Nudge Psychology: Week 4-5 (Exam 1)

Why don't people save for retirement

- determining amount to save is difficult - requires self-control - procrastination - loss aversion (loss of money in paycheck feels worse than gain in income via employer match) -hyperbolic discounting: benefit of having a retirement plan feels distant and less valuable than having money now. - status quo bias- unlikely to change what your already doing.

Why don't people always perform at highest level?

- mental effort is costly - Incentives increase effort exerted - people will hold back effort, law of less work.

Capacities of mental effort

- overriding default Options, habits, or heuristics - resisting temptation - engaging in feats like reasoning - holding information in working memory - switching between tasks with different kinds of demands.

Visceral responses to environmental risk

- visceral responses can be increased by reframing However, people have a finite pool of worry Single action bias

How to choose how to allocate mental effort

1. Choose action that achieves the best trade off between utility and opportunity costs (cost-benefit analysis) 2. Decide How much control by weighing benefits 3. Which processes to allocate control to by weighing benefits.

4 ways to overcome the costs of mental effort

1. Create decision rules so that effort need not be applied on a case-by-case basis. 2. Give structure to the effort so that when it is exerted it is most effective 3. Avoid the need to use mental effort by combatting one set of biases with another 4. Incentivize effort or the decision that come from effortful decision-making so the benefits outweigh the costs.

Two information conditions of experience

1. Decisions from experience 2. Decisions from description

Two- stage model of self-control

1. Identifying conflict between temptation and better judgment 2. Implement self-control strategies

Types of satiation cues

1. Internal (I am full) 2. External (plate is empty)... risky

Why is mental effort costly

1. Intrinsic costs 2. Opportunity costs

Three examples of intervening on temptation

1. Mindless eating- tricking system 1 into thinking we are sated 2. Smartphone nudging- Using implementation intentions to eliminate the need to make decisions when tempted 3. Self-exclusion- strapping ourselves to the mast to avoid the temptation of gambling

Two patterns when balancing goals and temptation

1. Pattern that highlights the goal. Use goal-pursuit and employ self-control strategies. 2. Pattern that balances goal and temptation. "First temptation, then goal". Ex: Cake tonight, nothing tomorrow

Save More Tomorrow Plan Key Characteristics

1. Plan is simple 2. Make opportunities to save more in future more attractive 3. Once employees are in program, they will not opt-out. 4. Loss is evaluated to a reference point (increase rate when person gets a raise)

Levels of psychological distance

1. Social (from/not from my culture) 2. Physical (near or far) 3. Temporal (from now or past)

3 Components of effort

1. Task characteristics (How hard is the thing your trying to do) 2. Capacity (What is your limit of ability) 3. Performance (what do you actually do)

Demand Selection Task

Designed to measure peoples preference for mental labor vs leisure People overwhelmingly chose low-demand task Shows Law of Least Mental Effort

Prospect theory fails to account for...

Disappointment and regret Assumes options are evaluated separately and independently

Shared problems of 3 scenarios (environmental decisions, retirement savings, prep for natural disasters)

Costs are immediate (loss) Benefits are in the future and probabilistic (risk)

Self-exclusion go resist temptation in gamblers characteristics

Gamblers sign a contract with a casino that bans them from entering the casino for a time period ranging from 6 months to a lifetime. Less time banned in casino, more likely to relapse. Perceptions of control over gambling increased in all groups.

Opportunity costs of effort

Given that the capacity for mental effort is limited, allocating it to one set of processes means missing the benefit of allocating it to another set of processes.

Goal intentions vs implementation intentions

Goal intentions: the non-committal desires into binding goals Implementation intentions: specify when, where, and how of goal attainment.

Three measures of self-control

Grit- perseverance and passion for long-term goals. Ability to inhibit responses in the moment (Flanker test) Self-report measures

Why are we inadequately sensitive to intermediate probabilities?

Highly likely events are underweighted, and unlikely events are overweighted

High level/abstract construal

Representation of events that extracts the gist of event information Tend to be general, goal-oriented, de-contextualized, and coherent

Low level/concrete construal

Representations that are specific and include detailed features of the object of event Tend to be emotion or affect oriented

Conservation

The principle that when something changes in size or shape it does not change in volume.

Single action bias

The propensity to take only a single action in response to a fear signal

Utility

The value, happiness, or satisfaction that someone get from consuming a product or service. Takes a persons feelings into account

To avoid resisting temptations...

Use implementation intentions (pre deciding how to implement your goals) Ex: increased voting in 1-voter households

Mental effort is...

Used to engage cognitive control

Fourfold Pattern conclusion

We are just as risk seeking in the domain of losses as we are risk averse in the domain of gains.

Endowment effect

We value what we have more than if we didn't already have it because value is set relative to the reference point. Partially fueled by loss aversion Incorporate objects we own into our sense of self Assume others value items as much as we do Not universal: goods for exchange (money) vs goods for use (house) Goods for use cause an experience of loss

Possibility effect

highly unlikely outcomes are weighted disproportionally more than they deserve. Why we tend to overweight small risks

Bernoullis Error

if you have same wealth amount - you should be equally happy. however - happiness is more determined by changes of wealth from your reference point than just from a final wealth outcome Countered by Prospect Theory

Inaccurate consumption monitoring example

students and bartenders poor more into short fat glasses than into tall skinny glasses.

Challenges for Environmental Decision making

- People lack visceral reactions - hyperbolic discounting makes benefits small - ambiguity if future risks and benefits - small probabilities are underweighted - don't make people feel fearful or stressed

Expected Utility Theory

A rational decision maker will choose the option that maximizes utility. Expects people to compute the expected value of gambles by the weighted probability of an outcome. Not how people actually operate

Solution to retirement plan

Automatic enrollment in retirement plan (Very low rate, unlikely change to higher rate though)

Heuristics that employ system 1...

Are most successful because it requires little decision making or ambiguity.

Bernoullis Utility Theory

As we become wealthier, utility decreases. We dislike risk, especially in the domain of losses Risk averse people would rather take the sure-thing. Only need to know state of wealth to determine utility.

Weights in assessing risk

Assign weights to possible outcomes Correlated with probability of outcomes Most often a product of system 1

Cognitive myopia

Failure to consider long-term benefits rather than short-term rewards

Prospect Theory

Foundation of prospect theory is a reference point (the earlier state relative to which gains and losses are evaluated) Need to know state of wealth and reference point to determine utility Three features: 1. Evaluation is relative to a neutral reference point (adaptation level, usually current wealth) 2. A principle of diminishing sensitivity applies to evaluations of changes of wealth (ex: $100->$200 is a larger difference than $900->$1000 3. People are loss averse (losses look larger than gains)

Hyperbolic discounting

Future costs and benefits are sharply discounted relative to obtaining them immediately Related to cognitive myopia

Intrinsic costs of effort

If mental effort carries a cost, there must be some limit to how much we can exert at any one time. Metabolic constraints: It is a resource that can be depleted Structural capacity: Finite number of circuits that engage cognitive control. Representational capacity: When different tasks compete for the same mechanisms for different purposes it creates a bottleneck (tapping head rubbing stomach). We increase or decrease effort based on compensation. Motivation may dictate amount of mental effort used.

System 1

Most successful in resisting temptation

Behavioral control strategies example

Not buying cake at the store to avoid temptation at home Rewarding yourself for not falling into temptation.

Certainty effect

Outcomes that are almost certain are given less weight than their probability justifies.

Example of increasing conflict salience

Participants rates the unhealthy food as more appealing when they were rated together but the healthy food was more appealing when they were rated apart. When they are sort, they are seen as in opposition (not complimentary) and conflict between temptation and goals is made salient.

Level of abstraction results

Participants responded more quickly to psychologically near objects presented as images, and psychologically distant objects presented as words. Ex: Picture of car and word chariot Conclusion: if we want to increase level of construal (make it more concrete), we must find ways to make it more concrete (pictures).

Counteractive Control Theory

Self-control involves asymmetric shifts in motivational strength towards goal and away from temptation Self-control strategies can either change the choice situation (behavioral) or change the meaning of the choice options (psychological)

Psychological control strategies example

Shifting perceived value of goals vs temptations Represent goals as concrete and temptations as abstract.

Story of Odysseus and the Sirens

Shows strategies and interventions we can use to avoid giving into temptation. Also shows the power of system 1

Food consumption reference points/benchmarks

Size of bowl, number of items, eating behavior of those around us. Ex: people still ate more stale popcorn just because the container was bigger

Loss Aversion Ratio Equation

Smallest potential gain/potential loss

Self control strategies can either be applied to...

Temptation The goal

Narrow frame temptation

Temptation is perceived as a single opportunity to indulge

Wide frame temptation

Temptation is seen as one of many opportunities to indulge.

With smartphone nudging...

When facing increased conflict between temptations and goals, we may do better when we don't need to engage system 2 to resolve that conflict.

Example of eliminating the immediacy effect

When people choose all 3 movies at the same time, they choose high brow. When picking one movie each day, they are more likely to pick low brow movies. Makes episilon costs more apparent

Epsilon-cost temptation

When the cost of a single indulgence in temptation is small, but extended consumption is very costly Ex: Cake one night is fine, but cake every night is bad.