We’ve all experienced the short-term relief, and long-term agony, of procrastination, a human tendency that epitomizes the sometimes poor (yet all too relatable) decision making at the center of behavioral economics. In his course Behavioral Economics, Markets, and Public Policy, Judd Kessler, the Howard Marks associate professor at Wharton, introduces undergraduate and MBA students to the field and its wide-reaching relevance.
In addition to exploring how principles of behavioral economics can be applied to business, Kessler takes a deep dive into the subject’s significance for policymakers. “To what extent,” he asks, “does the fact that we aren’t perfectly rational, optimizing individuals lead the government to potentially step in with regulation, taxation, or other policies?” Recommended readings from the course offer real-world examples of how behavioral insights can affect everything from your commute to your well-being to how well you perform at work.
“Lessons on Road Congestion from Oregon, Singapore, and London”
Kessler uses this Financial Times article to introduce the concept of externalities, or the side effects that someone’s actions may have on others. In the case of travel, traffic may be an externality caused by people’s driving decisions. “If I’m driving on a road during rush hour, I could be contributing to congestion and slowing down everyone else’s ride,” says Kessler. “That is an externality that most people don’t take into account when deciding whether to drive.” The article explores taxes and other charges governments employ to reduce traffic jams.
“The ‘Tax Aversion’ Effect Is Real and Can Sway Our Opinion on Anything”
Speaking of taxes, this piece published by The Conversation describes the lengths people will go to in avoiding them — for example, preferring to live in high-cost countries with low taxes rather than low-cost countries with high taxes even when the net cost is the same. Politicians, according to the piece, leverage this aversion by naming their own policies “subsidies” or “duties” but their opponents’ policies “taxes.”
“Why It’s So Hard to Put ‘Future You’ Ahead of ‘Present You’”
This edition of the Smarter Living newsletter from the New York Times explores why we have trouble making choices in the present that set us up for long-term success. The explanation is present bias, or our preference for smaller rewards now over larger rewards later. “It’s very hard to avoid this tendency,” says Kessler. It also affects some of our most important decisions, from choosing to exercise to building up our savings.
“Is It Time to Regulate Social Media Influencers?”
When should the government intervene in an emerging industry? Citing a video by beauty vlogger Marlena Stell about the unglamorous aspects of working with influencers, this New York magazine Intelligencer article puts questionable practices employed by some of these social media users under the microscope. Take, for example, some influencers’ efforts to deceptively inflate their followings with bots, or their failure to disclose paid sponsorships to real followers. “There’s a lot of different places where regulation can help the industry,” says Kessler, who asks students to identify those areas and evaluate potential policies.
“Vaccination Rate Jumps in California After Tougher Inoculation Law”
Vaccines were a hot topic even before COVID-19 arrived on the scene. Kessler uses this 2017 article from the Los Angeles Times, which details California’s vaccination efforts following a measles outbreak, to discuss government mandates.“We talk through when a mandate might be appropriate,” says Kessler. “In this specific example, where they’re trying to restore herd immunity, if — without the mandate — enough people remain unvaccinated that they start having measles outbreaks again, the welfare benefits of the mandate might outweigh other costs.”
“How Rubber Chickens and Wind-Up Teeth Can Motivate Workers”
“Recognition is the secret weapon to a business,” says David Novak, former CEO of Pizza Hut owner Yum! Brands, in this CNN Business piece. Novak shares his highly effective — albeit unconventional — method of acknowledging good work with knickknacks and small cash bonuses. “Novak is an example of a manager who, through his intuition and experience, figured out a set of highly motivating tactics that cost the firm very little,” says Kessler.
Published as “On Your (Not So) Best Behavior” in the Spring/Summer 2022 issue of Wharton Magazine.
