Wednesday, January 8, 2014

What motivates you more to do something that produces a predetermined desired outcome---The threat of losing $10 or the enjoyment of gaining $10? See here why the answer is not so easy...

IF the private or public sector is going to design policies that will elicit a specific response from consumers (or citizens) then sometimes they have to go against conventional thinking.

One such example comes from a new study (GO HERE FOR THE STUDY) on consumer behavior in regards to the use of plastic or reusable bags for buying groceries.  Stores are trying to GO GREEN and reduce the use of plastic bags for environmental reasons.

There are 2 real life options the study looked at from grocery stores in the Washington D.C and Montgomery County (VA) area: (1) a 5 cent TAX on the use of each plastic bag OR a (2) a 5 cent CREDIT (or Bonus) from the store for each reusable bag the shopper brings and uses for their groceries.

Keep this in mind when you read the following from the WSJWith the per bag TAX the consumer is GIVING UP 5 cents when they use a plastic bag.  With the CREDIT/BONUS they are GETTING 5 cents (or reducing the total of the grocery bill) when they bring their own reusable bag.  In other words, in one instance you PAY the tax and the other they pay YOU to bring a reusable bag.
"...Observing 16,251 shoppers at 16 grocery stores in Washington, D.C., neighboring Montgomery County, Md., and northern Virginia and data from grocery store scanners, she found that a 5-cent tax on disposable bags substantially decreased disposable bag use while a 5-cent bonus for using a reusable bag did not. 
Before the tax, several stores offered a 5-cent bonus to shoppers who brought their own bags. In stores that offered no incentive, 84% of shoppers took at least one throwaway bag per shopping trip; in stores that offered the nickel lure, 82% did. 
In contrast, some 82% of Montgomery County shoppers used at least one disposable bag per shopping trip before the bag tax was imposed; 40% did afterward...."
So, the possibility of losing 5 cents with a tax had a stronger effect on consumer behavior than the prospect of gaining 5 cents with the credit/bonus.  So much for the "a little sugar goes a long way" method of persuasion.
The study notes that this is an established and observe behavior called "Loss Aversion".  
"In economics and decision theoryloss aversion refers to people's tendency to strongly prefer avoiding losses to acquiring gains. Some studies suggest that losses are twice as powerful, psychologically, as gains." 
The study includes this bit of advice for private and public policy makers by using a couple of examples where they can "motivate" consumers to produce the desired outcome:
"These findings suggests the importance of accounting for behavioral insights when designing a wide variety of environmental incentives. 
For example, Starbucks Coffee rewards customers who bring their own coffee mugs with a ten-cent discount. My results suggest that this policy might be more effective if Starbucks instead reduced the price of coffee by ten cents, but charged for using a paper cup. 
Similarly, the federal government awards a tax credit to customers who purchase environmentally-friendly Energy Star products. This policy might increase consumption of these products if they were taxed for purchasing energy-inefficient products."
Sometimes the counter-intuitive is the most effective, but hardest to implement because, well, it is counter-intuitive.  

Guess that is why I LOVE reading stuff like this! :)
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