Boosting Bass Connections Projects with Behavioral Economics

February 2, 2017
Boosting Bass Connections Projects with Behavioral Economics

By Jasmine Tan ’19

Imagine you were tasked with replacing vehicles with higher fuel efficiency equivalents to reduce gas consumption. You could: (i) replace one hundred 15 miles/gallon (MPG) vehicles with 19 MPG vehicles, or (ii) replace one hundred 34 MPG vehicles with 44 MPG vehicles. Which would you choose?

This question was posed to participants in a study by Professors Rick Larrick and Jack Soll of Fuqua. Our Bass Connections team is privileged to have Professor Larrick as one of our team leaders, and in October we had the opportunity to hear him speak about his work and its implications for our project.

If you were like 75% of his research participants, you probably chose option (ii). After all, does that not offer the largest gain in MPG, and thus the greatest fuel savings? Surprisingly, it appears not. Fuel savings are actually nonlinearly related to mileage improvements, so option (i) actually saves fuel than (ii): 14,035 gallons versus 6,684 gallons.

This is but one of many examples illustrating how our intuition and mental shortcuts can lead us astray. The insights shared by Professor Larrick into how individuals actually behave and make decisions – contrary to conventional economics models – was fascinating, especially since our project focuses on changing energy use behavior through informational reports and incentive schemes.

However, whether your project is looking at NC Medicaid Reform or creating a Global Mental Health-Integrative Training Program, understanding behavioural economics concepts will prove highly useful in enriching outcomes. I recommend all current and future Bass Connections teams to dedicate some time to learning how they can be applied to your projects.

A key implication of Professor Larrick’s findings is that information should be better conveyed to account for people’s systematic cognitive mistakes and tendencies. Professor Larrick highlighted the four CORE principles to follow. Interestingly, the need to ensure that communications materials were easily understood and effective was later reaffirmed when we visited Yale to interview the stakeholders involved in their Carbon Charge Project. Yet, this can be easier said than done. Professor Larrick highlighted how what appears to be an improvement in information presentation (e.g., using color codes to denote different grades) might actually serve to confuse or mislead audiences. There is also a thin line between sufficient information and too much information.

As we complete our ‘theoretical’ scoping document and move forward intending to engage in and spearhead ‘practical’ action, behavioral economics insights are all the more pertinent. It will be beneficial for us to do more reading on this topic, and possibly compile and distil a list of relevant ideas and issues to take into account in preparation for our next activities.

If you’d like to prepare alongside us, here’re some links and resources to get you started!

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