Behavioral Interventions to Boost Savings Rates Session

Transcription

1 Behavioral Interventions to Boost Savings Rates Session

2 GREAT PANELISTS, SHOWCASING EXCITING INTERVENTIONS Krista Holub and Michal Grinstein-Weiss, Washington University in St. Louis Refund to Savings Initiative Damon Jones, University of Chicago Present-Biased Preferences in Savings Rebecca Rouse, Innovation for Poverty Action Commitment Savings 1 1

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4 Automaticity

5 WHAT IS BEHAVIORAL ECONOMICS? Traditional view We re well informed with stable preferences, controlled, self-interested, calculating. We decide yes if benefits > costs Action naturally follows from decision Means Solutions are: - Incentives - More information/education Behavioral perspective Sometimes fallible judgment, malleable preferences, can make mistakes calculating risks, can be impulsive or myopic at times, driven by social desires and identities, context matters a great deal Behavioral agents are not irrational or stupid. They re just people. Means Solutions are: - Not always straight forward - Deciding does not always result in action - Designed based on behavioral diagnosis

6 AWARENESS

7 AWARENESS: NEED TO THINK DIFFERENTLY ABOUT REMEDIES

8 PANELISTS 7 7

9 WHAT IS?

10 IDEAS42 WAS FOUNDED BY VISIONARY ACADEMICS Sendhil Mullainathan, Harvard University Antoinette Schoar, MIT Sloan Eldar Shafir, Princeton University With an ambitious goal: To help millions of people by applying the theories of Behavioral Economics and Behavioral Psychology to solve the worlds toughest problems. 9 9

11 10 IDEAS42 APPLIES BEHAVIORAL ECONOMICS FOR SOCIAL GOOD Educate Conduct Executive Education Use Technology to make BE insights more widely accessible Assist Improve existing products and programs with clients and partners Invent Create new products, policies Produce new applicable research

12 REACTION AND DISCUSSION

13 Photo: yoppy, Flickr Creative Commons

14 Self control is difficult 13

15 IT IS IN HOW OUR BRAIN WORKS Brain Activity Frontoparietal cortex Midbrain Dopamine System Choose Immediate Reward Choose Delayed Reward Laibson et. al.

16 OBSERVATIONS #1 Impact is shockingly significant Michal s study, as compared to alternative Damon s moving the match, as compared to alternative and on its own 15 15

17 EXAMPLE WITH SAVINGS & FERTILIZER USE 16

18 OBSERVATIONS #2 Michal s study feels very worst case to me Very Low-income Population Late in the filing season 17 17

19 OBSERVATIONS #3 Remember the universality of the lack of savings

20 OBSERVATIONS #4 Behavioral diagnosis before Intervention design. Damon s learnings applied to Michal s We have Seen this before 19 19

21 CAUTION: DIAGNOSIS SHOULD DRIVE DESIGN Defaults work in increasing 401(k) savings Can we apply to savings in general? Field experiment tested with low-income population receiving EITC. Defaulted to placing 10% into savings bonds. 100% 80% 60% 40% 20% 0% Opt In Opt Out

22 21 VERY LOW-INCOME AT EITC MOMENT 100% 75% 50% 25% 0% Did not trust the government Did not feel comfortable buying bonds Did not like bonds because wanted more liquidity Did not have a baseline to compare to bonds interest rate Had specific plan for how they were going to spend refund

23 EXAMPLE 1: VIVID REPRESENTATION When we are provided with or think about something in a vivid (real life way) it trumps statistics and can cause us to act. The patient has a 1% chance of dyeing 1 of every 100 patients dies Do you want to buy a lottery Ticket for $1, you can win $1,000,000 Do you want to buy a lottery ticket for $1, you can win $1,000,000 and buy a NEW HOUSE 22

24 APPLYING THIS TO SAVINGS Sole wage earning male laborers in India, with $15.50 a week of income, two children 2-7 years old, with stated preference to save Envelope Envelope/Picture Envelope/Separation Envelope/Separation/Picture Savings (Rupees) 600 No Partition Partioned % Soman and Cheema No Pictures Picture 23