By Seema Hari
I really enjoyed writing my last blog post about the intersection of ICTD and the Lean Startup model and combining the learnings from the two classes that I am taking at UC Berkeley. Continuing with that theme, I decided to explore the synergies between ICTD and Behavioral Economics
What is Behavioral Economics?
According to Wikipedia, Behavioral Economics is the study of the effects of social, cognitive, and emotional factors on the economic decisions of individuals and institutions and the consequences for market prices, returns, and resource allocation.
Why ICTD + BE?
Behavioral Economics can help ICTD practitioners understand the nuances behind the choices their target users make and help them to nudge their users to make a particular choice. Most ICTD projects deal with changing behaviors and so it is really important to understand what other factors affect people's decision making process apart from measurement of utility.
Choice Architecture
At the core of Behavioral Economics lies the study of choices and choice architecture. A great example is shown in this study about the impact of defaults on the decision making involved in organ donation. It throws light on how the presence of defaults in the choice for organ donation affects the choices made by citizens. They conducted an experiment where they studied the effect of different organ donation options: opting-in vs. opting out of donating organs. The opt-in option includes having to actively choose to donate organs when the default is to not donate organs, and the opt-out group is told that the default is to donate organs and they only need to change their option if they don’t want to donate their organs. Now, according to rational utility theory taught in traditional economics, people should be able to objectively evaluate the costs and benefits of each option and would choose the option that suits them the best, so having a default shouldn’t change their decision. But the study found that donation rates when opting out were twice as high as when participants had to opt in. So when people are presented with defaults, their decisions completely flipped. They also studied the donation rates in the European Union where some countries have opt-in organ donation and some have opt-out. They found that the countries with opt-out donation programs have higher number of donors.
ICTD practitioners can nudge their users in the right way by using defaults in their tech interventions that help them achieve the result that benefits the society. For example, a program to increase citizen participation in elections could have the push notifications for critical information and election news stories turned on for all users by default so that users are kept updated about stories that might affect their vote. Furthermore, for online web based ICTD solutions, having donation amounts default to an decent minimum will force the user to think about his contribution and nudge him to make at least the minimum donation specified as the default.
Apart from setting defaults ICTD practitioners can also nudge their users in the right direction by ordering and structuring the choices in a certain way. Studies have found that placing healthy food before the unhealthy options influences the users to buy the healthy options over unhealthy ones and labeling food and drinks with traffic light colored labels also helps in driving higher sales of healthier food and beverages. For tech interventions, ICTD practitioners can achieve the right choice architecture to achieve their goals by A-B testing the alternatives using services like Optimizely. For example, the Obama campaign increased donations and sign-ups by A-B testing with the content and structure of choices offered on their website. By using a family image over a generic Obama image and changing the text of a button from “Sign-up” to “Learn More” and the changing the video displayed on the homepage, the campaign was able to achieve an increase of around 40% in sign-up rate.
At the core of Behavioral Economics lies the study of choices and choice architecture. A great example is shown in this study about the impact of defaults on the decision making involved in organ donation. It throws light on how the presence of defaults in the choice for organ donation affects the choices made by citizens. They conducted an experiment where they studied the effect of different organ donation options: opting-in vs. opting out of donating organs. The opt-in option includes having to actively choose to donate organs when the default is to not donate organs, and the opt-out group is told that the default is to donate organs and they only need to change their option if they don’t want to donate their organs. Now, according to rational utility theory taught in traditional economics, people should be able to objectively evaluate the costs and benefits of each option and would choose the option that suits them the best, so having a default shouldn’t change their decision. But the study found that donation rates when opting out were twice as high as when participants had to opt in. So when people are presented with defaults, their decisions completely flipped. They also studied the donation rates in the European Union where some countries have opt-in organ donation and some have opt-out. They found that the countries with opt-out donation programs have higher number of donors.
ICTD practitioners can nudge their users in the right way by using defaults in their tech interventions that help them achieve the result that benefits the society. For example, a program to increase citizen participation in elections could have the push notifications for critical information and election news stories turned on for all users by default so that users are kept updated about stories that might affect their vote. Furthermore, for online web based ICTD solutions, having donation amounts default to an decent minimum will force the user to think about his contribution and nudge him to make at least the minimum donation specified as the default.
Apart from setting defaults ICTD practitioners can also nudge their users in the right direction by ordering and structuring the choices in a certain way. Studies have found that placing healthy food before the unhealthy options influences the users to buy the healthy options over unhealthy ones and labeling food and drinks with traffic light colored labels also helps in driving higher sales of healthier food and beverages. For tech interventions, ICTD practitioners can achieve the right choice architecture to achieve their goals by A-B testing the alternatives using services like Optimizely. For example, the Obama campaign increased donations and sign-ups by A-B testing with the content and structure of choices offered on their website. By using a family image over a generic Obama image and changing the text of a button from “Sign-up” to “Learn More” and the changing the video displayed on the homepage, the campaign was able to achieve an increase of around 40% in sign-up rate.
This is a great post! I love thinking about Behavior Economics (the field I was going to join when I studied Economics in college) in combination with ICT4D! In many ways, I think it's the behavioral side that makes the difference rather than the economics side. I wonder what some examples are of ICT4D interventions that already apply some behavioral principles in their implementation? Or maybe they all do to an extent?
ReplyDeleteI think they all do to an extent, maybe without even knowing the theory and research behind it. Grampower is a great example of ICTD using behavioral econ, where they have used electricity meters that show the amount of prepaid electricity balance remaining in terms of rupees(money) on the meters instead of showing the traditional wattage reading to kick in loss aversion behavior
DeleteGreat post!
ReplyDeleteThis post just sealed my decision for taking Behavioral Economics next semester. Also recommend that you look at this paper:
http://ideas.repec.org/p/mdl/mdlpap/0616.html
Thanks for the link, Ruchita
Delete