Thursday, June 16, 2022

Behavioral economics and market design are quite different -- Nick Chater and George Loewenstein reflect

 Experimental economics is one of the empirical foundations of what we now call behavioral economics.  Market design sometimes depends on experiments, and is sometimes behavioral.  And when behavioral economists talk about "choice architecture" there is a clear connection with market design, although market design focuses more directly on the 'rules of the game' than on the psychology of human behavior.  Despite the connections, the two fields always felt quite different.

Here's a new working paper by two eminent behavioral scientists, one trained as a psychologist and one as an economist, saying that behavioral economics is oriented to individual level behavior, which is quite different from system level design and behavior, and that it can be costly to mistake one for the other.

The i-Frame and the s-Frame: How Focusing on Individual-Level Solutions Has Led Behavioral Public Policy Astray  by Nick Chater and George Loewenstein

Abstract: An influential line of thinking in behavioral science, to which the two authors have long subscribed, is that many of society’s most pressing problems can be addressed cheaply and effectively at the level of the individual, without modifying the system in which individuals operate. Along with, we suspect, many colleagues in both academic and policy communities, we now believe this was a mistake. Results from such interventions have been disappointingly modest. But more importantly, they have guided many (though by no means all) behavioral scientists to frame policy problems in individual, not systemic, terms: to adopt what we call the “i-frame,” rather than the “s-frame.” The difference may be more consequential than those who have operated within the i-frame have understood, in deflecting attention and support away from s-frame policies. Indeed, highlighting the i-frame is a long-established objective of corporate opponents of concerted systemic action such as regulation and taxation. We illustrate our argument, in depth, with the examples of climate change, obesity, savings for retirement, and pollution from plastic waste, and more briefly for six other policy problems. We argue that behavioral and social scientists who focus on i-level change should consider the secondary effects that their research can have on s-level changes. In addition, more social and behavioral scientists should use their skills and insights to develop and implement value-creating system-level change.

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This is not the first time that G.L. has warned of this. Here's his 2010 NYT op-ed:

Economics Behaving Badly By GEORGE LOEWENSTEIN and PETER UBEL, July 14, 2010

"As policymakers use it to devise programs, it’s becoming clear that behavioral economics is being asked to solve problems it wasn’t meant to address. Indeed, it seems in some cases that behavioral economics is being used as a political expedient, allowing policymakers to avoid painful but more effective solutions rooted in traditional economics."

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Here's a recent Social Science Bites podcast  in which GL is interviewed by David Edmonds. It touches on some of Loewenstein's vast accomplishments (he pioneered many of the most important topics in behavioral economics before they were widely recognized as important...). It focuses on the "empathy gap" that we exhibit when we fail to appreciate how we'll behave when we're in a different affective state. He also answers questions about where his ideas come from, and eclectic research methods.

George Loewenstein on Hot and Cold Affect

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