Beer, Incentive and Choice Architecture

Using Beer as an Incentive

Nov 22, 2013 • Behavioral Economics, Economic Debates, Economic Thinkers, Environment, Government, Innovation, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 197 Views    No Comments

Reading about how a group in Amsterdam solved a public disturbance problem, I immediately thought about choice architecture.

In Nudge, a Harvard Law Professor, Cass Sunstein, and a University of Chicago economist, Richard Thaler, suggest that choice architecture shapes how we behave. Just like Steve Jobs made sure that the layout of the Pixar building “nudged” people to interact because of where they placed the restrooms, so too can the location of the apples in a cafeteria determine whether more people will select them. Or, as they describe it,  ”A choice architect has the responsibility for organizing the context in which people make decisions.”

In a park in Amsterdam, a group of alcoholics were noisy, disruptive and making inappropriate comments to passing women. The Rainbow Foundation, a government and privately funded group in Amsterdam, minimized the problem through a public works program. But not exactly what you would expect. For a 9 to 3 workday, 3 days a week, they paid volunteers 10 euros ($13), 1/2 packet of rolling tobacco, and a beer with hot coffee when they arrived, 2 beers at lunch time with a hot meal, and a beer when the day ended. In return, participants cleaned the streets. Asked why they were willing to work, they said it was the beer.

To consider the impact of the incentives created by choice architecture, Sunstein and Thaler gave us 4 questions.

  1. Who uses?
  2. Who chooses?
  3. Who pays?
  4. Who profits?

For the Rainbow Foundation program, the answers were:

  • Who uses? The people creating the park disturbance.
  • Who chooses? The people creating the park disturbance.
  • Who pays? Government and private donations to the Rainbow Foundation.
  • Who profits? The local residents and program participants directly receive the benefits.

In their book, Sunstein and Thaler use the US health care system as an example of conflicting incentives revealed by the answers to their questions. By contrast, for the Amsterdam program, all seem to be in sync. And maybe that is why it has been a success.

And yet, people seem uncomfortable with a publicly funded program giving alcoholics beer. Your opinion?

Sources and Resources: H/T to Marginal Revolution for alerting me to the Amsterdam program. A Foreign Policy blog with some real concerns and USA Today were among the many news articles describing the program. And, here is more from econlife about beer, and here, about the Nudge from defaults.

 

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