_blank” size=”medium” ]Scarcity: The True Cost of Not Having Enough[/amazon_image]  [amazon_image id=”B00P6ZJ6LS” link=”true” target=”_blank” size=”medium” ]Government Paternalism: Nanny State or Helpful Friend?[/amazon_image]

The thing that strikes me looking at these volumes covering a dozen years is how much overlap there is in the material they cover, often exactly the same examples. Does this mean behavioural economics has not really moved on from the central insight about people’s inability to calculate probabilities as if they were Mr Spock from Star Trek, and hence the “irrationality” of much decision-making concerning uncertainty and predictions of the future? The big questions I have  – and can’t readily find the answers to – are:

1. What do we know about the boundaries between situations in which people are “rational” and “irrational” (ie individual choices lead to the market outcome as predicted by conventional economic theory, or not) – is it as simple as any situation involving having to predict the future?

2. What do we know systematically about the interaction between individual decisions and social influencing (other than that it exists)?

3. What do we know about whether people adjust over time to ‘nudge’ policies and change their behaviour, as they do to any traditional economic policies?

If those who have read more of the behavioural literature know where I can find relevant material, I’d be very grateful.

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