New working paper released: Does Active Choosing Promote Green Energy Use? Experimental Evidence

I have recently released a working paper co-authored with Cass Sunstein, Robert Walmsley University Professor at Harvard University and one of the authors of Nudge: Improving Decisions About Health, Wealth, and Happiness. The paper presents new data from an online experiment, which suggest that active choosing can be more effective at boosting participation than automatic enrollment because active choosing leads to stronger feelings of guilt. Here is the abstract:

Many officials have been considering whether it is possible or desirable to use choice architecture to increase use of environmentally friendly (“green”) products and activities. The right approach could produce significant environmental benefits, including large reductions in greenhouse gas emissions and better air quality. This Article presents new data from an online experiment (N=1,245) in which participants were asked questions about hypothetical green energy programs. The central finding is that active choosing had significantly larger effects than green energy defaults (automatic enrollment in green energy), apparently because of the interaction between people’s feelings of guilt and their feelings of reactance.

More specifically, we report four principal findings. First, forcing participants to make an active choice between a green energy provider and a standard energy provider led to higher enrollment in the green program than did either green energy defaults or standard energy defaults. Second, active choosing caused participants to feel more guilty about not enrolling in the green energy program than did either green energy defaults or standard energy defaults; the level of guilt was positively related to the probability of enrolling. Third, respondents were less likely to approve of the active choosing policy than of the green energy defaults and standard energy defaults. Fourth, respondents appeared to have inferred that green energy automatically would come at a higher cost and/or be of worse quality than less environmentally friendly energy.

These findings raise important questions both for future research and for policymaking. If they reflect real-world behavior, they suggest the potentially large effects of active choosing — perhaps larger, in some cases, than green energy defaults.

Download the paper here.

Simon Hedlin

Corporate social responsibility: The halo effect

This week, I am writing in The Economist about a phenomenon that should at least be of interest (if not of concern) to lawyers and law professors. A new paper finds that prosecutors tend to be influenced by firms’ corporate giving when they investigate businesses for corruption. An excerpt:

Do-gooding policies help firms when they get prosecuted

Jun 27th 2015 | From the print edition

“THERE is one and only one social responsibility of business,” wrote Milton Friedman, a Nobel prize-winning economist. “To use its resources and engage in activities designed to increase its profits.” Plenty of climate-change campaigners would argue with that (see article). But even if you accept Friedman’s premise and regard corporate social responsibility (CSR) policies as a waste of shareholders’ money, things may not be absolutely clear-cut. New research suggests that CSR may create monetary value for companies—at least when they are prosecuted for corruption.

The largest firms in America and Britain together spend more than $15 billion a year on CSR, according to an estimate last year by EPG, a consulting firm. This could add value to their businesses in three ways. First, consumers may take CSR spending as a “signal” that a company’s products are of high quality. Second, customers may be willing to buy a company’s products as an indirect way to donate to the good causes it helps. And third, through a more diffuse “halo effect”, whereby its good deeds earn it greater consideration from consumers and others.

Previous studies on CSR have had trouble disentangling these effects because consumers can be affected by all three. A recent paper by Harrison Hong of Princeton University and Inessa Liskovich of the University of Texas attempts to separate them by looking at bribery prosecutions under America’s Foreign Corrupt Practices Act (FCPA). The authors argue that since prosecutors do not consume a company’s products as part of their investigations, they could be influenced only by the halo effect.

The study found that, among prosecuted firms, those with the most comprehensive CSR programmes (as measured by MSCI ESG, a provider of corporate indices) tended to get more lenient penalties. Their analysis ruled out the possibility that it was firms’ political influence, rather than their CSR stance, that accounted for the leniency: companies that contributed more to political campaigns did not receive lower fines.

Read the full article here.

Simon Hedlin

Interview about studying abroad, behavioral research, and working habits

In an interview with Nadiga Lundtan, a magazine for economics students at Lund University in Sweden, I discussed some of my current research projects as well as a few pieces of advice that I have for those who are considering studying abroad.

The article is available here (pages 15-17).

Simon Hedlin

Prenatal health and life outcomes: Unequal beginnings

I have a longer piece in this week’s issue of The Economist about the importance of prenatal health. Over the past decade or so there has been a push for early childhood education based on the argument that we need to intervene earlier in children’s lives. This is a good idea, but we need to intervene even earlier, and make sure that we treat pregnant women better. This is an issue of both gender equality and children’s adult outcomes. An excerpt:

A child’s long-term well-being is more profoundly shaped by influences in pregnancy than used to be realised

Apr 4th 2015 | From the print edition

HALF a century ago doctors saw the fetus as a “perfect parasite”—absorbing what it needed but sealed off in the womb from any harm done to the mother. About half of American women smoked through pregnancy. When babies were born with the damage now described as fetal-alcohol syndrome, heredity was blamed.

Since then it has become a commonplace that healthy habits and good nutrition during pregnancy make it less likely that a baby will be born early, underweight or ill. Now a growing body of research is showing that problems caused by the prenatal environment may not be apparent at birth, but can resonate throughout life. Infections, hunger, stress and air pollution have been implicated in a host of long-term problems for those exposed to them in utero, including bad health, poor school results and lower earnings. Even relatively minor exposure can increase the odds of suffering from chronic disease or disability.

Long-term consequences, by definition, take time to become apparent. And pregnant women cannot be randomly assigned to suffer different types of adversity—which can, anyway, be correlated either with each other or with inherited traits. So some of the strongest evidence has come from comparing those in the womb during sudden calamities such as famines, natural disasters and environmental accidents with those born just before or after. This approach untangles the effects of environment from those of genes or upbringing. Comparisons between entire cohorts should mean that those who were affected are the same as those who were not in every respect except their environment. That permits researchers to draw inferences about the effects of harms inflicted in utero on individuals rather than groups.

The 1918 influenza pandemic affected a third of all American women of child-bearing age. Fifty years on, those who had been in the womb at the time had done worse in school and were earning less than those slightly older or younger. The men were 20% more likely to be disabled. Similarly, babies born to Dutch women who were pregnant during the 1944-45 “hunger winter”, when the Nazis blocked shipments of food to the occupied western provinces of the Netherlands, were more prone in adulthood to a host of health problems, including obesity, heart disease, diabetes, schizophrenia and depression. And Swedes born in the months after the 1986 Chernobyl nuclear accident, which sent radiation-bearing dust clouds across swathes of the country, were 40% more likely to fail in middle school than those born just before or after, even though they were exposed to radiation at doses now considered harmless, and their physical health did not seem to be affected.

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Less extreme events can also have long-term effects. A study from Sweden found that the children of women who had lost a relative while pregnant grew up to be more likely to suffer attention deficit disorder, anxiety or depression. Another, of Bangladeshi and Pakistani families in England, found that children whose first trimester in the womb coincided with Ramadan, when observant Muslims fast from sunrise to sunset, lagged behind educationally when they were seven—even though only some pregnant Muslims observe the fast. The negative effect on school performance was of similar size to the positive one associated with America’s Head Start, an early-years education programme.

One explanation for such ill effects is that poor prenatal health retards the growth of the fetus or causes premature birth. Pregnant women who live in areas with badly polluted air are more likely to give birth early and their children are on average smaller. Underweight newborns are more prone to the same types of ills that are linked to fetal-origins effects.

Read the full article here.

Simon Hedlin

Ethics and the environment: Eco-waverers

In the current issue of The Economist, I write about how so-called “moral licensing” can make pro-environmental interventions ineffective. An excerpt:

When people feel good about themselves, they do bad things

Feb 28th 2015 | From the print edition

“VIRTUE,” according to George Bernard Shaw, “is insufficient temptation.” But new research on the consumption patterns of the environmentally minded suggests that virtue and self-indulgence often go hand-in-hand.

A recent paper* by Uma Karmarkar of Harvard Business School and Bryan Bollinger of Duke Fuqua School of Business finds that shoppers who bring their own bags when they buy groceries like to reward themselves for it. For two years the authors tracked transactions at a supermarket in America. Perhaps unsurprisingly, shoppers who brought their own bags bought more green products than those who used the store’s bags. But the eco-shoppers were also more likely to buy sweets, ice cream and crisps.

Psychologists call this sort of behaviour “moral licensing”: the tendency to indulge yourself for doing something virtuous. Although this example may seem harmless (except to the shoppers’ waistlines), the results can be perverse. A study from 2011 on water-conservation in Massachusetts shows how. In the experiment, some 150 apartments were divided into two groups. Half received water-saving tips and weekly estimates of their usage; the other half served as a control.

The households that were urged to use less water did so: their consumption fell by an average of 6% compared with the control group. The hitch was that their electricity consumption rose by 5.6%. The moral licensing was so strong, in other words, that it more or less outweighed the original act of virtue.

Read the full article here.

Simon Hedlin

The Big Mac index: Oily and easy

In the latest issue of The Economist I am writing about the latest from the world of burgernomics. An excerpt:

Some currencies lose weight on a diet of QE and cheap oil; others bulk up

Jan 24th 2015 | From the print edition

TWO trends have dominated the world of burgernomics over the past six months: currency markets have bubbled like potatoes in a fryer as the oil price has fallen to finger-licking lows and central banks have cooked up new monetary stances. The currencies of commodity exporters have been burnt, while those of big importers have sizzled. Meanwhile, the end of quantitative easing in America has supersized the dollar, whereas the mere prospect of it in Europe has made a happy meal of the euro.

The Economist whipped up the Big Mac index in 1986 as a bun-loving way of explaining currencies’ relative values. It is based on the theory of purchasing-power parity, which posits that over the long run, currencies should adjust so that a basket of identical goods costs the same everywhere. We fill our basket with just one item: the Big Mac, which is made to the same recipe in almost all countries (India’s Maharaja Mac, a chicken sandwich, is an exception). Buying a Big Mac in Denmark, for example, costs $5.38 at market exchange rates compared with $4.79 in America, so our index suggests the Danish krone is 12% overvalued (see chart). No wonder Denmark’s central bank cut rates this week.

On average, Americans abroad get more burger for their buck than they did last summer. Relatively beefy growth in America has helped to fatten the greenback. Elsewhere, however, central bankers are still trying to add sauce to their economies, in part by encouraging their currencies to fall. In Japan, for instance, a belt-busting bond-buying scheme has caused the yen to waste away. The expectation that the European Central Bank would serve up a hearty dose of QE seems to have prompted Switzerland’s stomach-turning scrapping of the franc’s peg to the euro. Last week a Swiss Big Mac cost $6.38, but now it gobbles up $7.54.

Read the rest here.

Simon Hedlin

Readers show an interest in gender equality

Every weekday, we publish an explainer on http://www.economist.com. And yesterday we released a ranking with the 10 most popular explainers of 2014. I was very happy to see that our readers, amid falling oil prices and Thomas Piketty’s blockbuster on inequality, also have shown a keen interest in gender equality. My explainer about the Swedish paid parental leave scheme (which I mentioned here) ended up on 8th place.

Simon Hedlin