Behavioural Economics and Education Policy:

Philip OreopoulosUniversity of TorontoNational Bureau of Economic ResearchCanadian Institute For Advanced Research

Outline:1) Behavioral insights for how individuals(esp. children) make decisions2) Policy implications of these insights3) Pertinent examples4) Progress and possibilities

"The roots of education are bitter, but thefruit is sweet" - Aristotle (384BC - 322BC)

With investment model of human capital, allindividuals perfectly understand the trade-offsYet clearly this does not apply to a six-year old,who must be persuaded that school is fun nowor given no better option

lukas before.mp4

Many decisions in life involve uncertainlong-term benefits and immediate costs

dieting / exercise / quitting smokingsavinginsuranceusing sun-screen

Especially Education Decisions

homework / effort / attainment practice / writing / preparation

How do we wish we or our children should behave?

Happiness depends on whatyou are doing NOW andwhat you will be doing in thefuture

Origins ofBehaviouralEconomicsBE applies psychological and sociologicalfoundations of individual decision making toimprove explanatory power of economics andgenerate better public policyDoes not imply wholesale rejection ofneoclassical economics, but rather providestheories for why sometimes individuals makedecisions that are not in their best long-terminterests

Incorporating Present Bias(Laibson, 1997)We tend to overemphasize the present and discount thefutureWhen choosing whatwill make us happy, wetend to focus ONLY onwhat we are doing NOW

Intertemporal decision making increasingly groundedin neuroscience(e.g. McClure et al. 2007)Choose between1 sip of juice in 20 minutes (30%)2 sips of juice in 25 minutes (70%)Choose between1 sip of juice now (70%)2 sips of juice in 5 minutes (30%)Different parts of brain involved inimmediate versus later decisions

Incorporating Routine and Salience (Gabaix, QJE 2015)When choosing what will make us happy, it matters1) what options we think are available and2) what options come to mindAbility to think of possibilities may depend on currentstress, number of decisions to be made, expected benefit,degree of uncertainty, exposure to possibility

Incorporating Identity (Akerlof and Kranton, QJE 2000)

Behavioural Biases Greater in Childhood- during childhood, remarkable process of neuralcircuitry expansion and pruning- brain's ability to think about the future takes 25years to mature- gap between development of immediatepleasure system and forward looking systemlargest during adolescence- teenagers predisposed to social pressures andstresses

Whether on their own, or combined, these alternativemodels of making choiceshave similar implicationscompared to social planner result:Some individuals focus too much on the presentSome rely too much on routineSome influenced too much by immediate family, friends,and mediaMistakes more likely with stress and uncertainlyMistakes more likely for children

Some options to encourage welfare-improving action:makeaction (e.g. practice) only optionreduce immediate cost choosing action (make it easy/ fun)offset immediate cost with immediate incentivemakepractice or benefits of practicemore salientprovide better information about costs/benefits of practicemakepractice more socially acceptable/desirable

What is a 'nudge'?

"Maybe you think all this is a great breakthrough insocial policy-making. Or maybe you think there'ssomething faintly creepy about a behavioural insightsteam. If it's the latter, I'm with you."

Are individuals better off from being 'nudged'?We usually can't tell, even in expectations, but sometimesmoney is left on the sidewalk (e.g. cheaper drug plans, samebenefits (Gruber, 2009), eligible for postsecondary grantsbut don't applyex-post regret f for not practicing and ex-ante desire forpractice provide suggestive evidenceExamples of effective nudges suggest long-term investmentnot explaining choiceNudges still leave choice up to individualOften cannot avoid affecting behaviour, one way or another

Examples to help overcome behavioral barriers1) Make (1) schooling or (2) support mandatory3) Offset immediate costs with immediate incentives4) Offer transition guidance and support5) Provide salient reminders and information6) More structure to encouraged more learning:7) Strengthen positive identities

1) Make schooling mandatory

Using policy change in the U.S., Canada, and the UK,lifetime wealth increases 7-15% from an additionalyear of compulsory schooling (Oreopoulos, 2007)

2) Making support (e.g. tutoring) mandatory

3) Offset Immediate Costs with Immediate Benefits

Generally modest or non-existent effects with test scoreincentives (Angrist, Oreopoulos, and Williams, 2014)Perhaps more possibilitywith incentivizing inputs(Fryer, 2011)

4) Transition guidance and support

The Free Application for Federal Student Aid (FAFSA)

H&R Block and the FAFSA Experiment(Bettinger, Long, Oreopoulos, and Sambumatsu, 2010)H&R Block invited proposals of interventions that would benefit low-income families, have national scalability, and inform policy in 2006We proposed integrating their tax-interview and software with theFAFSA application process to make it possible for FAFSA completion(or near completion) within minutes after completing the tax form

40% increase in FAFSA filing24% increase in enrollment40% increase in FAFSA filing24% increase in enrollment40% increase in FAFSA filing24% increase in enrollment

Other hurdles in transitioning to college:Choose program of studyChoose schools to applyApplication and pay feeFinancial aid applicationAccept and registerChoose coursesModify daily/weekly routine

Oreopoulos and Ford, 2016

The Program:High schools selected based on having low transition rates tocollegeAll Grade 12s ushered to attend 3 workshops (60-70 minuteseach) during class time (usually in computer lab)1. Choose programs of interest and try budget calculator2. Apply for college or university programs, for free3. Get started on financial aid application, email parent tocomplete

56 percent increase in applications28% increase in enrollment56 percent increase in applications28% increase in enrollment56 percent increase in applications28% increase in enrollment

5) Provide salient reminders andinformation

Loeb and York (2015)

One year of text messageswith tips/encouragement:

20% stdev increase inteachers' rating of how childgets along with others and isdoing in school

34% stdev increase in lettersounds and lower-caseawareness

http://ready4kdemo.com

Oreopoulos and Petronijevic(2015)

Electronic college coachproviding tips, advice,motivation, and personalsupport for one year:

10% stdev increase in yeargrades

compared with real'mandatory' coach

'Nudge' vs. 'Support'

Average End of School-Year GradeAverage End of School-Year GradeAverage End of School-Year Grade

6) More structure to encouraged more learning:

Oreopoulos, Lavvechia, and Brown (forthcoming)Pathways introduced for Gr9 Regent Park students in 2001

A 57% increase in Post SecondaryEnrollment! (34% to 59%)

Financial incentive:any gap between student's financial aid and tuition iswaived, plus free transportation and free textbooksStudents must enroll full-timeMust meet minimum twice a month with ASAP advisorMandatory tutoringMandatory career and employment planning

Scriviner et al. 2013

Low-touch vs high-touch nudges

low-touch: easy (cheap) changes to make desiredaction more salient (e.g. text, simplification)no personal interaction, readily scalable, testableoften cost effective, but impacts generally small

high-touch: more continuous support, often involvingsocial interaction (e.g. mandatory tutoring, coaching)more expensive, but generally more impactfulsocial interaction key

7) Strengthen positive identities

Eccles, Wigfield, and Schiefele (1998)Treated Grade 7 students taught over 6 lectures brainworks like a muscle when challenged, mistakes arenecessary to learn

Conclusionsmany behavioral barriers in educationchildren and youth especially susceptible to present-bias, overreliance of routine, and social influencesopportunities to address barriers are context specificdetails matterdistinction between high-touch, low-touchpromising results so far, with lots of room for furtherresearch

Take-Aways: When promoting actions to promotelearning:Make the action the only option (extreme case)Make it easier or more funRemind individuals to do itInform why action good for themMake it more socially acceptable or desirableConnect personally, with trust and respect

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What should we nudge?high school completion (e.g. Angrist and Krueger, 1991)college attainment (Zimmerman, 2014, Cadena& Keys)program/college match (Hoxby and Avery, 2013)homework (Grodner and Rubb, 2013)classroom attendance (Dobkin et al. 2010)better understanding of college aid/costsparental investments