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How behavioral decision research can enhance consumer welfare: From freedom of choice
to paternalistic intervention
Author(s): Rebecca K. Ratner, Dilip Soman, Gal Zauberman, Dan Ariely, Ziv Carmon, Punam
A. Keller, B. Kyu Kim, Fern Lin, Selin Malkoc, Deborah A. Small and Klaus Wertenbroch
Source: Marketing Letters, Vol. 19, No. 3/4, Seventh Tri-Annual Choice Symposium
(December 2008), pp. 383-397
Published by: Springer
Stable URL: http://www.jstor.org/stable/41217928
Accessed: 17-04-2017 21:26 UTC
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Market Lett (2008) 19:383-397
DOI 1 0. 1 007/s 1 1 002-008-9044-3
How behavioral decision research can enhance
consumer welfare: From freedom of choice
to paternalistic intervention
Rebecca K. Ratner • Dilip Soman • Gal Zauberman •
Dan Ariely • Ziv Carmon • Punam A. Keller •
B. Kyu Kim • Fern Lin • Selin Malkoc •
Deborah A. Small • Klaus Wertenbroch
Published online: 5 June 2008
О Springer Science + Business Media, LLC 2008
Abstract Decision-making researchers have largely focused on showing errors and
biases in consumers’ decision-making processes without paying much attention to
the social welfare and policy implications of these systematic behaviors. In this
paper, we explore how findings and methods in behavioral decision research can be
used to help consumers improve their decision making and enhance their well-being.
We first review select findings in behavioral decision research to explain why
This paper draws on discussions in a session “Helping Consumers Help Themselves through Choice” at
the Invitational Choice Symposium in June 2007 co-chaired by Rebecca Ratner, Dilip Soman, and Gal
Zauberman.
R. K. Ratner (SI)
Robert H. Smith School of Business, University of Maryland, College Park, MD 20742, USA
e-mail: RRatner@rhsmith.umd.edu
D. Soman
Rotman School, University of Toronto, Toronto, ON M5S 3E6, Canada
e-mail: Dilip. Soman@Rotman.Utoronto.Ca
G. Zauberman • B. K. Kim • F. Lin • D. A. Small
Wharton School, University of Pennsylvania, Philadelphia, PA 19104, USA
G. Zauberman
e-mail: gal@wharton.upenn.edu
В. К. Kim
e-mail: bkyu@wharton.upenn.edu
F. Lin
e-mail: femlin@wharton.upenn.edu
D. A. Small
e-mail: deborahs@wharton.upenn.edu
Ö Springer
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384
Market
Lett
consumers
(2008)
need
interventions
19:383-397
help
that
in
could
decisions,
be
effectiv
Ethics and effectiveness of the interventions are also discussed.
Keywords Behavioral decision research • Consumers • Interventions
1 Introduction
“We believe that the anti-paternalistic fervor expressed by many economists is based
on a combination of a false assumption and at least two misconceptions. The false
assumption is that people always make choices that are in their best interest. This
claim is either tautological, and therefore uninteresting, or testable. We claim that it
is testable and false – indeed, obviously false.” (Thaler and Sunstein 2003).
The goal of this paper is to explore how findings and methods from behavioral
decision research can be used to help consumers improve their decision making, to
enhance their own welfare or that of society as a whole. Behavioral decision research
has largely focused on accumulating evidence of individuals’ decision biases,
successfully leading researchers to question the rationality assumption whereby
people consistently make choices that maximize their self-interest. However,
behavioral decision researchers have largely refrained from utilizing their understanding of human decision making to suggest how to improve decisions.
Consumers often make choices that are not necessarily good for them, and their
mistakes provide clues that could facilitate the design of simple interventions that
could help consumers avoid making problematic choices. Errors in choices arise
from systemic cognitive biases, emotion, incomplete information, and the limits of
cognitive capacity. We propose that some of these problems can be easily corrected
through suitable simple interventions. Such interventions can be seen as a form of
libertarian paternalism, a weak form of paternalism that guides consumers to be
better off without necessarily restricting their choices (Thaler and Sunstein 2003).
D. Ariely
Duke University, Durham, NC 27708, USA
e-mail: dandan@duke.edu
Z. Carmon
INSEAD, Singapore, Singapore
e-mail: ziv.carmon@insead.edu
P. A. Keller
Tuck School of Business, Dartmouth College, Hanover, NH 03755, USA
e-mail: punam.a.keller@tuck.dartmouth.edu
S. Malkoc
Olin Business School, Washington University in St. Louis, St. Louis, MO 63130, USA
e-mail: MALKOC@olin.wustl.edu
K. Wertenbroch
INSEAD, Fontainebleau, France
e-mail: klaus.wertenbroch@insead.edu
Ö Springer
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Market
Lett
(2008)
19:383-397
385
In the following sections we illust
leveraged to help individuals and so
decision research can say about why
decisions
about
about
nutrition,
issues
that
financial
health-enhancing
can
ha
planning
product
or
ser
interventions would be effective to
domains. We introduce a taxonomy
how effective and ethical these vari
list types of choice problems in wh
making, as well as possible interven
interventions are listed and discusse
intrusion.
2
Why
When
to
to
do
consumers
consumers
make
need
help?
suboptimal
c
personal characteristics (they wer
characteristics of the decision tas
behavioral
decision
research,
how
motivated to make personally and s
the decision process or aspects of th
optimally. In this section, we docum
when making important decisions.
2.
1
Neglected
Some
consequences
decisions
are
made
of
distr
several
tim
decide what and how much to eat
marginal impact of each decision
these
decisions
only
manifest
them
Choosing not to exercise or save tod
like manner, choosing not to exercis
Table
that
1
are
decision
interventions to enhance
Choice
by
types
Possible Interventions
flawed
making and possible
Provide information
Neglected consequences
consumer welfare, in order of
increasing degrees of
paternalistic intrusion
problem
Choice problem types
characterized
of distributed choices
Intertemporal trade-offs
and self-control problems
Prediction failures
Processing difficulties
Emotion and deliberationbased distortions
Provide decision tools:
Change cognitive representation
Tap emotion
Organize choice options
Restrict choice options
Add restrictive choice options
Manage expectations
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386
Market
itself,
on
occasion,
2.2
Lett
(2008)
one’s
and
as
19:383-397
health.
a
Intertemporal
result
Each
decisio
people
trade-offs
are
and
of
self-c
A
hungry dieter who has been offered
can politely refuse the pastry while h
eagerly consume the pastry relishing
instance, the costs of his decision are f
felt until weeks later. In the latter in
immediately,
while
the
costs
are
realiz
Such situations are commonly frame
“fail” these tests by making decisions
but also greater long-term costs. I
(O’Donoghue and Rabin 1999), people
in
the
present
compared
to
outcomes
i
Loewenstein (1996) attributes the p
visceral factors, such as hunger or
factors, he believes, distort the percei
The perceived utility of consumption
increases, while the utility of consump
Even
in
the
absence
of
strong
visc
cognitive and perceptual distortions of
asserts that benefits loom larger than c
present
(Liberman
associated
with
and
greater
Trope
1998
importance
on
and Trope 1998) as well as greater foc
attributes (e.g., degree of comparabili
deciding whether to save in the prese
present is more salient than the additi
Resource slack theory (Zauberman and
mistakenly perceive a surplus (i.e., slac
present. Thus they discount the futu
present resources, reasoning that those
in the future (for public policy impli
2.3 Prediction failures
A stream of literature on what has been named “affective forecasting” documents
several common mistakes people make when predicting how they will feel in the
future. For example, they tend to overestimate the impact of future events on their
emotional states and underestimate their degree of emotional adaptation to changes
in their lives (Buehler and McFarland 2001; Gilbert et al. 1998). People often mispredict not just how they will feel, but also what they will do. It is common to
believe that one can and will act differently in the future (e.g., “I can stop smoking
later if I want to”), but such beliefs usually reflect overconfidence (Soman 1998;
Zauberman 2003; Zauberman and Lynch 2005).
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Market
2.4
Lett
(2008)
Processing
Individuals
19:383-397
387
difficulties
have
limited
cognitive
c
there are too many tasks competing
study, Soman (2007) asked people to
3 months. He found that the vast m
to
go
for
lunch,
consequences
what
were
to
rarely
wear.
M
reported.
inconsequential decisions saps co
become too “burnt out” to devot
decisions.
While most people would favor having more options in most contexts, more
options also mean more information to process, greater demand for cognitive
resources, and higher potential for cognitive overload. Indeed, having too much
information and too many choices can lead to suboptimal choices (Gourville and
Soman 2005), be demotivating (Iyengar and Lepper 2000), result in deferral of
choices (Dhar 1997) and can lower satisfaction with choices (Gilbert and Ebert
2002), particularly when choice alternatives force individuals to make trade-offs. For
example, Sethi-Iyengar et al. (2004) found that providing employees with too much
information and too many fund choices actually reduced employee participation in
retirement funds.
2.5 Emotion and deliberation-based distortions
The previous section described the potential downsides of having insufficient
cognitive resources to devote to a decision task. However, it is also possible to
devote too many cognitive resources to a task. Research suggests that when people
deliberate excessively about a decision, they are more likely to focus too much on
less important or relevant criteria (Wilson and Schooler 1991), develop an
attachment to the options and later feel a sense of loss toward unchosen options
(Carmon et al. 2003), and experience lower post-choice satisfaction (Dijksterhuis et
al. 2006).
Restricting deliberation can also be beneficial from a social perspective. For
example, Small et al. (2007) found that charitable giving is higher when requests for
donations rely on simple emotional appeals using identifiable victims, rather than
presentation of statistical victims. However, triggering deliberation actually reduced
giving toward the identifiable victims, and it did not increase giving toward the
statistical victims, suggesting that in some cases reduced deliberation can have
benefits for society.
3 Types of interventions
Given the various causes of suboptimal decision making that the behavioral decision
literature documents, what types of interventions can help consumers make better
decisions? In this section we review several types of interventions and their potential
to help people make better decisions.
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388
Market
Lett
(2008)
19:383-397
3.1 Provide information
Sometimes people do not know how to achieve their goals. They may be
overwhelmed by the number of steps they think would need to be taken to
accomplish their goals or might find the task so complex that they do not even know
where to begin. For example, people may want to set aside money for retirement but
not have a solid understanding of their options and how to utilize them. Or they may
aim to follow a more healthful diet but not know what constitutes “healthful.” Other
times, people may hold goals such as protecting the environment, without realizing
that their personal habits work against those values.
A common suggestion for helping people in these situations is to simply inform
them: if they know, they will do. In particular, research by Gollwitzer and colleagues
(Gollwitzer 1999; Gollwitzer et al. 1990) indicates that having a plan facilitates
movement from fuzzy goals to goal implementation. And there is evidence that this
approach can be effective. Lusardi et al. (2007) found that university staff were
motivated to save for retirement, but many did not know how to enroll in a
retirement fund. They seemed to think the process was more complex than it actually
was. When employees were provided with seven simple steps walking them through
the enrollment process and emphasizing the ease of enrollment, participation in the
university’s matched individual retirement fund program increased from 7.3% to
21.7%.
In like manner, with increasing coverage in the media about the risks Americans
face if they continue their eating habits, millions of Americans are motivated to eat a
more healthful diet. The US Department of Agriculture (USDA) seized on this
interest by designing a website, www.mypyramid.gov, that provides personalized
eating guidelines. Users enter their age, sex, height, weight, and eating level and
receive a table detailing their recommended daily intake in several food groups. The
USDA, like Lusardi et al. (2007), attempted to help motivated consumers achieve
their goals by providing them with information. However, the way in which the
information was presented likely was too complex to be helpful to most consumers
(Ratner and Riis, unpublished data). For example, the USDA’s personalized nutrition
recommendations might advise users to consume 6 oz of grains each day, three of
which should be whole grains. But how much is 6 oz, and what is a whole grain?
(Users could click a link and learn that “whole grains contain the entire grain
kernel – the bran, germ, and endosperm,” but it seems unlikely that most
consumers will eagerly embrace an endosperm-counting diet.). The recommenda-
tions also use uneven amounts (e.g., 3.5 or 6.5) and different metrics (e.g., cups
and ounces), which could make it difficult to remember the details. It is thus too
simple to say that providing information can help consumers. That information
must be provided in a way that is easy to understand and act upon and that
addresses consumers’ major concerns.
The two interventions described thus far provided information relating to the final
goal state – how to get there in the retirement fund case, and what that goal state
should be, in the case of nutrition. Sometimes it is not enough to focus on the end
state; however, consumers also need information on their current state. In the domain
of spending, Soman (2001) showed that consumers who spend using credit cards
lose track of how much they spent until the time they get their monthly statements.
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Market
Lett
(2008)
19:383-397
389
Relatedly, many people value environ
of trash they produce, but t
and thus cannot track their progress
amount
was
implemented
in
several
neigh
households’ trash production and pro
or itemized monthly trash statement
motivated by social comparison, the
with feedback about how their trash
Compared to control households, hou
their trash production reduced their
Itemizing
trash
boosted
effect.
3.2
the
Provide
Earlier
we
decision
discussed
under-saving.
lead
people
Such
to
the
alleviate
this
Malkoc
presented
in
self-control
bias.
mental
In
al.
cog
prob
in pa
present
representation
particular,
representations
et
pr
arise
the
Consistent
an
and
change
problems
cognitive
gratification.
2006;
tools:
overweigh
changing
concrete
production
with
2007)
abstract
of
M
imm
this,
provide
manner,
M
e
cons
present and an enhanced ability to wa
to visualize future states (i.e., proces
shown
to
lead
them
to
place
greater
w
neglected (Malkoc and Zauberman 2
Applying similar ideas about the im
decisions, Ariely (2007, unpublishe
budgeting.” People first concretel
grandchildren
overseas,
maintain
a
h
private home care as needed). The con
to expected costs and estimates what
afford those costs. Thus, the tool co
retirement goals, which should
about financial planning.
3.3
Tap
enco
emotion
While emotion has been commonly re
Loewenstein 1996), learning to recogn
help
people
2008).
less
In
avoid
addition,
“rational,”
review).
respond
In
a
making
there
can
be
rational
more
to
the
are
socially
manner,
statistical
ben
consu
inform
& Springer
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pred
instances
390
Market
Lett
information
(2008)
about
19:383-397
just
a
few
victim
(Small and Loewenstein 2003; Smal
giving increases with emotional
Identifiable victims tap emotions b
whereas statistical victims motiva
important to note that this is not a
increases giving to identifiable vict
victims. In addition, a victim with
and charitable giving vis-á-vis em
Finally, personal experience with a
victim)
leads
individuals
to
feel
more
f
misfortune (Small and Simonsohn 20
with respect to others’ welfare (i.e. s
3.4
Organize
options
When employees enroll in retiremen
dozens of funds to choose from. La
funds they should choose, some emp
decline
to
enroll.
Organizing
opti
overcome the intimidation that it c
allows consumers to avoid feeling t
among them. When one option is set
Cycle Funds, the burden on the con
work
of
shows
the
that
plan,
when
the
enrollment
default
is
t
percentages
Options also can be organized or par
consumption to achieve goals. Some
ments
consumers
partitioning
the decision
naturally
hav
provides a decision poin
to consume. They show
popcorn) into smaller units (e.g., se
time consumers encounter a partiti
continue consumption. In essence, th
decision-point that shifts their dec
deliberative.
Building on these ideas, Soman (2007) conducted a field study of workers in
India and China who were paid every 5 days for their labor. These workers
expressed a desire to save some of their earnings but found it hard to control their
spending to have savings left over. Reasoning that the workers mentally
compartmentalize consumption by day, Soman divided their wages into six
envelopes. These envelopes provided an easy way to control daily spending until
the next salary distribution and included an extra en …
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