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A Behavioral Perspective on Decision Making

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A Behavioral Perspective on Decision Making

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    1. A Behavioral Perspective on Decision Making Families and Work Institute Corporate Leadership Circle March 25, 2009

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    7. Magnitude Discount rates decline with the size of the reward (very high for small amounts) $10 now versus $15 in one year $1000 now versus $1500 in one year $15 immediately ~ $60 in a year (300%) $250 ~ $350 (40%) $3000 ~ $4000 (33%) Note: potential aggregation problems

    8. Time delay Discount rates decline sharply with length of time to be waited 1 apple today > 2 apples tomorrow 1 apple in 50 days < 2 apples in 51 days $1000 now > $1100 in 2 months $1000 in 10 months < $1100 in 12 months

    10. 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.

    11. Results in First Implementation

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    13. Actual prob. of behavior: often does not increase with intention strength Manipulations designed to strengthen intentions to carry out a behavior : larger impact on self-predictions but not on behavior Manipulations designed to influence ease with which intentions are translated into behavior (e.g., access, reminders): larger impact on behavior than on self-predictions (increased welfare!)

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    16. Rational Choice explanation: High costs of accessing financial services: Banks are far, expensive; avoid serving the poor

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    18. Providing low-fee bank accounts to the poor (Bertrand, Mullainathan, & Shafir) Prior program proved of limited effectiveness (<50% take-up.) Follow-up surveys: 90% intended to, but forgot, misplaced the relevant forms, etc… 2-hour long workshop; If workshop participant interested in FA: Referral letter to take to the bank, OR Sign up on site if bank representative present at the workshop

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    20. Conflict: Dominance: x) 65% chance to win $15 x) 65% chance to win $15 y) 30% chance to win $35 x’) 65% chance to win $14

    21. Conflict and the status quo

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    25. State applications are up to 36 pages, written at the 9th to 12th grade reading level. Must be signed by the applicant, under penalty of perjury!! Incomprehensible; demeaning; scary; overwhelming; technically difficult; condescending... Not today!

    26. In fact: Not flailing around; Not unpredictable; Not “errors of judgment or arithmetic!” Instead: Systematic experiences inherent to our mental life

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