When Is a Negative a Positive? (Ep. 117)

Our latest Freakonomics Radio on Marketplace podcast is called “When Is a Negative a Positive?”  (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.)

So when is a negative a positive? When the negative is feedback. We focus on a clever research project by Ayelet Fishbach of the University of Chicago and Stacey Finkelstein at Columbia. It argues that positive feedback certainly has its role -- especially when someone isn't yet fully invested in a new project or job -- but if it's improvement you're after, then going negative is where it's at:

FISHBACH: The more a person is committed to a goal -- and by that I mean the more someone thinks that they absolutely have to do it, they like doing it, it’s important for them to do it -- the more negative compared with positive feedback will be efficient.

How to Make School Lunches Healthier

An article in Choices by David R. Just and Brian Wansink illustrates how school administrators can use behavioral economics to nudge kids toward good eating choices and away from the obesity-causing junk food. Just and Wansink point out that administrators often face a difficult choice between nutritious meals and the bottom line:

It may be possible to replace the standard cheese pizza on white flour crust with pizza smothered in spinach, artichoke hearts, and other vegetables on a whole wheat flaxseed crust. But the healthier pizza is more expensive, and fewer children may want to eat it. Hence many school districts walk a tightrope. School districts must increase the health content of their sales while trying to avoid any reduction in their financial viability. Eliminating the less nutritional items often means eliminating the meal budget’s highest margin items. Further, child patronage of the school lunch program is understandably dependent upon schools offering foods that students are familiar with and that they like, and that will satisfy their appetites.

Love Behavioral Economics? Want to Work for the British Government? All Right Then …

A lot of people write to us looking for work -- which, sadly, we are nearly always unable to provide. But once in a while we do hear of a good opportunity for the Freakonomically inclined. To wit:

The U.K. Cabinet Office's Behavioural Insight Team -- better known as the Nudge Unit because of its allegiance to the excellent Richard Thaler/Cass Sunstein book Nudge -- is looking to expand. Here's the job listing. Some relevant excerpts:

Successful candidates will need to show that they:
1. have a good understanding of the behavioural science literature
2. have an understanding and ideally ability to conduct randomised controlled trials to test policy interventions; and
3. are highly motivated individuals capable of developing innovative solutions to often complex policy problems.
4. are strong team players

Candidates should be prepared to work on potentially any aspect of government or wider public sector policy. For example, over the past year the team has led work on health, energy, fraud, electoral registration, charitable giving, consumer affairs, the labour market, and access to finance for SMEs [that's Euro-speak for "small and medium enterprises"]

The Economics Revolution Will Be Televised

There’s a revolution underway in economics. It’s not due to the financial crisis, but rather something more mundane: Data, and computing power. At least that’s the claim that Betsey Stevenson and I make in our latest Bloomberg View column:

“Consider the stream of data you will create today. Your metro card will record what time you caught the train. Your Web browser will note how you go about your job, and how much you procrastinate. A mid-afternoon purchase at Starbucks will reveal your penchant for lattes and the occasional cookie. Your flow of e-mail traffic will trace out your professional and personal networks.

At the same time, computing power has made it extremely easy and cheap to analyze all the data you produce. An economist with a laptop can, in a matter of seconds, do the kind of number crunching it used to take a roomful of Ph.D.’s weeks to achieve. Just a few decades ago, economists used punch cards to program data analysis for their empirical studies.”

Two weeks ago, Harvard’s Raj Chetty gave a spectacular talk at the National Bureau of Economic Research, about what he called “The Transformative Potential of Administrative Data.” He documented that today’s cutting-edge research is based on crunching newly-available data from the vast databases which underlay our schools, welfare state and tax systems.  I’m just as optimistic that new data coming online from the private sector will prove to be just as useful.

On Not Following Your Own Advice

A Bloomberg article by Michael J. Moore shows that finance and investment employees frequently commit the cardinal sin of failing to diversify their personal holdings by holding too much of their own company's stock:

Current and former Morgan Stanley employees, who receive company shares to match their 401(k) contributions, held 24 percent of retirement assets in the firm's stock before last year's decline, the highest percentage of any of the banks. They lost $570 million in 2011 as the shares plunged 44 percent.

Bank of America Corp. (BAC) employees lost the most, $1.37 billion, as the lender's stock dropped 58 percent last year. Workers at JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C), both based in New York, also lost hundreds of millions of dollars.

JPMorgan employees, some of whom received stock in the company until last year to match retirement contributions, devoted 18 percent of their funds to the lender's shares at the end of 2010. Bank of America employees put 13 percent of their assets in the bank's stock, while the figures for Citigroup and New York-based Goldman Sachs Group Inc. (GS) were 8 percent and 2 percent, respectively.

The Busara Center

Behavioral economics has a new testing ground: the Busara Center for Behavioral Economics in Nairobi, Kenya. The lab, which will be open to researchers and students from around the world, is hosted by Innovations for Poverty Action (IPA).  Here's its website blurb:

Busara is a state-of-the-art facility for experimental studies in behavioral economics and other social sciences, located in Nairobi, Kenya. The core of Busara is a pool of participants from the Nairobi slums, combined with a cluster of 20 networked computers with which researchers can investigate economic behavior and preferences. A central feature of the computer setup is that all computers have touchscreen monitors; together with specially developed paradigms, this allows for the participation of not only computer-illiterate, but entirely illiterate populations.

Johannes Haushofer, the Scientific Director of the Center, gave us a little more information:

FREAK-est Links

This week: Does having a full bladder help you make more rational decisions? A survey of the best Civil War facial hair; why wheat beer is good for marathoners; and whether the Consumer Financial Protection Bureau is the largest field study ever in behavioral economics.

World Water Day: Nudges for Safe Water

What if a simple ‘nudge’ could massively increase the use of safe water in poor countries?

Today is World Water Day, a day to raise awareness for something we take for granted in America: clean water. Normally I yawn at Hallmark-meets-poverty-program type publicity stunts. Reminds me of many a microcredit “awareness” campaign that paraded superstar microentrepreneurs on a stage, ignoring the need for rigorous evidence to find out if microcredit actually works.

We Hold These Truths to Be Universal

The behavioral revolution in economics and psychology has successfully identified and named close to three dozen biases (my favorite behavioral folk song defines them in verse). I had thought that these biases transcended issues of culture. Indeed, both neoclassical and behavioral economists were united in a belief that cultural variables were of secondary importance when it came to the deep drivers of behavior. But a series of experiments now has me thinking that the underlying heuristics are less universal.

Behavioral Economics, the Law, and the Regulators

Truth on the Market is hosting an online forum on behavioral law and economics, the "Free to Choose?" symposium. So far, people like David Levine, Ronald Mann and Christopher Sprigman have taken their turns.