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 price subsidy A simplified traditional view

Demand Hassle Lots of hassle Pretty easy Demand for New Savings Product, Super Education Save “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 Effect The 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 NeutralAffirmation Stopped to consider pamphlet 44%58% Took information36%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: ____ ____ _ _ __ ____ ____ ____ More than 20 Please estimate the average number of hours you watch television per week: ____ ____ ____ 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 Hernandez Thank you!