Let’s say that every time you ride public transit, your fare card with its unique number also buys you a ticket to a periodic $50,000 lottery. Your number can turn up any day of the week, but you only win if you rode public transit that day. Think you might start taking public transit more often?
It’s an idea straight out of behavioral economics, an unconventional field of research that examines how human nature really works and uses it to shape the choices people make. The lottery idea, for instance, capitalizes on the human tendency to overvalue outcomes with extremely low probabilities, according to George Loewenstein, a behavioral economist at Carnegie Mellon University. The possibility of finding out that you missed the big payoff also exploits our innate regret aversion.
This new way of thinking about — and some would say manipulating — behavior is likely to be an important tool for addressing environmental issues over the next few years. Behavioral economics is the theory behind a variety of measures now being promoted by environmental groups, power companies, and green businesses — from smart meters for cutting electricity consumption to the use of social networks to promote weatherization.
The Obama White House is packed with true believers in behavioral economics, including economic advisor Austan Goolsbee, budget director Peter Orszag, and regulatory czar Cass Sunstein, a constitutional scholar
This new way of thinking about — and some would say manipulating — behavior is likely to be a key tool for addressing environmental issues.and co-author of Nudge, a popular treatment of subtle ways to influence the choices people make. And while the Obama administration has yet to unveil environmental initiatives based on behavioral economics, Orzag recently told Time magazine, “It really applies to all the big areas where we need change.”
For those who skipped Economics 101 — or took it before behavioral approaches began to coalesce into a theory in the 1980s — a primer is in order: Traditional economics holds that people act rationally. We sort through all available information, balance the pros and cons, and arrive at the best possible decision to maximize our own self-interest.
Behavioral economists say that we are quirkier and more complicated than that. Instead of carefully weighing the choices, we often make decisions based on gut instinct. Or we get overwhelmed and do nothing. We also do irrational things like acting altruistically toward total strangers. Unless you happen to be an economist, this may not come as news. Some psychologists carp that the economists are just putting a new spin on basic social psychology. But by any name, taking account of normal human tendencies promises a more realistic way of predicting and influencing how people act.
For instance, in one study, researchers asked each of four groups of utility customers to cut energy consumption for a different reason — the good of the planet, the well-being of future generations, the financial
‘People don’t just want to conserve energy,’ one psychologist says, ‘they want to be acknowledged for conserving energy.’savings, or because their neighbors were doing it. By comparing electric meter readings, the researchers determined that only the last message had any effect, eliciting a 10 percent drop in consumption. A subsequent study found that when electric bills compared a customer’s energy consumption against the neighborhood average, profligate customers scaled back. In fact, the social norm was so powerful that thrifty customers also responded, by splurging. The weirdly effective fix was to add a smiley face to the thrifty bills — like a gold star from teacher.
“People don’t just want to conserve energy,” says Arizona State University psychologist Robert B. Cialdini, “they want to be acknowledged for conserving energy.”
A dozen utilities around the country have contracted with Positive Energy Inc., where Cialdini is a consultant, to use the billing technique. Cialdini is also testing the social norms approach to boost recycling and water conservation. He has found that even if most people in a community don’t actually practice water conservation, you can persuade them to reduce water use simply by telling them that their neighbors at least approve of the idea. “As long as you’re giving people honest information that they don’t already have,” he says, “this is not manipulation. This is education.”
One of the most successful experiments using the social norm dates back to the 1980s in Hood River, Ore., where local civic groups campaigned to enroll entire neighborhoods in a weatherization campaign, so contractors could move efficiently from house to house. “It wasn’t about the marketing budget,” says Ralph Cavanagh of the Natural Resources Defense Council, “it was about creating the impression that all your neighbors were doing it and that it was really unacceptable not to do it. If you didn’t do it, the Boy Scouts showed up at your door wondering what was going on.”
Despite original estimates that 20 to 30 percent of the 3,500 homes in Hood River would participate, the actual results were closer to 90 percent. Cavanagh says that officials from other areas in the U.S. have recently expressed interest in replicating the program.
Some behavioral tweaks — like giving people information in a form they can understand — might seem woefully obvious, except that hardly anyone does it. “Why is the electric meter on the outside of the house, and why is it in units that are meaningless to people?” asks Tony Leiserowitz, director of the Yale Project on Climate Change. “I don’t know what a kilowatt hour is. Why not display it in dollars?”
In some Alaskan communities, power companies install electric meters that require pre-payment with a credit card. Along with telling people how much they’re spending right now, these meters also tap into innate loss aversion, says Leiserowitz: “You’ve invested and want to keep it from running down to zero.” Electricity consumption typically drops 15 percent.
Because so much of the human brain is wired for sight, making consumption visible also works. A British startup, DIY Kyoto, is planning the U.S. launch later this year of its Wattson, a wireless device that displays electrical consumption both numerically and by glowing different colors, from blue to red, as usage increases. Customers can also toy with the social norm response by connecting to a website for comparisons with other Wattson owners.
Some approaches from behavioral economics aim to make pollution more painful — or at least to distribute the pain more equitably. For
Some approaches from behavioral economics aim to make pollution more painful — or at least to distribute the pain more equitably.instance, in the current auto insurance system, you pay the same premium for driving 5,000 miles a year as your neighbor does for driving 30,000. An alternative approach, Pay As You Drive (PAYD) insurance, matches the premium to the mileage, as reported by GPS or periodic service station inspections. A recent Brookings Institution study calculated that PAYD would save money for two out of three U.S. households, reduce driving by 8 percent, and cut carbon emissions nationwide by 2 percent.
Other behavioral proposals involve making environmental choices painless to the point of being invisible. For instance, many airlines now encourage customers to mitigate the carbon footprint of a flight by buying offsets; it’s an opt-in system. But including the offsets in the ticket price — with customers free to opt out — would dramatically increase participation, and get Virgin Atlantic, say, a lot closer to bragging rights as a genuinely green airline.
Turning a green choice into a status symbol also motivates people disproportionately; in California, for instance, hybrid vehicles get to bypass traffic with a special label giving them access to High Occupancy Vehicle lanes.
Critics complain that behavioral solutions are often more cute or clever than effective, particularly given the scale of a problem like global warming. They tweak the system, but they can’t match $4-a-gallon gas for changing behavior. The influence of social norms, says Paul C. Stern of the National Research Council, tends to be demonstrated “on behaviors that have miniscule environmental effect, and it’s not clear how long the effect lasts.” A technological fix like installing a more efficient furnace, on the other hand, continues to work regardless of what the neighbors are up to.
But Stern acknowledges that weatherization programs with exactly the same incentives have elicited dramatically different consumer response, depending on how they are designed — witness the Oregon program. The trick, says George Loewenstein, is to take conventional economic tools like pricing, subsidies, technology, and taxation, and use behavioral thinking to “supercharge” the way they get delivered.
That may include reshaping the central message of the environmental movement itself. “We know from a lot of psychological research that people are loss averse,” says Leiserowitz, “and the environmental community has done a terrific job of depicting the problem in terms of loss — endangered species, climate change, deforestation. The flip side is that the environmental community has been pretty bad at describing solutions, which often get framed in terms of loss as well: Get rid of your car, turn down the heat, get by with less. It’s disempowering. It makes people give up and do nothing.”
Human nature demands a positive alternative, he says, like the British Transition Towns movement, in which residents of a community together devise a plan for greater resilience, and even happiness, in the face of climate change. For instance, Totnes, in Devon, uses its own currency to encourage reliance on local retailers, and has also developed community-wide campaigns for weatherization, energy-efficient lighting, tree-planting, and gardening. “Martin Luther King didn’t say ‘I have a nightmare,’” says Leiserowtiz. “He said, ‘I have a dream.’ And that’s what made people willing to put their bodies on the line, to bring that vision into being.”
The basic lesson from the behavioral approach, Leiserowitz says, is that the environmental movement also needs to present a vision, to show people what a sustainable world could look like, and what we can do now to make it a reality.