Applying Insights from Behavioral Economics to Policy Design

Madrian, Brigitte C.

doi:10.3386/w20318

Cited by 100 publications

(99 citation statements)

References 50 publications

(55 reference statements)

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“…For instance, managers may wish to consider an individual's ability or behavioral factors when determining a wage contract to offer. Attempts to take advantage of findings from behavioral economics in management and public policy have become popular in 3 recent years (e.g., Camerer et al, 2003;Ho et al, 2006;Madrian, 2014). A key example is loss aversion, which predicts that workers will evaluate gains and losses relative to a reference point, and will value losses more than gains (Kahneman and Tversky, 1979).…”

Section: Introductionmentioning

confidence: 99%

Loss aversion and the quantity–quality tradeoff

2017

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Firms face an optimization problem that requires a maximal quantity output given a quality constraint. But how do firms incentivize quantity and quality to meet these dual goals, and what role do behavioral factors such as loss aversion play in the tradeoffs workers face? We address these issues with a theoretical model and an experiment in which participants are paid for both quantity and quality of a real effort task. Consistent with the basic economic theory, higher quality incentives encourage participants to shift their attention from quantity to quality. However, we also find that loss averse subjects shift their attention from quality to quantity to a greater degree when quality is weakly incentivized. These results can inform managers of the most appropriate ways to structure contracts.JEL Classifications: D24, J24, J31, J41

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Section: Introductionmentioning

confidence: 99%

Loss aversion and the quantity–quality tradeoff

2017

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“…Although automatic enrolment has been prominently highlighted as a particular success story of the real-world implementation of the insights of behavioural economics (Benartzi and Thaler, 2013;Madrian, 2014;Chetty, 2015;Thaler, 2016), until now all the evidence on the impact of automatic enrolment on participation in employer-provided pensions and pension saving comes from the voluntary introduction of automatic enrolment by large firms in the United States (see Madrian and Shea (2001) and Choi et al (2004)). In many cases, these firms have introduced automatic enrolment to comply with the Internal Revenue Service's non-discrimination rules 2 (see Choi et al (2002) and Butrica and Karamcheva (2015)).…”

Section: Introductionmentioning

confidence: 99%

What happens when employers are obliged to nudge? Automatic enrolment and pension saving in the UK

Cribb¹,

Emmerson²

2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper studies the first nationwide introduction of automatic enrolment, in which employers in the United Kingdom are obliged to enrol employees into a workplace pension scheme, which employees can then choose to leave if they wish. We exploit the phased rollout of automatic enrolment since 2012 to estimate its effect on pension saving. As a result of automatic enrolment, participation in workplace pensions among eligible private sector workers is estimated to have increased by 37 percentage points, and workplace pension membership reached 88% amongst those affected by April 2015. Automatic enrolment significantly increased the average pension contribution rate, in part because some newlyenrolled employees received an employer contribution well above the minimum mandated by the government. Furthermore, many employees who did not have to be automatically enrolled were nonetheless brought into a workplace pension scheme as a result of the policy. We find no evidence of employers reducing employer contributions for newly-hired employees or existing members of workplace pensions.

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“…Thaler and Sunstein (2008), Congdon, Kling and Mullainathan (2011), Keller-Allen and Li (2013), and Madrian (2014 provide examples of the new policy tools and predictions generated by behavioral economics. Bernheim (2009) and Mullainathan, Schwartzstein and Congdon (2012) provide further discussion of normative issues in behavioral models.…”

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confidence: 99%

Behavioral Economics and Public Policy: A Pragmatic Perspective

Chetty

2015

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The debate about behavioral economics -the incorporation of insights from psychology into economics -is often framed as a question about the foundational assumptions of economic models. This paper presents a more pragmatic perspective on behavioral economics that focuses on its value for improving empirical predictions and policy decisions. I discuss three ways in which behavioral economics can contribute to public policy: by offering new policy tools, improving predictions about the effects of existing policies, and generating new welfare implications. I illustrate these contributions using applications to retirement savings, labor supply, and neighborhood choice. Behavioral models provide new tools to change behaviors such as savings rates and new counterfactuals to estimate the effects of policies such as income taxation. Behavioral models also provide new prescriptions for optimal policy that can be characterized in a non-paternalistic manner using methods analogous to those in neoclassical models. Model uncertainty does not justify using the neoclassical model; instead, it can provide a new rationale for using behavioral nudges. I conclude that incorporating behavioral features to the extent they help answer core economic questions may be more productive than viewing behavioral economics as a separate subfield that challenges the assumptions of neoclassical models.

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Applying Insights from Behavioral Economics to Policy Design

Cited by 100 publications

References 50 publications

Loss aversion and the quantity–quality tradeoff

Loss aversion and the quantity–quality tradeoff

What happens when employers are obliged to nudge? Automatic enrolment and pension saving in the UK

Behavioral Economics and Public Policy: A Pragmatic Perspective

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