Framing Effects and Solving Social Problems

I'm sure if you've read anything below that you'd know I absolutely love this speech!


Sendhil explains a few particular behavioral economic problems as a "last mile problem". This problem occurs after a technological problem is solved. Due to models of the way the world works that people have in their heads, they may not implement solutions that while empirically sound, are counter intuitive.


Essentially this is what behavioral economics is. First try to come up with a rational framework of how people should act, test how people are actually acting, and explain why.


Tyler Cowen explains these sorts of framing effects masterfully in his book Create Your Own Economy. He explains how framing effects are normally viewed as a negative. In this light it would almost seem that the job of a behavioral economist is to "trick" people into doing irrational things. For example, studies have shown that, when given the exact same bottles of wine, even the most sophisticated sommeliers would say a wine tastes better if told it is more expensive.


However, most of these situations involve forcing people to frame a situation in a way that is known to be wrong. To make a truly rational decision, you have to keep every piece of information about the situation in your head, and this obviously has a psychological cost. It is true that price correlates with the taste of wine (Two Buck Chuck being an outlier), so most of the time framing the situation in this way and ignoring other inputs is actually a good thing. You arrive at a correct conclusion using less psychological resources. As Tyler explains, most of the time we choose how to frame situations as a shorthand way of dealing with the world. This is the best definition I've ever read of the type of rationality the human mind operates under.

Tyler explains the internal experience here, but Sendhil gets into the external ramifications. Policies are normally seen as aligning incentives to guide people towards a certain type of behavior. However, Sendhil adds a more complicated dimension to the policy maker. Instead of just focusing on rational incentives, policy makers should focus on more nuanced framing effects that people have, and learn to manipulate them. Instead of just being a statistical wonk assuming everyone is rational, they should be part marketer as well.