A Behavioral Perspective on Asset Building

Mindy Hernandez

Innovator in Residence, CFED

Princeton University / ideas42

Traditional view: We’re rational agents, well informed with stable preferences, controlled, self-interested, calculating

Behavioral perspective: Mediocre judgment, malleable preferences, make mistakes calculating risks and probability, impulsive, myopic, driven by social desires and identities

Son, if you really want something in this life, you have to work for it. Now quiet! They're about to announce the lottery numbers.

Demand

Cost Hassle

Embarrassment$

Demand

Cost $

$500

$50

Demand for New Savings Product,Super Education Save

50 500

price subsidy

A simplified traditional view

Demand

Hassle

Lots of hassle

Pretty easy

Demand for New Savings Product, Super Education Save

50 500

“psychological subsidy”

Now from a behavioral perspective

Situationalism and Construal

Often, it is not so much the kind of person a man is as the kind of situation in which

he finds himself that determines how he will act.

Stanley Milgram

What is a Politician?

What is a Politician?

Identity

Shih, Pittinsky, and Ambady, 1999

Asian women perform better on math tests when their Asian identity is primed and worse when their identity as a woman is primed.

The Obama EffectThe performance gap between African-Americans and whites on a 20-question test administered before Mr. Obama’s nomination all but disappeared when the exam was administered after his acceptance speech and again after the presidential election.

Vanderbilt University 2009

Affirmation at Trenton Area Soup Kitchen

Neutral: Please describe what you might eat at each meal of a typical day

Affirmation: Please think of a personal experience where you have felt successful or proud

(Crystal Hall, Princeton U. dissertation

Neutral Affirmation

Stopped to consider pamphlet

44% 58%

Took information 36% 79%

The Power of Defaults

Defaults for saving

An example from a current pilot

Benefits Enrollment

Enroll me in the standard $25/per pay period amount

I’d like to save more. Enroll me in $35/per pay period

I cannot save now. Please enroll me in the standard amount in 3 months

Commitment Issues

Sometimes we need tools to commit our future self to ideal behaviors

The Save More Tomorrow Plan SMarT

Benartzi & Thaler

• People pre-commit to saving more in the future.

• Saving increases are synchronized with salary increases.

• People remain in the plan unless they drop out.

Results in First Implementation

Reference Points

Please estimate the average number of hours you watch television per week:

____ ____ ____ ____ ____ ____ 1-4 5-8 9-12 13-16 17-20 More

than 20

Please estimate the average number of hours you watch television per week:

____ ____ ____ ____ ____ ____ 1-2 3-4 5-6 7-8 9-10 More

than 10

Reference Points

Reference Points and Descriptive Social Norms

We like to be normal and it helps if we know what the “norm” is.

Charitable Giving: I’ll give if everyone’s giving

• Group 1: “46% of your peers gave”• Group 2: “64% of peers gave”• Group 3 not given any reference point

• Group 2 gave 12% more than other groups

Karlan, List 2004

Reference Points and Saving

A story from the field

2008 Savers

Jill M- $200 Mandy K- $175

Frank T- $190 Corey B- $140

Kelly P- $300 JD- $200

•Increase number of people saving? (Descriptive Norms)

•Increase amount of people are saving? (Reference Points)

Channel & Hassle Factors (Lewin)Bank rep. on site increases take up of bank accounts

Pre-populating and having help completeing the FAFSA form increases college enrollment

Long forms, lines like the FAFSA

GOAL: Increased college savings

Step 3: Clients make plans to increase college saving and decrease debt

Step 2: Clients meet with coaches

Step 1: Recruit Clients

• Review program goals and processes

• Target “leakages” and opportunities

• Design intervention and evaluation

• Test and collect evidence

Using Behavioral Insights in Your

Programs

• These behavioral findings are true for staff, too. A change that cuts a step for clients but adds 3 steps for staff is not the right intervention

• Think about how your program and services are perceived and experienced by clients. What would make it easier? What forms or processes can you cut?

•What bridges can you build to ideal behaviors (defaulted choices, pre-populated forms, maps, peer comparisons, etc.)

• Tracking & evaluating changes may seem difficult but it’s the only way to know if changes are having an impact

Applying Behavioral Science in the Field:Emerging Lessons

Ideas42 Asking the right questions

Behavioral Economic Policy Approaches

Mindy Hernandezmhernand@princeton.edu

Thank you!