HOW POVERTY AND COGNITIVE BIASES CAN IMPACT DECISIONS AND ACTIONS: Using Research from Behavioral Economics and Psychology to Improve Workforce Development Services JULY 2015 AUTHOR SEATTLE JOBS INITIATIVE Matt Helmer, Senior Policy Analyst I. EXECUTIVE SUMMARY The workforce development system helps millions of individuals each year to upgrade their skills and obtain or advance their employment. To be successful, many of these individuals will have to make a series of critical decisions about their education and career, potentially navigate several complex and bureaucratic systems, manage a full calendar of appointments and deadlines, and juggle family, school and work responsibilities. They will also have to maintain motivation and confidence while persisting through periods of uncertainty and stress. Though attaining a higher level of education and advancing one’s employment or career are challenging for anyone to accomplish, those in poverty may face some unique obstacles. Today, new research from the fields of behavioral economics and psychology is shedding light on how poverty may shape an individual’s decisions and actions. For some individuals, the circumstances and stresses of poverty consume a great deal of their cognitive abilities, attention, and self-control.1 This decrease in mental bandwidth can contribute to poor performance in the classroom or workplace and lead some individuals in poverty to be overwhelmed by too many choices or complex decisions. Low- income individuals may also find it difficult to navigate complex systems or processes, and struggle to develop and follow through on long-term plans and goals because their attention and cognitive resources are focused on addressing the challenges of poverty, such as finding stable housing, or securing food or school supplies for their children.2 Our identities and self-perceptions may also impact decisions and actions. All of us have many identities that we alternate between in different moments. We form these identities based on the social groups to which we belong.3 An individual’s identity may include being a mother, college student, construction worker, woman, Latina, American, and more. Those in poverty may also hold other identities associated with being poor or low-income, a public housing resident, or welfare recipient, for example. The stigma and negative stereotypes that are often unfairly attributed to low-income populations can influence i individuals’ views of themselves. While some may turn these views of those in poverty into a motivator, others may come to associate with these negative stereotypes and feel that they are lazy, unmotivated, or incompetent, which can lead to lower self-esteem and confidence. This lack of self-worth may lead some individuals to believe they cannot learn or succeed, and may also contribute to choices or behaviors that inhibit success in the classroom or workplace. Our behaviors and choices are, of course, not just shaped by our income levels. All of us often develop and use rules of thumb or heuristics to inform our choices and behaviors. These rules of thumb can be useful in making complex choices easier, but can also be over relied upon, which can lead to biased and sometimes irrational decisions.4 We may choose to stick with the comfort of the status quo because change is perceived as a loss, for example, even if changing would lead to better outcomes. We may also rely too much on information from the media or from our past experiences in predicting future outcomes. We also sometimes choose immediate payoffs or rewards relative over greater rewards that could come later. In the workforce field, participants’ choices or behaviors that harm their ability to be successful in school or work are often attributed to a lack of soft skills, motivation, or work ethic. While individual responsibility cannot be ignored, we also need to consider how the unique circumstances and context of poverty and other cognitive biases can contribute to an individual’s actions. Behavioral economics and psychology research point toward some interventions that workforce development practitioners can use to address some of the barriers presented by poverty and human biases. These strategies, which may help unleash individuals’ potential and strengths, include the following:* • PROVIDING DECISION-MAKING, GOAL-SETTING AND PLANNING SUPPORTS Like all people, those in poverty sometimes need advice or assistance when important or complex decisions or decisions with long-term consequences must be made. Stress, fatigue, instability in our lives and our emotional state can also make it difficult to set goals and develop and follow through with plans. Obviously, a critical part of what many workforce development initiatives do is to help individuals develop and follow education and employment plans. Workforce development initiatives may consider how they can *Most of the information about these strategies is borrowed from the following report: Lashawn Richburg-Hayes, Caitlin Anzelone, Nadine Deschausay, Saugato Datta, Alexandra Fiorillo, Louis Potok, Matthew Darling, John Balz, “Behavioral Economics and Social Policy: Designing Innovative Solutions for Programs Supported by the Administration for Children and Families,” oPre report No. 2014-16a, Office of Planning, Research and Evaluation, Administration for Children and Families, U.S. Department of Health and Human Services, April 2014, accessed January 5, 2015, http://www.acf.hhs.gov/sites/default/files/opre/bias_final_full_report_rev4_15_14.pdf ii strengthen or enhance efforts to help their participants identify goals, detailed step-by- step plans for meeting those goals, interim milestones, potential barriers that could arise to derail progress, and potential strategies for addressing those obstacles. An important piece of these decision-making, goal-setting, and planning supports is integrating mechanisms to offer feedback to individuals on these tasks and their progress. • REMOVING HASSLES AND USING CHANNEL FACTORS Participants in a workforce initiative may have to navigate many complex systems and processes. Entering community college, for example, involves applying for admission, taking assessments, applying for financial aid, registration, and enrollment. Removing the extra steps and hassle from processes such as this can help individuals who may have limited time or whose attention or focus may be limited. According to Crittenton Women’s Union, “Any design efforts that decrease the time needed to apply for, maintain, travel to, or participate in programs or services should increase the likelihood of successful client participation and improved outcomes.” 5 Similarly, changing small situational details or channel factors can help encourage behaviors if designed appropriately. For example, a college that allows for applications to be completed online, instead of just the mail, is helping to facilitate more applications by using a channel factor. • USING REMINDERS In-person, email, mail, text or phone reminders can help individuals with low levels of mental bandwidth to maintain their commitments and avoid missing important deadlines or appointments. • USING PUBLIC AND PRIVATE COMMITMENTS Some workforce organizations may struggle with participants maintaining their motivation and commitment to education and employment goals. Individuals who make promises to complete a task are more likely to finish it. Workforce initiatives may consider how asking participants to make public or private commitments to achieve their education and employment goals (as well as staff serving participants) may be integrated into their programs. • USING DEFAULT OPTIONS OR PROMPTED CHOICES Default options involve requiring opt-outs (e.g., when an employer automatically enrolls an employee in a 401(k) program). Default options help remove the burden of making a choice when the decision is complex, includes too many choices, or when the decision is iii occurring in an unfamiliar setting. Prompted choices involve having individuals provide a response prior to completing a task (e.g., requiring people to decide about organ donation to complete their driver’s license application). Workforce organizations may consider using default options to automatically enroll their clients in critical programs such as an introduction to community college class or using prompted choices to encourage other positive actions such as asking students when they enroll in classes whether they’d also like to sign up for tutoring services. • CATEGORIZING OR GROUPING CHOICES Too many choices can overwhelm individuals whose mental bandwidth is reduced. Putting choices in buckets or categories can help address this challenge, and choices may be limited as well so long as choice is preserved. For example, instead of asking students to choose what occupation they would like train for, the students may first be asked to choose from a smaller number industries or sectors that interest them. • PROVIDING APPROPRIATE ANCHOR OR REFERENCE POINTS Individuals often use an initial piece of information to anchor to help them make decisions.6 The reference points we anchor to, may include past experiences or information from places such as the media. Poor or inaccurate reference points or overreliance on past experience as a predictor for future outcomes may need to be addressed by workforce initiatives. Workforce organizations may, for instance, have fact sheets about tuition costs, wages, and employment to help participants set proper expectations and