On Friday December 8, the ‘Steunpunt Bestuurlijke Vernieuwing’ (SBV) and the Chancellery Department and Administration of the Flemish Government organized a network event to gather all parties who are working on nudging, and behavioral economics in general. These parties are amongst others universities (KU Leuven University, UGent, UCL, UHasselt), cities (Ghent, Antwerp, Mechelen), agencies of general government (Flemish Institution of Traffic Engineering, Flemish Knowledge Center for Water), and Haystack of course :-).
Behavioral economics 101: Why knowing is half the battle
Highlight of the program was the keynote lecture of Will Tiemeijer of the Dutch Scientific Board for Policy (WWR – Nederlandse Raad voor het Regeringsbeleid). His interesting talk can be summarized by the straightforward idiom “knowing is half the battle”. Will touched upon different examples of how the classical economic (utilitarian) thinking doesn’t always lead to the best policy. A prime example is the liberalization of the taxi market in the Netherlands.
Ratio versus reality
The idea was that if the market would be free consumers would negotiate with the drivers. Consequently, they would always get a fair price instead of always taking the first taxi in the row. It appears that the argument that the consumer, as a rational decision taker, would always go for the most (cost-)efficient option is not applicable. Most consumers aren’t inclined at all to negotiate as this is a time-consuming process. On top, many consumers are hesitant to negotiate vigorously – most people are risk averse and prefer harmony above ‘arguing’.
The consequence? The taxi drivers increased their prices while the overall quality decreased. The WWR therefore argues that policy makers should take a more realistic, instead of a rational, perspective. People don’t always act 100% rational. This means that knowing is half the battle, self-control is limited and that not everybody has the same cognitive capacity.
Behavioral research to measure the impact of nudging
After this very interesting keynote lecture the poster market started. Here, Haystack presented the project “Closed Doors” that was conducted last year for Antwerp’s Stadslab 2050 (Citylab 2050) and Eandis. The purpose of the project? Save energy in the heart of Antwerp by consistently closing the doors of shops. We investigated what exactly are the barriers for retailers to close their door and how we can break through these barriers. Qualitative research showed that not all retailers are 100% convinced less customers would enter the store when the door is closed. Yet, they prefer to be on the safe side and leave the door of their store open.
An elaborate quantitative study was put up to measure the impact of closed versus open doors on the number of customers entering a store. During two periods (spring and autumn 2016) of five weeks each the number of passersby in the street was kept record of with infrared cameras. In these periods, five experimental conditions (open door, closed door, closed door with nudge 1, 2 or 3) were tested in eight stores:
We investigated how many customers entered the store in every experimental condition (controlling for the number of passersby in the street). Next to this, we also kept track of the revenue and the natural gas usage. The interesting result you see in the visual below:
There were no significant differences in the number of customers entering the store in the different conditions, but there was a significant difference in the natural gas usage. In other words, closed doors don’t have a significant effect on the number of customers entering a store. Retailers can thus close their door with peace of mind and save energy without losing revenue. The key takeaway? Don’t ‘play safe’ and follow common assumptions. Objectively measure consumer behavior to enable taking the right decisions.