Our Work

The Increasing Challenge of Mental Health Problems

The key assumption in neoclassical economic theory is that individuals are perfectly capable of taking rational decisions, translated into the homo economicus ideal-type. But what happens if individuals are not in perfect health and have their decision-making process threatened?

Lately, much has been discussed about the rise in mental health issues, especially among youngsters. In a fast-changing world full of uncertainties, individuals may constantly focus on achieving perfection and success under highly competitive environments, threatening the efficiency of their decision-making processes. A recent report by Craig Thorley for the Institute for Public Policy Research in the UK shows that the number of students under 25 years of age disclosing a mental illness to their institution has increased fivefold over the past decade. What are the causes behind this?

The combination of academic, financial and social pressures is the key to understanding what motivated this phenomenon. It is undeniable that individuals have been living in environments that undermine mental health. For instance, a survey published by stem4, a teenage mental health charity, reveals that the top anxieties among 12-to-16 years old are exam worries, work overload, friendship concerns, lack of confidence and self-esteem, and feelings of being overwhelmed. In parallel, this new generation of youngsters feels more financially pressured given their large student debts, under the expectation that such investments will pay off in the future. Under scarcity of time and mental health, as defined by Mullainathan and Shafir (check our review of their book on Scarcity here), individuals have their “mental bandwidth” depleted, i.e. they become less mentally efficient. What can be done to avoid this?

mentalhealthtags

There is a need to not only prepare students better for academic challenges, but also to provide them with good health support systems inside universities. However, there are three underlying challenges. First, it is necessary to make students speak out for their feelings and enlist the help of a specialist to cope with pressure and avoid loneliness. Second, academic institutions ought to provide easy access to university counseling services, though it is not always the case that supply meets demand, and in less developed countries this type of service may not even exist. Third and more importantly, students may not realize that they need help, or that there is someone willing to listen to them.

Under these circumstances, the national health service and private institutions need to combine forces to find an innovative solution to the rise of mental illnesses. We need to understand its causes and how to tackle it, because it has huge economic costs. Also, we must work towards a society that is sensitive to these issues and realizes the importance of mental well-being.

References

Shafir, E. & Mullainathan, S. (2013). Scarcity: Why Having So Little Means So Much. Times Books, New York.

Thorley, C. (2017). Not by Degrees: Improving student mental health in the UK’s universities, IPPR.

The Guardian (March 26, 2017). Mental health problems rife among teenagers but teachers lack skills to help by Rachel Ellis.

The Guardian (August 29, 2017). The rise in student mental health problems – ‘I thought my tutor would say: deal with it’ by Donna Ferguson.

The Guardian (September 05, 2017). More students than ever suffer mental ill health. We must change our toxic world by Nihara Krause.

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Nudge of the Month

Challenging the Broken-Window theory

How can we prevent individuals from urinating in open areas?

In the Nudge TV show “The Power of Habit”, Sille Krukow, a behavioural expert based in Denmark, designed a nudge to help the Copenhagen Central Station. The problem they were faced with was that many men would urinate in hidden corners outside the building, despite the close location of public (and clean) toilets.

Cleaning.png

Staff has to clean the area several times a day

According to Ms. Krukow, this phenomenon can be explained by the broken-window theory of policing (Wilson and Kelling, 1982). When individuals observe others misbehaving, they tend to act in the same way, instead of doing the right thing.

The solution adopted in the show was to add a urinal to the area in question and stickers on the sidewalks signaling the direction and distance to the closest WC.

WC stickers.png

Implementation of the WC stickers

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Urinal installed in the most critical zone

Around 500 people had been observed urinating in two corners of the station during the week before the experiment. After the intervention, half of the people did the right thing, i.e. they instantly used the urinal, while the other half started  to urinate on the street, but changed their behaviour once they saw the urinal. This means that the cleaning staff and station customers were saved of 5,000 liters of urine a week!

To learn more about this nudge (and other experiments), you can find the episodes online here.

Our Work

When our brain decides for us… And without our permission

(Originally published in Slovak at mindworx.net)

Most of us probably believe that we are in control of our own decisions. We have our opinions, beliefs and principles, we know what we like and dislike and we always decide in accordance with our preferences.

However, this is not entirely true. Our brain reacts to all kinds of cues from the external environment and so our behaviour and decision making depend heavily on these. Even if we do not realise it.

MINDSPACE FRAMEWORK

Since there are a lot of these external cues, it is useful to categorise them to be able to analyse them better. One of the possible models is the “MINDSPACE” framework, created a few years ago in the UK by the Cabinet Office and the Institute for Government. Obviously, such models do not include all the possible factors that influence our behaviour, but do describe the most important ones. Thus, it serves as a good basis for a better understanding of human decision making.

The name MINDSPACE is an acronym made of the first letters of the main motivators of human behaviour. These are Messenger, Incentives, Norms, Defaults, Salience, Priming, Affect, Commitments and Ego. Let’s now have a look at each of them.

mindspace-1

Messenger

It is true that how we perceive information depends on their source. Different researchers have shown that we are more likely to listen to what the experts say, but also to accept advice from people similar to us in some ways. On the other hand, if we get advice from someone we dislike, it is probable we will not take it into account no matter how good it is.

Incentives

They include everything that motivates us – either physical motivators (such as money or other non-financial rewards) or psychological motivators (like our intrinsic motivation to do something good for the others). It is useful to know how we react to various motivators and which of them work best in various situations. In general, it is true that losses loom larger than gains, so a potential loss can be a better motivator than a potential gain. Also, our perception is relative – the same amount of money can be seen as too small or too large depending on the reference point.

Norms

More precisely, social norms. People tend to be influenced by what other people are doing. Usually nobody wants to be the “outsider” and have fingers pointing to them, just because they are different.

Defaults

People tend not to change the pre-set options, even for important decisions. The countries in which you are automatically considered to be an organ donor, unless you opt out, have a much larger proportion of donors than the countries in which you have to opt in to become one.

Salience

Logically, our behaviour is influenced by the things we pay attention to. And since there is a huge number of stimuli out there, our brain has to be selective – it pays attention mostly to what is new, simple and different. Sometimes, though, the brain actively seeks for cues that facilitate the decision making. For instance, it may search for an “anchor”, which is the information (mostly numerical) that is used as a basis for making a (numerical) judgement. However, such information does not need to be relevant in a given context and even a randomly picked number can influence how we decide.

Priming

Our behaviour is influenced also by our senses and at the unconscious level. The exposure to a certain type of words, sounds or smells can have a large impact on our behaviour. For example, the participants of an experiment that were required to read words related to old age left the room in a slower pace than the other participants. Or the smell of an all-purpose cleaner in a school canteen prompted the students to leave their tables cleaner.

Affect

It is nothing new that the emotions play an important role in our decision making. What is a bit more surprising is the fact that they influence us even when we do not realise it. An experiment has shown that when a mortgage offer included a picture of a smiling woman, the demand for the mortgage increased in the same amount as if the interest rate of the mortgage decreased by 25%.

Commitment

Commitments and promises, mainly the public ones, determine how we behave. If you struggle to do something, it is useful to commit yourself in some way. Tell your friends that you will stop smoking by a certain date. This will force you to do everything to accomplish our goal, just to avoid the shame of admitting the failure in front of people that are important to you.

Ego

Our actions should be in accordance with what image we have, or we would like to have (in our own eyes, or in the others’ eyes). For instance, men are more willing to contribute to charities if they are approached by attractive women, because in this way they manage to keep a good image in the eyes of the opposite sex.

SO, WHAT?

The MINDSPACE model has been created mainly for public institutions with the aim of improving public policies. Many governmental programmes are unsuccessful exactly because they are not designed for real people, but for “people” that are described by the theoretical (mainly economic) models.

This does not mean, though, that the framework is useless outside the public sector. Each one of us can learn a lot from it. If we better understand how our brains work and what influences our behaviour, we will be able to make better decisions, develop more successful products or provide better services and have better relationships with people around us.

Source: https://www.instituteforgovernment.org.uk/sites/default/files/publications/MINDSPACE.pdf

Nudge of the Month

Nudges and Social Norms

When are nudges most effective? A study by Pelle Guldborg Hansen, founder of the Danish Nudging Network, a non-profit organisation in Copenhagen, suggests that nudges may work only if they are in line with social norms. They tested two potential “social nudges” in partnership with the local government, both using symbols to try to influence choices:

In one trial, green arrows pointing to stairs were put next to railway-station escalators, in the hope of encouraging people to take the healthier option. This had almost no effect.

The other experiment had a series of green footprints leading to rubbish bins. These signs reduced littering by 46% during a controlled experiment in which wrapped sweets were handed out.

footprints

“There are no social norms about taking the stairs but there are about littering,” said Mr Hansen. Hence, perhaps existing social norms must be studied before designing a nudge!

Our Work

Nudges for a healthy lifestyle – Part II

In the article Nudges for a healthy lifestyle – Part I”, we talked about the nudges created by governments around the world related to improving people´s lifestyles.

If you wonder why governments care about lifestyles of their citizens, the reason is mainly money. Unhealthy diet, frequent consumption of addictive substances (mainly alcohol or tobacco), and lack of physical movement are all widespread and may lead to “non-communicable diseases”, such as diabetes or cardiovascular diseases. The governments have two possibilities – either encourage the change in lifestyles and decrease the occurrence of such diseases or pay for the cure. Obviously, prevention is a cheaper choice and in case of lifestyle issues, also feasible.

Moreover, if governments understand human behaviour, their attempts to change it will probably be more successful. That is why Behavioural Economics can be helpful in this domain.

Part I of this article was dedicated to the nudges related to food consumption. Part II will discuss nudges concerning tobacco and alcohol consumption and physical movement.

 

As for physical movement, there has been a very simple nudge trial conducted in the City of Melbourne in Australia. To encourage people to take the stairs instead of elevators in a train station building, the City of Melbourne had the stairs painted in a colourful and catchy way (see Picture 1). It may not seem like  a very strong nudge; why would anyone struggle on the painted stairs if they can see them also from the elevators? But it seems that the citizens of Melbourne did not think like this – according to a report by the Behavioural Insights Team (that collaborated on this trial), the usage of the stairs increased by 25% during off-peak times and by 140% in  peak times!

Stairway-art-Zest-Events-Southern-Cross-Station-Melbourne

Picture 1

Source: Zest Events

 

Moving to tobacco consumption, the nudges used around the world are quite uniform. There are two major manipulations that have been implemented.

1) The first one is plain packaging, whereby the tobacco producers cannot use the package as a marketing space and have to comply with rules for uniform font, size and colour of the text, as well as uniform package colour. The space previously used by companies is now dedicated to health warnings, both in words and in pictures (see Picture 2). The rationale behind such a policy is that it decreases the appeal of tobacco products and at the same time, gives more importance to the health warnings, which should deter people from smoking. It seems like a good idea at first glance, but when one thinks about it more, the following doubts arise. Firstly, there is a large amount of brand loyalty among smokers, so it is not probable that they will stop smoking only because of a change in design. Secondly, there is the optimism bias that goes against the effectiveness of health warnings. People usually overestimate the probability of positive things happening to them and underestimate the probability of the negative ones. Hence, when they see a health warning, they may simply think “it happens, but to the others, not me”.

Copy_right_Action_on_Smoking_and_Health_story

Picture 2

Source: WHO

2) The second widespread anti-smoking nudge-based policy is the tobacco display ban. In the countries where it has been introduced, tobacco products have to be displayed so as not to be visible to the customers in the shops (with the exception of specialised tobacco shops, of course). Again, such policy goes against marketing possibilities of tobacco producers and the hope is that it will decrease the amount of impulse purchases, which are frequent mostly among the young.

There are several papers trying to evaluate the impact of these two anti-smoking policies, but there is no clear conclusion to be drawn. It seems that smoking is a very complex issue and is cannot be easily solved by using only nudges. Another issue is that in many countries, these policies have been implemented only recently, so it is too early to know their impact. Anyway, even if the nudges are not the solution in this case, maybe they could still complement some other policies to make a real change.

The last lifestyle issue is alcohol consumption and there is a very nice example of the use of nudges in this domain. At the Northern Illinois University, a simple marketing campaign based on social norms (i.e. informing the students about how many drinks other students have when they party) was enough to decrease students´ binge drinking.

(If you want to know more about this particular policy, see the article A Social Norms Approach to Preventing Binge Drinking at Colleges and Universities.)

To conclude both articles about the nudges related to healthy lifestyles, I would like to say one thing. Clearly, nudges do not automatically solve all problems. But as long as they are low-cost and do not harm anyone (such as removing the salt shakers from restaurant tables or painting the stairs in a train station), I think they are worth trying, because even a small positive difference is a step forward towards a healthier life.

Nudge of the Month

Increasing charitable giving

How can we nudge people to donate to charities? There are many ways to do so, but we would like to share one in particular which is very simple and surprisingly powerful.

It seems that peer effects are an effective tool to change people’s behaviour. We want to do what people like us are doing. If teenagers have friends that smoke, they are very likely to start smoking themselves (and much more likely than if their parents smoke). The same holds for donations – if our colleagues donate, we would like to donate as well.

This is what has been tested by the UK´s Behavioural Insights Team in cooperation with Her Majesty’s Revenue and Customs (HMRC). The HMRC employees in Essex were sent postcards describing the donation efforts of their colleagues and encouraging them to do the same, to see if more people would start donating. However the experiment went even further (and this is where it gets interesting). One group of employees got postcards featuring a picture of the donor in addition to the above information (see Picture 1). An insignificant change, you may think, but 6.4 % of people signed up for the donation scheme in the latter condition, compared to 2.9 % in the no-picture condition.

Donations

Picture 1: Postcard featuring a photo of the donor

Source: The Behavioural Insights Team (2013)

If you want to know more about behavioural insights applied to charitable giving, see The Behavioural Insights Team (2010) and for a further discussion of peer effects (social norms), read Institute for Government & Cabinet Office (2010).

Article Review

“Scarcity”: a book review

What is scarcity?

“Scarcity” was published in 2013, written by Sendhil Mullainathan, professor of Economics at Harvard, and Eldar Shafir, professor of Psychology and Public Affairs at Princeton. The greatest strength of this book is also its greatest weakness: it’s educational. On the one hand this is good, because it brings Behavioral Economics to the general  public and we certainly need it; on the other hand, the lack of a model makes the analysis shakier than we would like.

At the very beginning the authors define scarcity as “having less than you feel you need”; traditionally, development economists focused only on physical poverty. However, with this definition, they want to emphasize that scarcity can be both physical and mental. The main takeaway of the book is that scarcity is a mindset that lures people into a poverty trap, the leaving of which is very difficult.

To better illustrate this point, throughout the book they refer to  several experiments that have taken place both in developed and developing countries. The best feature is that they test physical and mental scarcity in both settings, and more importantly how they interact. The interaction is fundamental, because their thesis is that physical scarcity causes mental scarcity, i.e. the scarcity mindset. It’s easy to imagine physical scarcity, it ranges from not having enough food, money, time or (spoiler alert!) enough blueberries in a videogame. However, it is more difficult to think of mental scarcity, even though we constantly experience it. To explain it, they use the concept of bandwidth, or mental capacity. We can think of it as the “RAM of our brain”, the precision and speed at which we process information and execute decisions.

What are the effects of scarcity?

When we experience  scarcity we tunnel, i.e. we get extremely focused on solving the scarcity at hand. This focus can have 2 effects: one positive, and one negative. In the short run it is generally positive, because it makes us focus on the task at hand, operating at maximum capacity. However, it can have a negative effect too, since in this case when we are focusing we are actually tunneling, i.e. leaving everything else out of the picture, with possibly dire consequences. Moreover, in the long run scarcity erodes the availability of mental capacity, given that we can focus on nothing else.

To support this view, they refer to  several experiments and I’m going to explain three of them to help you understand. There is one experiment where people with less bullets available in each round of a shooting  game scored proportionately higher than people with more bullets: having less prompts efficiency. In another one, dieters found more difficult to concentrate on the next task if the previous one mentioned pastries: scarcity captures the mind and lets us focus on nothing else. The final experiment concerns Indian farmers, who score lower on an IQ test (measured with Raven’s matrix test) just before harvest than just after it. Why? Because they typically squander their harvest money in the months immediately following it, and the closer they get to harvest period, the poorer they are. That causes what is called a “bandwidth tax”; part of the brain continuously focuses on the scarcity at hand, leaving less room for other thoughts. It is really important to notice that all kinds of scarcity could cause that tax, ranging from money, time, love, etc.

Before turning to how to escape the scarcity trap, they focus on another negative side effect: borrowing. When tunneling, we leave everything else outside the tunnel, such as future consequences. To illustrate it , they make their case against the utility of payday loans. These loans are extremely short ones, with high interest rates. Moreover, they are extremely easy to get: in the US there are more payday lenders than McDonald´s and Starbucks outlets combined! Hence, once inside the tunnel, payday loans seem like the best way to get money, but in the long run they’re extremely detrimental.

How can we help people escaping the scarcity trap?

Seeing as scarcity is a lack of something, there are essentially 2 solutions: a windfall of the something needed or a more efficient use of the quantity at our disposal.

However, scarcity is insidious. For instance, they once gave Indian traders enough money to extinguish their debts, drastically increasing their disposable income, since they did not need to pay interests anymore. However, one by one they started borrowing again, eventually reverting to their previous situation. So a one time payment wasn’t enough to escape the poverty trap because they were not efficient, i.e. they did not reserve any slack. Indeed, the main reason to fall into the scarcity trap is that we are at the limit of the resource in question, so that when we face an unexpected “expense” we start borrowing from the future and taxing our bandwidth. Hence, the authors strongly advocate for the creation of slack, both to exit and to avoid (re)entering the scarcity trap.

Moving on to the strictly efficient part, they refer of the St.John’s Regional Center in Missouri: they were  constantly operating at maximum capacity, so when an unexpected surgery came up all the elective ones needed to be rescheduled. The solution was brilliant: keep an Operating Room (OR) only for the unexpected surgeries. Having one less OR available actually increased the number of surgeries performed: the creation of slack solved the problem. The last example highlights another important feature of scarcity: it does not concern only individuals, but also organizations.

In conclusion, the authors offer an exciting, novel interpretation of  poverty, tackling it from different angles, following a new framework: scarcity. Even though they lack a formal model (so far), the book offers an interesting view on one of the oldest problems, using several hints from Behavioural Economics. In short: a must read.

Article Review

Enhancing the Efficacy of Teacher Incentives through Loss Aversion: A Field Experiment

Review of a paper by Fryer, Levitt, List and Sadoff (2012)

Improving the productivity of teachers has long been a priority in Public Policy. In recent years, there has been growing enthusiasm among policy makers for initiatives that tie teacher incentives to the achievement of their students. However, evidence as to the efficacy of such policies is mixed. Studies in developing countries have shown that linking pay to teacher performance helps reduce teacher absenteeism and dramatically improves students’ test scores. In contrast, the only two field experiments conducted in the US have shown small, if not negative, treatment effects.

The authors of this paper conducted a field experiment to test whether the psychological bias we call “loss aversion” can be exploited to design better incentives.

To be sure we’re all on the same page, let’s take a minute to define what loss aversion means. A perfectly rational person should feel the same amount of pain on losing say $5 as the joy felt on gaining $5. However, for a loss averse individual, the pain of losing is greater than the pleasure of gaining, even for the exact same amount. Studies have shown that losses may be more than twice as powerful as gains!

There is overwhelming laboratory evidence for loss aversion, but the paper in question is one of the first to demonstrate it in a field experiment. The study was conducted in Chicago Heights, Illinois during the school year 2010-2011. Chicago Heights is made up of primarily low-income minority students who struggle with low achievement rates.

Two methods of framing teacher incentives are compared:

  1. The teacher gets a sum of money at the end of the academic year if his/her students perform well (gain frame; the one we’re most familiar with in this context)
  2. The teacher is given the sum of money at the beginning of the year and it is withdrawn if the students do badly (loss frame)

At the beginning of the school year teachers were randomised into Treatment and Control groups. Within the treatment group, some were assigned the gain frame and others the loss frame. Further, within the “Loss” and “Gain” groups, the authors tested for heterogeneous effects for individual rewards compared to team rewards. Thus, participating teachers were randomly assigned to one of four treatment groups or a control group. Rewards were based on students’ end of the year performance on the ThinkLink Predictive Assessment, an otherwise low stakes standardised diagnostic assessment that is designed to be aligned with the high-stakes Illinois Standards Achievement Test (ISAT) taken by 3rd-8th graders in March and the Iowa Test of Basic Skills (ITBS).

Image result for children taking tests

They estimate intent-to-treat (ITT) effect by taking the difference between treatment and control group means. They find large impacts on both the ThinkLink as well as ISAT and ITBS scores, but only in the LOSS frame. There is no significant difference for student scores of teachers in the “Gain” treatment, in line with findings from previous studies done in the US. Also, no significant difference was found between individual and team incentives under either the Gain or the Loss treatment.

But can we really be sure that it is loss aversion that is driving these results? There could be 3 other possible explanations. These are listed below, along with the reasons why they are implausible in this case:

  1. Attrition- Perhaps teachers found a way to discourage weaker students from taking the exams. The authors run a probit regression on all of their covariates, where the dependent variable is an indicator for missing any of the exams considered. They find no significant difference between the gain and loss groups. Furthermore, the ISAT scores were not directly incentivised and they found similar rates of attrition even there. So attrition is unlikely to explain the results.
  2. Liquidity constraints- Teachers under the loss treatment have more money at the beginning of the year, which may enable them to spend more on resources for the classroom. However, surveys on the amount of spending reveal that this was not the case.
  3. Cheating- Teachers may cheat and give their students high scores. However, they cannot manipulate the ISAT and ITBS scores, which mirror the results found on the ThinkLink tests.

Thus, by spending the same amount of money, but just changing the way the incentive was framed, they obtained dramatically better results. This suggests that there may be significant potential for exploiting loss aversion for designing Public Policy (as well as for maximising profits, of course)!

 

Nudge of the Month

Attractive names of meals for healthier diets of children

Carrots or French fries? Fruit salad or a chocolate bar? These are the dilemmas that children face when choosing their meals in school lunchrooms. From convincing them that veggies will give them superpowers to ominous threats of what will happen to their bodies if they don’t eat healthy, there are few options left unexplored on how to get kids to eat right.

Unsurprisingly, when all else fails, BE swoops in and saves the day. Discarding classical solutions such as information campaigns, it offers a much simpler alternative: make the healthy options more tempting.

How? By changing their names. Several research teams in the US have tried this strategy in various school canteens and they found that making the names “seductive”, catchy or funny can induce children to eat healthier.

choice
Decisions, decisions…

Source: Tes Global Ltd

Hence, instead of offering carrots as “vegetable of the day” or simply “carrots”, call them “X-ray vision carrots” or “twisted citrus-glazed carrots” and you will increase the probability that children will pick them!

For reference, see Wansink et al. (2012) and Turnwald et al. (2017).

Article Review

BE environmentally moral to save the planet

Review of a paper by Kjell Arne Brekke and Olof Johansson-Stenman (2008)

Taking into account economic behavior in the environmental economic political process could change the impact of economic measures

Cap and Trade, Pigouvian Taxes; Kyoto Protocol yesterday, Paris Agreement today. Why does environmental policy never work? As economists struggle for developing new economic models to address environmental threats, our planet fights to survive. What is the main obstacle to environmental economic policy? In this sense, one word is essential: implementation.

Economists talk about environmental damages (Greenhouses emissions, SO2, etc.) as social costs:  harms that affect the society as a whole, but that are not relevant in private economic choices (hence the title “negative externalities”). The reason is that clean production is costly and not efficient, both for firms and for the government. Measures to protect the environment, such as taxes and restrictions on production, raise the cost of production for firms, and their implementation is difficult for political reasons.

Therefore, when it comes to decision making, firms and countries tend to consider only their own costs and benefits, ignoring negative externalities: why should one country care about trans-border emissions, when it is a global matter and when the others do not?  

Someone would then argue that international agreements are necessary to enforce environmental regulations, in order to address this moral hazard problem. However, when it comes to transnational regulation, global commitments are even harder to be enforced. In this context, is there any possibility left of “saving the planet”?


Risultati immagini per international agreements on climate changeSource: Ecoadapt

It has been demonstrated that, even if not considered in the private costs-benefits analysis, environmental damages matter at a psychological level.

Economic agents do not consider all the environmental measures that restrict economic private profits equally. The key difference lies in the way those measures influence the “environmental moral(Frey, 1999): the intrinsic motivation for pro‐environmental activity. In this view, if we look at all the diverse economic measures each government can take, we find that not only do they differ in terms of economic and administrative efficiency, but also in terms of the impact that they have on people’s environmental moral. As a result, some measures are more likely to be implemented than others (Pollitt and Shaorshadze, 2011).

Frey (1999), for example, argues that both “tradable permits” (that allow firms for the production of a maximum emission as determined by the government) and “Pigouvian taxes” (on the generator of negative externalities) have two opposing effects on consumers. Not only the higher price that derives from their implementation discourages the aggregate demand, but the individual intrinsic environmental moral also goes down (crowding‐out effect).

Moreover, it has been demonstrated that low and high rate environmental taxes on emissions are more effective than the moderate ones in encouraging individuals to accept the environmental policy. In fact, with low taxes, consumers may be persuaded that the reason why they are being taxed is only moral, and they would be more positive to pay. On the other hand, high Pigouvian taxes make harmful behavior prohibitive: therefore, the economic effect dominates the crowding-out effect. Furthermore, according to Goodin (1994), tradable permits will reduce consumers’ motivation even more than taxes, because they may convey the impression that it is acceptable to sin as long as one pays the price for it.

However, since most of the climate policies address firms rather than final consumers, behavioral economics has a very limited influence on the choice of the level of production. On the other hand, public perception of the effect of these instruments is still relevant for policy because, when the public perceives that taxes and tradable permits are morally superior, governments may find it politically easier to implement them.

Similar results are valid internationally, in the context of global agreements. Given that humans are less self-serving than the “economic man”, cooperation has been demonstrated to be possible. However, it must be conditional and require the existence of sanctioning mechanisms (Kjell Arne Brekke and Olof Johansson-Stenman, 2008).

In BE there is a wide experimental literature focused on individual decisions, trying to understand under what conditions people cooperate, even when it is not in their own material interest. Conditional cooperation is usually the answer, suggesting that many people (in our case, countries) choose to cooperate only if others do too (Gächter, 2007). In addition, the evidence suggests that people are more willing to contribute to social causes when they think others are doing the same (Levitt and List, 2006).

In conclusion, what makes negotiations effective? We could summarize the best practices in three Ps:

1.Principles.

Principles are essential to persuade people that they are paying for a moral reason. In this way, the individual intrinsic environmental moral also goes up and dominates the private cost bias.

2. Punishments.

They are fundamental for the long-term effectiveness. Kyoto protocol, for example, without including any penalty, lacked effectiveness, and commitments had never been really implemented.

3. Participation.

Since we are dealing with global externalities, everyone should commit. Only a global solution could be the best response to a global problem.