The art of persuasion: morals or money?

The results really aren’t that surprising, but interesting nonetheless. As summarized nicely by Marginal Revolution:

The authors assigned 691 households in Japan to one of three groups a) a moral suasion group, b) an economic incentive group or c) a control group. The moral suasion group were told that electricity conservation was important and necessary on peak demand days and then over a year when the peak times hit they were sent day-ahead and same-day messages to please reduce electricity consumption at the peak times. The economic incentive group were told that their electricity prices would be higher during certain peak periods and over the year when the peak times hit they were sent day-ahead and same-day messages telling then when the prices would be higher. Prices were approximately 2-4 times higher during the peak times. Control groups had smart meters installed but were not sent messages.

Moral suasion worked but not nearly as well as economic incentives (in the figure, lower use is better).

Read the original paper by Ito, Ido and Tanaka.

In Burma’s capital the only thing missing is people

One half of a wide boulevard at Naypyidaw, by Hybernator via Wikimedia Commons
One half of a wide boulevard at Naypyidaw, by Hybernator via Wikimedia Commons

From Pulitzer Center, a report by Matt Kennard and Claire Provost on Naypyidaw:

Driving through Naypyidaw, the purpose-built capital of Burma, it could be easy to forget that you’re in the middle of one of south-east Asia’s poorest countries. On either side of the street, a seemingly endless series of giant detached buildings, villa-style hotels and shopping malls look like they have fallen from the sky, all painted in soft pastel colours: light pink, baby blue, beige. The roads are newly paved and lined with flowers and carefully pruned shrubbery. Meticulously landscaped roundabouts boast large sculptures of flowers.

The scale of this surreal city is difficult to describe: it extends an estimated 4,800 square kilometres, six times the size of New York City. Everything looks super-sized. The streets – clearly designed for cars and motorcades, not pedestrians nor leisurely strolls – have up to 20 lanes and stretch as far as the eye can see (the rumour is these grandiose boulevards were built to enable aircraft to land on them in the event of anti-government protests or other “disturbances”). There is a safari park, a zoo complete with air-conditioned penguin habitat, and at least four golf courses. Unlike in much of the country, there is reliable electricity here. Many of the restaurants have free, fast Wi-Fi.

The only thing Naypyidaw doesn’t have, it seems, is people. The vast highways are completely empty and there is a stillness to the air. Nothing moves. Officially, the city’s population is 1 million, but many doubt this is anywhere close to the true figure. On a bright Sunday afternoon, the streets are silent, restaurants and hotel lobbies empty. It looks like an eerie picture of post-apocalypse suburban America; like a David Lynch film on location in North Korea.

Read the rest here.

How anchoring bias can kill

Usually when I talk about anchoring bias it’s simply in the context of marketing: an organisation has tried to make one option seem like it’s comparatively better value than another.

Here’s the definition from Wikipedia:

Anchoring or focalism is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the “anchor”) when making decisions. During decision making, anchoring occurs when individuals use an initial piece of information to make subsequent judgments. Once an anchor is set, other judgments are made by adjusting away from that anchor, and there is a bias toward interpreting other information around the anchor. For example, the initial price offered for a used car sets the standard for the rest of the negotiations, so that prices lower than the initial price seem more reasonable even if they are still higher than what the car is really worth.

One of my favourite (and now very well known) examples is the way The Economist subscriptions were priced:

Economist

Dan Ariely’s analysis of this is well worth a read:

Who would want to buy the print option alone, I wondered, when both the Internet and the print subscriptions were offered for the same price? Now, the print- only option may have been a typographical error, but I suspect that the clever people at the Economist‘s London offices (and they are clever-and quite mischievous in a British sort of way) were actually manipulating me. I am pretty certain that they wanted me to skip the Internet- only option (which they assumed would be my choice, since I was reading the advertisement on the Web) and jump to the more expensive option: Internet and print.

But how could they manipulate me? I suspect it’s because the Economist‘s marketing wizards (and I could just picture them in their school ties and blazers) knew something important about human behavior: humans rarely choose things in absolute terms. We don’t have an internal value meter that tells us how much things are worth. Rather, we focus on the relative advantage of one thing over another, and estimate value accordingly. (For instance, we don’t know how much a six- cylinder car is worth, but we can assume it’s more expensive than the four- cylinder model.)

In the case of the Economist, I may not have known whether the Internet- only subscription at $59 was a better deal than the print- only option at $125. But I certainly knew that the print and-Internet option for $125 was better than the print- only option at $125. In fact, you could reasonably deduce that in the combination package, the Internet subscription is free! “It’s a bloody steal-go for it, governor!” I could almost hear them shout from the riverbanks of the Thames. And I have to admit; if I had been inclined to subscribe I probably would have taken the package deal myself. (Later, when I tested the offer on a large number of participants, the vast majority preferred the Internet- and- print deal.)

Our tendency to process information this way rarely does much harm (except perhaps to our wallets), but anchoring can lead to potentially catastrophic results in certain contexts. From an article by Danielle Ofri, M.D in the New York Times in 2012:

Anchoring bias is often considered the Achilles’ heel of diagnostic reasoning. It’s as though our brains close ranks around our first impression, then refuse to consider anything else. Once a patient is “billed” as a heart attack, or gastroenteritis, or anxiety, we view every data point through that particular lens.

If the data don’t fit, we tend to assume that it’s merely because the illness is presenting atypically rather than that our diagnosis might be wrong or incomplete. Anchoring bias casts an even longer shadow in today’s shift-oriented medical world, in which patients are serially handed off from one team to another. The label that is attached to them takes on a life of its own.

Is this the end of asymmetric information?

I thought this essay by Alex Tabarrok and Tyler Cowen was fascinating. Here’s the intro:

Might the age of asymmetric information – for better or worse – be over?  Market institutions are rapidly evolving to a situation where very often the buyer and the seller have roughly equal knowledge. Technological developments are giving everyone who wants it access to the very best information when it comes to product quality, worker performance, matches to friends and partners, and the nature of financial transactions, among many other areas.

These developments will have implications for how markets work, how much consumers benefit, and also economic policy and the law. As we will see, there may be some problematic sides to these new arrangements, specifically when it comes to privacy. Still, a large amount of economic regulation seems directed at a set of problems which, in large part, no longer exist.

Read the whole piece here it’s brilliantly argued, and covers everything from why the used car market is no longer flooded with lemons to why the CIA benefits greatly from continuing information asymmetry when it comes to demanding more resources from Congress.

Then read a great response to the piece, It’s Not the End of Regulation, by Joshua Gans.

What really works in healthcare?

The latest episode of Freakonomics is on the importance of using randomized controlled trials (RCTs) to determine the effectiveness of healthcare:

As we’ve regularly noted in the past, economists and other academic researchers have increasingly been using RCTs to study all sorts of things, including how to best fight poverty. At the forefront of this movement is J-PAL, or the Abdul Latif Jameel Poverty Action Lab, at MIT. The award-winning economist Esther Duflo, one of J-PAL’s founders, has helped run many RCTs in India, Kenya, and elsewhere, trying to learn how best to prevent teen pregnancy and anemia, and drunk driving; and how to better incentivize nursessmall-business growth, and modern farming techniques.

In this episode, we turn our attention to the U.S. and J-PAL’s efforts to learn about what really works in healthcare delivery. We focus on research done by the MIT economist Amy Finkelstein and several colleagues, whose growing body of work in this realm is fascinating.

As Finkelstein tells us in the podcast, RCTs are far too rare in healthcare delivery — which is a shame, for the link between healthcare and poverty is strong.

Listen here.

Abandoned towers

From Wired, photographs by Spencer Harding of abandoned microwave towers across the US:

The skyway was the largest network of its kind when it opened, and it marked the first time telephone conversations and television broadcasts were made via microwaves, not transmission wires. After 1951, more towers and repeaters were built across the country in an ever-expanding web. Six decades later, however, the system had long since ceased being relevant, and AT&T sold off most of the network in 1999. Many towers—the tallest of which are hundreds of feet tall—were abandoned, vandalized, or scrapped.

Joseph Mitchell of The New Yorker

Joseph Mitchell outside Sloppy Louie’s restaurant with Louis Morino, the subject of Mitchell’s 1952 New Yorker profile ‘Up in the Old Hotel’

From the New York Review of Books a profile of Joseph Mitchell of The New Yorker:

Where the hell is this going? As in all of Mitchell’s pieces everything is always going somewhere, though not necessarily so you’d notice. Mitchell is one of the great masters of the device of the plot twist disguised as a digression that seems pointless but that heightens the effect of unforced realism. Louie tells Mitchell of an incident that occurred a few years after he left Joe’s. Mrs. Frelinghuysen had died and Louie had married and bought his restaurant and rented the building it was in. One afternoon a long black limousine pulled up in front of the building and a uniformed chauffeur came into the restaurant and said, “Mrs. Schermerhorn wanted to speak to me, and I looked at him and said, ‘What do you mean—Mrs. Schermerhorn?’ And he said, ‘Mrs. Schermerhorn that owns this building.’” Louie is stunned to hear this. He had assumed the real estate company he paid his rent to was the owner. But no, the beautiful woman who gets out of the limousine, the recently widowed Mrs. Arthur F. Schermerhorn, owns the building. Louie asks her if she knows anything about its history, but she doesn’t—she is just inspecting the properties she has inherited from her husband. She drives off and he never sees her again.

I went back inside and stood there and thought it over, and the effect it had on me, the simple fact my building was an old Schermerhorn building, it may sound foolish, but it pleased me very much. The feeling I had, it connected me with the past. It connected me with Old New York.

Read the rest.