Incomplete Preferences. The typical assumption in economics is that choices follow a preference relation that is complete, stable over time, and that satisfies various normative properties (e.g. Expected Utility). However, this assumption has been criticized both empirically and conceptually. Empirically, by documenting a large number of “biases” incompatible with these postulates (e.g. the Willingness to Pay/Accept gap, or Stochastic Choice). Conceptually, a large literature in economics and psychology has criticized the assumption that preferences are complete, arguing that instead often subjects may not know what they prefer and may need to use a heuristic to make a choice in this case. The projects in this area study incomplete preferences formally and introduce models of behavior in which subjects may need to “resolve” this incompleteness in some way, leading to some of the well-known biases documented empirically. We also introduce projects to experimentally test the presence of incomplete preferences and the implications of these models.
Neuroeconomics. The field of neuroeconomics aims to understand the neurological basis of economic choice. An understanding of the processes and constraints that underlie choice behavior may help in the design of future models. Our work in this area has focused on the mechanics of learning and belief formation, and specifically the role of the neurotransmitter dopamine, which has been of interest to neuroeconomists due to its apparent role in transmitting information about beliefs and preferences. It has been hypothesized that dopamine encodes `reward prediction error’, or the difference between the expected and realized rewards associated with an event. Much of our work has involved using theoretical techniques from economics to design experimental tests of the reward prediction hypothesis.
The Concept of Choice in Homelessness. The concept of “choice” in homelessness is often overlooked. We tend to think of homelessness as the inevitable result of broad social trends. Sometimes, this is the case. Large-scale economic depression does correlate strongly with increases in homelessness. But an analysis at this level can only tell us so much. Homelessness at the micro-scale is the result of hundreds of choices, often between options that are equally unappealing. As economic challenges grow, so does the difficulty of the decision-making, and the consequences of each choice.
Behavioral Economics for Social Policy. We use a behavioral economics lens to look at programs that serve poor and vulnerable people in the United States. Sponsored by the Office of Planning, Research and Evaluation of the Administration for Children and Families (ACF) within the U.S. Department of Health and Human Services, the BIAS project aims to learn how tools from behavioral economics can improve the well-being of individuals and families served by programs that ACF supports. Many human services programs require clients to make active decisions and follow a series of steps in order to reap a benefit — from deciding to apply, to completing forms, to arranging for child care. Program designers often assume that individuals will carefully consider options, make decisions that maximize their well-being, and diligently follow through. Behavioral economics, which combines insights from psychology and economics, may help explain why these assumptions are not always borne out.
Behavioral Patterns of the Poor Standard theorizing about poverty falls into two camps. Social scientists regard the behaviors of the economically disadvantaged either as calculated adaptations to prevailing circumstances or as emanating from a unique “culture of poverty,” rife with deviant values. The first camp presumes that people are highly rational, that they hold coherent and justified beliefs and pursue their goals effectively, without mistakes, and with no need for help. The second camp attributes to the poor a variety of psychological and attitudinal short-fallings that render their views often misguided and their choices fallible, leaving them in need of paternalistic guidance. There might be an alternative view. The behavioral patterns of the poor, we argue, maybe neither perfectly calculating nor especially deviant. Rather, the poor may exhibit the same basic weaknesses and biases as do people from other walks of life, except that in poverty, with its narrow margins for error, the same behaviors often manifest themselves in more pronounced ways and can lead to worse outcomes.
Equity, Inclusion, and Diversity. We use insights from behavioral science to promote organizational health, in particular, as it relates to equality, diversity, and inclusion. Getting and staying healthy includes preventing undesirable events from happening, detecting issues when they arise and mitigating against the consequences as they occur. To promote healthy behaviors, organizations typically rely on “soft” instruments such as awareness-raising and appeals through training programs and information sharing, or “hard” instruments such as command-and-control through rules, carrots, and sticks. We believe that behavioral design or “nudges” offer a middle ground to establish healthy behaviors, often more powerful than awareness-raising and less costly than shoves. In working with organizations across the sectors, we will design nudges promoting desired behaviors regarding effective talent management, and organizational design that levels the playing field for all and inclusive culture.
We treat lack of diversity and inclusion as a “want-should” dilemmas, where people know what they should be doing but then, do not get around to doing it. Behavioral design helps people bridge this intention-action gap. Our work emphasizes evidence-based reasoning. We establish how to diagnose the “behavioral health” of an organization, design potential treatments for what is broken, and rigorously evaluate their impact, using big data analytics and experimentation. Our behavioral experts partner with an organization— tech start-up having developed behaviorally inspired software to help organizations address these issues or an organization (company, government or International Organization) interested in advancing equality, diversity and inclusion through the use of behavioral design. Behavioral Economics and HR People may be the heart of our organizations, but HR practices are often based on outdated ideas of human psychology and organizational design. When it comes to hiring decisions, employee motivation, and helping workers make better choices, behavioral insights and evidence-based practices can drive a new generation of HR strategies.
We spend more time working than doing anything else in life. It’s not right that the experience of work, even at some of the best employers, should be so demotivating and dehumanizing.
From management-led to evidence-based HR The human resource function is at a crossroads. People are the heart of our organizations, yet many fundamental management and HR practices are based on outdated ideas of human psychology and organizational design. Often they are rooted in stories about successful business leaders operating in specific places and times (for example, Jack Welch at GE in the 1980s and ’90s). These anecdotes and examples evolve into management trends and, later, received the wisdom that executives try to implement—at least while they’re on bestseller lists and magazine covers. But it is rare for such practices to be rigorously evaluated. They lack the character of scientific knowledge. They tend neither to be refuted nor corroborated, but instead merely fade away as people lose interest. The time has come for a fresh look at evidence-based HR, founded on two key premises. First: HR practices, policies, and programs should be designed to reflect our best understanding of human psychology. This simple idea carries huge implications, thanks to the revolution in our understanding of human psychology and behavior that Nobel laureate Daniel Kahneman and his collaborators and followers have ushered in over the past four decades. This work has fundamentally challenged and changed virtually every field involving human behavior, including behavioral economics and finance, marketing, behavioral health, and happiness research. HR should be next.
Second: HR practices, like all business programs, should be tested and validated. While the major findings of cognitive psychology and behavioral economics are well-validated, the practical effectiveness of specific applications varies from context to context. A practice that flies at an online retailer, for instance, might flop at an ad agency. So whenever possible, researchers need to field-test new ideas using what the medical profession calls randomized controlled trials and what Internet companies call A/B testing: Try it on one randomly selected group and compare the results with those of a control group. Doing this enables HR departments to learn what works and what doesn’t and to quantify the economic value being created (or destroyed).
These two principles are the pillars of the “behavioral insights” movement that is reshaping the public policy world. Since the 2008 publication of Nudge by Richard Thaler and Cass Sunstein, policymakers have come to recognize that public sector interventions—ranging from government forms’ color and word choice to the design of job centers and after-school programs—should be designed to go with, rather than against, the grain of human psychology. And rather than simply follow tradition, accept authorities’ prescriptions, or adhere to industry benchmarks, policymakers are using A/B testing and data analysis to help design and evaluate programs.
The HR domain should embrace a behavioral insights movement of its own, founded on three premises that correspond to the major themes of behavioral economics: Play Moneyball (bounded rationality): The fact that the human mind relies on storytelling—not statistics and logic—to make everyday decisions has a profound implication for HR managers. When it comes to hiring and promotion decisions, even simple predictive models run circles around unaided professional judgment. Nudge your colleagues (bounded willpower): Understanding the nuances of our imperfect willpower gives HR leaders a powerful new toolkit—called choice architecture —to bust bureaucracy and help employees make better diet, exercise, charitable giving, and investment decisions. Leverage intrinsic motivation (bounded self-interest): HR leaders can improve business performance by recognizing that such traditional reward-based policies as incentive pay, goal-setting, performance ratings, and promotions have far less impact on actual performance and collaborative activity than traditionally thought. Indeed, the impact can actually be negative.
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