Description Recommended Books Student Role

Behavior and Policy

11.S942 Behavior and Policy: Connections in Transportation Department of Urban Studies and Planning, MIT, Spring 2014 W 5-8pm; 9-450; Credits: 12

Professor: Jinhua Zhao [email protected] Office hour: Monday 2-6pm, 9-523 TA: Liyan Xu [email protected] Office hour: Thursday 10-12noon, 9-549 Public: http://dusp.mit.edu/cdd/project/behavior-and-policies Stellar: http://stellar.mit.edu/S/course/11/sp14/11.S942/

Description This course examines the behavioral foundation for policy design, using urban transportation as examples. We introduce multiple frameworks of understanding travel behavior, rational or irrational, contrasting the perspectives of classic economic theory with behavioral economics and social psychology, and suggest corresponding policy interventions: a behavior--theory--policy mapping. Then we present a spectrum of ten instruments for positively influencing behavior and improving welfare: from manipulating information and changing perceptions of time and space, to pricing and framing, to inducing emotions of pride and shame, exploiting peer pressure or enhancing self control and motivation, and to nudging and preference shaping. Most importantly the course challenges students 1) to critique, design, implement and interpret experiments that nudge travel behavior; and 2) to bring behavioral insights to creative design of transport polices, programs and plans—making them not only efficient and equitable but also simpler, consistent, transparent, acceptable, and adaptive to behavioral changes.

Recommended Books • Daniel Kahneman (2011) Thinking, Fast and Slow • Richard Thaler and Cass R. Sunstein (2008) Nudge: Improving Decisions About Health, Wealth, and Happiness • Dan Ariely (2008) Predictably Irrational • Eldar Shafir (2013) The Behavioral Foundations of Public Policy • Cass Sunstein (2013) Simpler: The Future of Government • Elinor Ostrom (1990) Governing the Commons: The Evolution of Institutions for Collective Action

Student Role: Translation in Transportation The course expects significant student contribution. Selected materials from students will be integrated into future years’ syllabus. In particular, I’ll challenge students to collect, critique, design, and implement behavioral experiments in transportation. Students will take active part in debates, dialogues and presentations in class.

Behavior and Policy

Schedule

# Date Topics Out In Part I: Behavior and Policy in a Nutshell Unreturned Cafeteria Trays: Multiple Frameworks of 1a 2/9 1 02/05 Behavior 2 02/12 Instruments for Changing Behavior 1b 2/16 3 02/19 Measurement, Methods and Technology (Emile Bruneau) 1c 2/23 Nudges and Nudging: From Behavior to Policy (Cass 1d 3/2 4 02/26 Sunstein)

Part II: Multiple Frameworks of Behaviors 5 03/05 Bounded Rationality and Choice Architecture 1e 3/9 6 03/12 Prospect Theory, Psychology and Social Psychology 1f 3/16 7 03/19 Economic Models and Extensions 2, 3 (Spring Break: Mar 24-28)

Part III: Ten Instruments for Behavioral Change 8 04/02 Time and Information (Zhan Guo) 2a: 3/30 9 04/09 Pricing vs. Nudging (Tim Baird) 2b: 4/6 10 04/16 Is Travel Social? (Andrew Salzberg) 11 04/23 Help People Help Themselves 3a: 4/21 Part IV: From Behavior to Policy Market Failure and How to Save the Planet (Brigitte 12 04/30 Madrian) 13 05/07 Capstone: Managing Cars in China 3b: 5/12 Behavior Foundation of Public Policy 3c: 5/26 14 05/14 Ends and Means: Happiness, Wellbeing and Strategy

Guest speakers ! Emile Bruneau (Feb 19) ! Cass R. Sunstein (Feb 26) ! Zhan Guo (Apr 2) ! Tim Baird (Apr 9) ! Andrew Salzberg (Apr 16) ! Brigitte C. Madrian (Apr 30)

Behavior and Policy

Classes Part I: Behavior and Policy in a Nutshell Class 1. Cafeteria Trays and Multiple Frameworks Unreturned Cafeteria Trays Multiple Framework of Behavior Class 2. Instruments for Behavioral Change Class 3. Measurement, Tools and Technology Measurement and Tools Neuroscience Class 4. From Behavior to Policy Nudges and Nudging From Behavior to Policy Simpler: Policy Design and Evaluation Part II: Multiple Frameworks of Behavior Class 5. Bounded Rationality and Choice Architecture From Home Econ to Homo Sapien Predictably Irrational: Biases and Heuristics Choice Architecture Class 6. Prospect Theory, Psychology and Social Psychology System 1 vs. System 2 Prospect Theory; Frame of Reference; Anchoring; Default Theory of Planned Behaviour Tipping Point Class 7. Economic Models and Extensions Economic Models and Extensions A Continuum of Decision Making Behavioral Science of Transportation Part III: Ten Instruments for Behavioral Change Class 8. Time and Information BC1: Travel Time: Perception and Utility BC2: Manipulating Information Class 9. Pricing vs. Nudging BC3: Pricing and Psychology of Money BC4: Nudging Active Travel Class 10. Is Travel Social? BC5: Social Norms, Peer Pressure and Social Network Analysis BC6: Can We Share? BC7: Shame and Pride: Social Image as a Motivation Class 11. Help People Help Themselves BC8: Let People Try BC9: Motivations, Meaning, Procrastination and Self-Control BC10: Induce Emotion and Psychology of Persuasion

Behavior and Policy

Part V: From Behavior to Policy Class 12. Market Failure and How to Save the Planet Market Failure and Behavioral Economics Saving the Planet: Energy and Environment Class 13. Managing Cars in China: Cap-stone Example Bidding to Drive Superficial Fairness Hybrid Model: Auction and Lottery A Fourth Model? Breaking the Status Quo: Strategy for Change Class 14. Behavioral Foundation of Public Policy: Tragedy of the Commons and Elinor Ostrom To What End? Commuting Happiness and Wellbeing A Bit of Philosophy

Homework and Grading Homework % I/G Part 1: Six idea notes (two page each) 30% Individual Best five: 6% * 5 = 30% Part 2: Two Nudges of Your Own 20% Individual 10% * 2 = 20% Part 3: Team Project a) Interim report: 10% 40% Group b) Full report: 20% c) Revised report: 10% Class Participation 10% Individual

Part 1. Six Idea Notes In each of the first six weeks, you will be asked to write a two-page idea note and comment on two students’ idea notes. You may choose to do any five of the six idea notes and grades will be based on the best five scores if you do six. a. “Unreturned trays” in Transportation Read the unreturned cafeteria tray book and write a counterpart story in transportation. b. One Instrument to Change Behavior or Reflection on MIT Transportation Showcase Name one non-traditional instrument (or a non-typical use of a traditional measure) and discuss its applications in transportation c. One Idea for Sunstein Prepare 1 question and 1 idea for Prof. Sunstein to help evaluate policies. d. One “Sub-optimal” Policy Identify one transportation policy or program (national or local) that disregards the

Behavior and Policy

complexity of human behavior and discuss the consequence of such ignorance or neglect. e. One Bias in Human Cognition Name one bias in human cognition, explain what it is in layman language and offer 3 examples of its application in transportation. f. One “Irrational” Behavior or a Revised Version of “Unreturned trays in transportation” Identify one travel behavior that cannot be explained by the classical economic theories. Propose alternative theories that can be used for a better explanation. Part 2. Two “Nudges” of your own Design two behavior experiments that nudge people towards more sustainable travel behavior or help understand people’s behavioral decision. 5 pages for each nudge. Part 3. Team Project Students deliver the project as a team. Each team has three students including at least one engineer and one planner. The team will determine the project topics collectively with the guide of the instructor. There are three options you can choose from: Option A: Behavioral Experiment Implement one of the experiments in Part 2. Option B: Policy Blunders and Enhancement Identify one transportation policy or program (national or local) that disregard human behavior (not recognized or respected). Offer a full evaluation of the policy and recommend changes to improve the policy. Deliverables for Options A and B • 3a: Interim report (3000 words) + Presentation • 3b: Full report (5000 words) + Presentation • 3c: Revised report (5000 words)

Option C: Freakonomics for Transportation One and only one team, with the winning proposal and Jinhua’s permission, may choose to compile all our stories from the Forum (1a-1f and 2 nudges) into a book of “Freakonomics for Transportation” as their term project. Deliverables for Option C: • 3a: Book proposal + Presentation • 3b: Full manuscript of the book • 3c: Revised manuscript of the book

Listeners Listeners are welcome with instructor’s permission: to attend at least 90% of the classes and complete any two of the six idea notes and one of the two nudges.

Behavior and Policy

Readings

Part I: Behavior and Policy in a Nutshell Class 1. Cafeteria Trays and Multiple Frameworks • Richard Thaler, Cass R. Sunstein: Nudge: Improving Decisions About Health, Wealth, and Happiness, Introduction • Daniel Kahneman: Thinking, Fast and Slow, Introduction • Dan Ariely, Predictably Irrational, Introduction • Etheredge (1976) The case of the unreturned cafeteria trays: An Investigation based upon theories of motivation and human behavior • Kahneman (2003) Maps of Bounded Rationality: Psychology for Behavioral Economics, American Economic Review 93(5) Class 2. Instruments for Behavioral Change • Miller and Prentice (2013) Psychological Levers of Behavior Change, Chapter 17 in Eldar Shafir, The Behavioral Foundations of Public Policy • Robert Cialdini (2006) Influence: The Psychology of Persuasion, Chapter 1 • Metcalfe and Dolan (2012) Behavioral Economics and its Implications for Transport, Journal of Transport Geography, V24, P503-511 Class 3. Measurement, Tools and Technology (Emile Bruneau) • Brian Nosek and Mahzarin Banaji, Implicit Attitude (7 pages) You may try the Implicit Association Test here https://implicit.harvard.edu/ • Winter Mason and Siddharth Suri (2012) Conducting Behavioural Research on Amazon’s Mech Turk, Behavior Research Method 44(1) • Dan Ariely and Gregory S. Berns (2010), “Neuromarketing: The Hope and Hype of Neuroimaging in Business.” Nature Reviews Neuroscience. • Dan Ariely, The Upside of Irrationality, Chapter 11 Lessons from our Irrationalities, Why we need to test everything Class 4. From Behavior to Policy (Case Sunstein) • Cass Sunstein (2013) Simpler: The Future of Government, Introduction, Chapter 1, 5, 8 and 10, Epilogue • Eldar Shafir (2013) The Behavioral Foundations of Public Policy, Forward, Introduction • Paul Brest (2013) Debiasing the Policy Markers Themselves, Chapter 29 in Eldar Shafir (2013) The Behavioral Foundations of Public Policy

Part II: Multiple Frameworks of Behavior Class 5. Bounded Rationality and Choice Architecture • Thaler, Richard H. "From Homo Economicus to Homo Sapiens." Journal of Economics Perspectives 14, (2000): 133-141. • Richard Thaler and Cass Sunstein (2008) Nudge: Improving Decisions About Health, Wealth, and Happiness, Chapter 4 When do We Need a Nudge, Chapter 5 Choice Architecture • Amos Tversky; Daniel Kahneman (1974) Judgment under Uncertainty: Heuristics and Biases, Science, Vol. 185, No. 4157. • Simon (1955). "A Behavioral Model of Rational Choice." Quarterly Journal of Economics, 69(1)

Behavior and Policy

Class 6. Prospect Theory, Psychology and Social Psychology • Kahneman, Daniel; Tversky, Amos (1984) Choices, values, and frames, American Psychologist, Vol 39(4) • Kahneman, Daniel, and Amos Tversky. Prospect Theory: An Analysis of Decision Under Risk". Econometrica. XLVII (1979): 263-291. • Ajzen, I., The theory of planned behavior. Organizational Behavior and Human Decision Processes, 1991. 50: p. 179-211. Class 7. Economic Models and Extensions • Ben-Akiva, McFadden, Gärling, Gopinath, Walker, Bolduc, Börsch-Supan, Delquié, Larichev, Morikawa, Polydoropoulou, & Rao (1999). Extended framework for modeling choice behavior. Marketing Letters, 10(3), 187-203. • Walker and Ben-Akiva (2001) Generalized RUM • Daniela McFadden (2007), The Behavioral Science of Transportation, Transport Policy 14 Part III: Ten Instruments for Behavioral Change

Class 8. Time and Information (Zhan Guo) • Guo 2011 Mind the Map! Impact of Transit Maps on Travel Decisions in Public Transit Systems, Transportation Research Part A 45(7) • Mokhtarian and Salomon 2001, How derived is the demand for travel? Some conceptual and measurement considerations, Transportation Research Part A: 35 (8) • Guo, Z, A. Derian, and J. Zhao (2012) Smart Devices and Travel Time Use by Bus Passengers in Vancouver, International Journal of Sustainable Transportation • Raghubir et al (2011) Spatial categorization and time perception: Why does it take less time to get home? Journal of Consumer Psychology 21 Class 9. Pricing vs. Nudging (Tim Baird) • Amy Finkelstein, E-Z Tax: Tax Salience and Tax Rates • Kristina Shampanier, Nina Mazar, and Dan Ariely (2007), “Zero as a Special Price: The True Value of Free Products.” Marketing Science. Vol. 26, No. 6: 742-757. • Jerald Jariyasunant, Maya Abou-Zeid, Andre Carrel, Venkatesan Ekambaram, David Gaker, Raja Sengupta, Joan L. Walker (2013) Quantified Traveler: Travel Feedback Meets the Cloud to Change Behavior, Journal of Intelligent Transportation Systems • Jinhua Zhao and Tim Baird (2013) ‘Nudging’ Active Travel: A Framework For Behavioral Interventions Using Mobile Technology Class 10. Is Travel Social? (Andrew Salzberg) • Dan Ariely, Anat Brach and Stephen Meier (Forthcoming), “Doing Good or Doing Well? Image Motivation and Monetary Incentives in Behaving Prosocially.” American Economic Review. • Zhao and Zhao (2013) Understanding Car Pride: Psychological Structure and Behavioral Implications • Eldar Shafir (2013) The Behavioral Foundations of Public Policy, Chapter 4. The Psychology of Cooperation • Tom Vanderbilt (2008). Traffic, Chapter 4 Why Ants Don’t Get into Traffic Jams (and Humans Do) Class 11. Help People Help Themselves • Loewenstein, John and Volpp (2013) Using Decision Errors to Help People Help themselves in Eldar Shafir Chapter 21 • Abou-Zeid et al 2012 Happiness and travel mode switching: Findings from a Swiss public transportation experiment, Transport Policy 19 (1) • Dan Ariely and Klaus Wertenbroch (2002), “Procrastination, Deadlines, and

Behavior and Policy

Performance: Self-control by Precommitment.” Psychological Science, Vol. 13, No. 3 • Dan Ariely and Michael Norton (2007), “How Actions Create—Not Just Reveal— Preferences.” TRENDS in Cognitive Sciences. Vol. 12, No. 1 • Michael I. Norton, Dan Ariely, and Daniel Mochon (2012), “The IKEA effect: When labor leads to love.” Journal of Consumer Psychology. v22 • Dan Ariely, Predictably Irrational, Chapter 6 The Influence of Arousal

Part V: From Behavior to Policy

Class 12. Market Failure (Brigitte Madrian) • Brigitte Madrian (2013) Behavioural Economics and Public Policy • Nudge, Chapter 12 Saving the Planet • Richard Larrick and Jack Soll (2008). “The MPG Illusion.” Science, 320(5883) • Shahzeen Attari, Michael DeKay, Cliff Davison and Wandi Bruine de Bruine (2010). “Public Perceptions of Energy Consumption and Savings,” PNAS 107(37) Class 13. Managing Cars in China: Capstone Example • Chen, T. and J. Zhao (2012) Bidding to Drive: Car License Auction Policy in Shanghai and Its Public Acceptance, Transport Policy 27 • Jinhua Zhao, Tracy Chen and David Block-Schachter (2014) Superficial Fairness of Beijing's Vehicle License Lottery Policy • Marisol Castro and Jinhua Zhao (2014) Price as a Signal for Policy Fine-tuning: A Time-Series Model of Shanghai's License Auction • Jinhua Zhao and Drewry Wang (2014) Formation of Transportation Policy Market in China: From Policy Transfer to Policy Mobility Class 14. Ends, Means and Strategy Required Reading: • Syllabus, Reading List, Lecture Notes Further Readings: • Eldar Shafir (2013) The Behavioral Foundations of Public Policy, Chapter 26. Behaviorally Informed Regulation • Daniel Kahneman: Thinking, Fast and Slow, Part V. Two Selves • Ostrom, 1998. "A Behavioral Approach to the Rational Choice Theory of Collective Action," Presidential Address, American Political Science Association, 1997. American Political Science Review, 92(1) • Ostrom 2010. "Beyond Markets and States: Polycentric Governance of Complex Economic Systems," American Economic Review, 100(3) • Ly, Kim, Nina Mazar, Min Zhao and Dilip Soman (2013) A Practitioner’ Guide to Nudging

Most readings will be posted at Stellar.