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Symposium 2015

How to Design Policies for Humans Rather than Homo Oeconomicus?

The Challenge

Most human thinking is automatic, not deliberative. It is based on what effortlessly comes to mind. Human thinking is also socially conditioned.  Beliefs about what others are doing and expecting shape an individual’s own preferences. And humans don’t face situations as “tabula rasa,” but instead interpret situations against the backdrop of their own understandings shaped by culture and existing social patterns.

How can we design policies for humans rather than for homo oeconomicus? Are there concrete policy initiatives taking insights from behavioral economics into account? How can these insights find their way into the policy-makers’ toolkit? Which actors need to work together to ensure that a policy is designed effectively? Can economists alone design effective economic policies or do we need to bring in other disciplines? What can policy-makers learn from companies that have used behavioral insights in their business for years? How can behavioral policies be evaluated for meeting ethical standards? Behavioral insights yield new understandings of the causes of economic outcomes. The new understandings create scope for a broader set of tools to influence the decisions of humans than the price- and rule-based tools that influence the decisions of homo oeconomicus.

This session is organized by Simon Bartke, Felix Gelhaar and Levent Neyse Kiel Institute for the World Economy and by Karla Hoff, The World Bank. Please check out the tabs below for additional facts and information.

    Solutions

    Solution
    Symposium 2015

    Behavioral Interventions: Designing Policy for Real People

    Behavioral Interventions: Designing Policy for Real People

    Behavioral Interventions: Designing Policy for Real People

    Solution
    Symposium 2015

    Entertainment Media and Behavioral Change

    Entertainment Media and Behavioral Change

    Entertainment Media and Behavioral Change

    Background Paper

    Background Paper
    Symposium 2015

    How to Design Policies for Humans rather than Homo Economicus?

    Polity, Academia, Business, Civil Society

    Virtual Library

    Virtual Library File
    Symposium 2015

    Behavioural Economics and Public Policy

    Behavioral economics has grown in importance over the past decade. It is based on the traditional “neoclassical” model of human behavior used by economists, but incorporates insights from (social) ...

    Behavioral economics has grown in importance over the past decade. It is based on the traditional “neoclassical” model of human behavior used by economists, but incorporates insights from (social) psychology to explain behavior that deviates from this basis. For policies to be effective such as taxes on domestic heating or subsidies for insulation need verifiable predictions of human behavior. However, applying psychological insights to economics is not a simple task and relies on trials and experiments to verify presumptions. Unfortunately, although these trials are often inexpensive, they are frequently neglected by policy makers. This article describes how behavioral and experimental economics has only just begun to extend its influence over to public policy in order to design more sophisticated policies to address current problems.

    Virtual Library File
    Symposium 2015

    Nudging: A Very Short Guide

    Nudges steer people in particular directions, while at the same time not limiting their set of choices and allowing them to go their own way. This essay offers a general introduction of the idea of nu ...

    Nudges steer people in particular directions, while at the same time not limiting their set of choices and allowing them to go their own way. This essay offers a general introduction of the idea of nudging, and provides a list of ten of the most important nudges that can also be used by policy makers. The essay ends with a short discussion on how institutions can properly implement nudges.

    Virtual Library File
    Symposium 2015

    Behavioral Economics: Past, Present, Future

    This chapter introduces the approach and methods of behavioral economics. Behavioral economics expands the economic analysis by providing it with more realistic psychological foundations of human deci ...

    This chapter introduces the approach and methods of behavioral economics. Behavioral economics expands the economic analysis by providing it with more realistic psychological foundations of human decision-making. This way, new insights are generated that allow for better explanations of experimental and field phenomena, while suggesting more effective policies. The literature on probability judgment, revealed preferences, reference-dependence and loss aversion, preferences over risky and uncertain outcomes, intertemporal choices, time discounting, fairness and social preferences is discussed. The chapter ends with a summary of different application areas of behavioral economics for policy makers, including macroeconomics and savings, labor economics, and finance.

    Virtual Library File
    Symposium 2015

    Behavioral Economics: A Tutorial for Behavior Analysts in Practice

    Behavioral economics initially began as an academic attempt to challenge the notion of rational consumer theory and traditional economics with experimental evidence and psychological insights. Recentl ...

    Behavioral economics initially began as an academic attempt to challenge the notion of rational consumer theory and traditional economics with experimental evidence and psychological insights. Recently, however, behavioral economics continues to rise in popularity not only in behavioral sciences but also for the purpose of public policy. This article provides an overview of the principles comprising behavioral economic perspectives and discusses four concepts of behavior analysis (demand functions, reinforce competition, open versus closed economies, and discounting), which are relevant to behavioral economics and have major implication for designing smart policies.

    Virtual Library File
    Symposium 2015

    From Homo Economicus to Homo Sapiens

    This short article discusses the future of economics. Research in psychology has already identified several biases (including but not limited to optimism, overconfidence, the false consensus effect an ...

    This short article discusses the future of economics. Research in psychology has already identified several biases (including but not limited to optimism, overconfidence, the false consensus effect and the curse of knowledge) that make the concepts underlying Homo Economicus implausible. Thaler predicts that the new Homo Sapiens will take its place, which will be (partly) irrational, more heterogeneous among individuals, more emotional, and overall closer to the true cognitive processes that govern our behavior. Policy recommendations have relied heavily on the assumptions of Homo Economicus. With behavioral economics providing evidence and theories for a new foundation of decision-making, different policies have to be cautiously designed.

    Virtual Library File
    Symposium 2015

    ‘Small Miracles’—Behavioral Insights to Improve Development Policy: The World Development Report 2015

    Three principles of thinking that are rooted in evidence from across the social and natural sciences have to be considered to develop smart policy recommendations. Human thinking is a dual process—a ...

    Three principles of thinking that are rooted in evidence from across the social and natural sciences have to be considered to develop smart policy recommendations. Human thinking is a dual process—automatic as well as deliberative; it is conditioned by social context and the salience of social identities; and it is shaped by mental models that are socially constructed. The policy implication, following from these principles of thinking, is not limiting the focus on correcting distorted incentives and fixing problems of information (the implication of traditional economic models), but on improving the quality of individuals’ judgement and decisions.

    Virtual Library File
    Symposium 2015

    Psychology and Economics: Evidence from the Field

    Scientists have gathered impressive evidence for choices deviating from the standard model of economics. This paper surveys the most relevant empirical evidence on different classes of deviations. Non ...

    Scientists have gathered impressive evidence for choices deviating from the standard model of economics. This paper surveys the most relevant empirical evidence on different classes of deviations. Nonstandard preferences, nonstandard beliefs and nonstandard decision making are discussed. In particular, the focus lies on time, risk and social preferences. Regarding beliefs, overconfidence, the law of small numbers, and the projection biased are presented. Finally, nonstandard decision making covers framing, limited attention, menu effects, persuasion and social pressure, and emotions. Methodologically, evidence is drawn from field, natural, and laboratory experiments. The evidence covers a broad set of (policy) applications, including consumption choices, finance, charitable giving, and labor supply.