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Demand for shopping bags is “extremely elastic” says Kellogg’s Marty Lariviere, commenting on the success of the District of Columbia’s recently imposed $.05 per shopping bag tax (on paper or plastic) to pay for cleaning the river. Already there’s been an average of 60 percent reduction in the number of bags handed out across retailers. Maybe the program is a failure then since it was designed to be a revenue generator and it’s not hitting its targets.

The river clean up fund had been anticipating raising over $3 million dollars this but has collected only $1.1 so far.

Lariviere chalks up the drop in bags to “social pressure”–presumably by environmentalists–as well as the low-cost of avoiding the $.05 tax (bring a bag!), but does this explain the huge drop in shopping bags taken. Bringing a bag was never an onerous task and $.05 per bag is still a drop in the bucket on a typical grocery bill. What seems at work here is a reference price of $0.00. Bags were always part of the grocery shopping experience and came to be part of the value a customer expected. With the new tax, customers couldn’t make proper comparisons to the cost of their old “free” bags because it wasn’t clear what those costs were. Lariviere notes that for some nice shopping bags the costs are well above $.05., so retailers are happy not to hand them out. But without making the price connection, customers felt nickel and dimed. And, as he argues, they could easily act on their outrage because the cost of avoidance is low.

Back to the first statement, though. Is shopping bag demand highly elastic? Here’s a thought experiment. Lots of stores sell shopping bags these days. Some of them, like card shops, even sell relatively plain bags with handles similar to what you would find at some grocery stores (like a Whole Foods). If the price of those bags went up $.05, do you think the demand would fall 60 percent? Another way to reinterpret Lariviere’s point is to say Yes, with the following caveat. Any once free good has a high elasticity when no longer free – even if the absolute price increase is tiny.

Writing the Journal of Marketing, Gadi Fibich, Arieh Gavious, Oded Lowengart devise a theory for this reference-dependent elasticity. Gated here.

The effect of reference price is most noticeable immediately after a price change, before consumers have had time to adjust their reference price. As a result, immediate-term price elasticity is higher than long-term elasticity, which describes the response of demand long after a price change, when reference price effects are negligible. Furthermore, because of the differential effect of gains and losses, immediate-term price elasticity for price increases and price decreases is not equal.

Caution: This argument is just a theory. But here’s another way to put it: When you suddenly realize there’s no such thing as a free lunch, that first paid one really hurts. Let’s see where shopping bag demand in the District is a year from now.

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Assorted links

1) Choice architecture advice for businesses. Hat tip: Zach Perry.

2) Psychologists are studying ambivalence as factor in decision making more closely.

3) Likely ineffective recycling nudge in Sweden (in Swedish). Ad says “Let us recycle your cans” with a shelf below the message. Hat tip: Niklas Laninge.

4) Likely ineffective anti-gambling nudge in Australia. Pop-up screen showing current amount won and lost on video poker machine.

5) Lessons from psychology applied to the climate change debate. Hat tip: Five Minute Economist

6) Can you build social capital through a nudge? Hat tip: Social Capital Blog.

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You’re in a car dealership looking to buy a new car. Chances are, you’re going to look at the sticker in the backseat window. You know, the one with the fuel efficiency numbers. But you won’t look for too long. Say 20-30 seconds, tops. Of the following two labels, which one is going to help you figure out the fuel tank’s consequences for the environment and your wallet?

The Environmental Protection Agency hopes you said the first one, which tries to highlight the pocketbook impact better, and adds new details about environmental friendliness. As part of window sticker requirements starting in 2012, the agency is looking to make some changes. The agency is considering swapping the bottom sticker for the top one.

Now consider this sticker, which the EPA is also considering.

The same information that’s on the first label is all there, but of course, there’s now that giant letter grade that’s supposed to sum up fuel and environmental specs for the car in comparison to all other models (cars, trucks, and SUVS) on the market. Reports the NYT:

The highest grade, A+, with fuel economy rated as equivalent to 117 miles per gallon and up, would be for “zero emission” electric cars. Plug-in hybrid electric cars (59 to 116 m.p.g. equivalent) would get an A, and some conventional hybrids, like the Toyota Prius and Ford Fusion, would get an A-. Other hybrids, like the Nissan Altima, Ford Escape and Toyota Camry, would receive a B+.

On the positive side, a school-like grading system is one that everyone is intimately familiar with and, therefore, requires no additional explanation (no grade inflation jokes, please). On the negative side, because grades are so closely tied to education, interpreting them with automobiles is more complicated. In school, everyone wants an A. In a showroom, everyone probably doesn’t want an A. Fuel consumption and environmental friendliness are only two of a host of dimensions buyers will consider. Maybe fuel efficiency is my top priority. Or maybe my top priority is actually a car with lots of towing power, although I’m happy to get the one that sips the least gas. Since the sticker only comes with a grade, and not pictures (or even names would be ok) of other cars with similar grades, I don’t know how heavily to factor it in my decision. Yes, a shopper can go dig up the kinds of details about A+ vs. B+ cars as reported in the New York Times, but the point is if it’s not on the sticker, it’s likely to be ignored.

The EPA hasn’t decided which sticker to have automakers adopt. If you have thoughts, you can let the EPA know here. Hat tip: Colin Manuel.

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1) Can the phrase “I look forward to receiving your information so I can process your case as soon as possible,” increase successful food stamp applications?

2) The city of Boulder, Colorado, is challenging its residents to be healthy and act sustainably. Hat tip: Kare Anderson.

3) A behavioral economics explanation for sticky prices and celebrity endorsers: We take our cues about price from others. Hat tip: Mostly Economics.

4) Do the new larger bars on your iPhone 4 make you feel better about your reception? Hat tip Pete Novosel.

5) National Geographic on smiling energy bills and friendly competition.

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Uriel Fogué, an architect, design lecturer at the European University of Madrid in Spain, and a Nudge blog reader sends along a great story of interactive learning from his classroom. The lesson relates wisdom of the crowds, feedback, gambling, and solar energy. Quite a combination.

I run a Workshop called Energy Bets at the Universidad Pontificia Javeriana de Bogotá (Colombia). The idea was to explore during two weeks the architectonic opportunities that the use of solar photovoltaic technology entails nowadays.

The students’ assignment was to design in full a building using integrated solar photovoltaic systems. In order to get ready, they had to acquire a basic knowledge of this technology, but instead of a conventional lecture, we chose to nudge them to learn it for themselves. We called the nudge we used “Quinielas energéticas” (Energy Bets) and it worked as follows.

We had installed a solar panel in our office’s balcony in Madrid. There was a webcam monitoring the panel and sending information in real time to Colombia, where it was projected on the classroom’s screen. The idea was to turn the classroom into a simulated energy stock-market. As a pre-requisite for the workshop, the students had to pay a betting fee of around 15$. This was their initial bet in our quiniela (pools). Every morning, at the beginning of the lecture, we made a question concerning the Madrid panel (such as ‘How much energy is it going to catch tomorrow at 12am?’ or ‘How many solar panels like the one we are working with would be necessary to give service to a full electric house with this and that requirements?’). At the end of the lecture, the students had to give an answer, in which they gambled 1$ at least. During each session the students were supposed to find out the information needed to give the correct answer, by whatever means they could use.

The first three days nobody got the right answer. But after the 4th session and for the remaining, there was more than one winner every day and the estimates became so accurate, that we had to consider decimal figures in the answers in order to choose the daily winner. The rules stated that the last, the day person who achieved the highest score of correct answers, would get all the collected money.

Through this nudge-gambling the students became photovoltaic experts in a record time, and were able to use the new knowledge in their architectural designs. On the other hand, this kind of active participation (instead of recieving information or obeying technological mandates, having to looking for it) turned the learning process into a playful, making the technological knowledge an enjoyable topic.

The experience was so successful that it left us thinking whether we could transform the learning of ecological principles into a sort of gambling vice, in which the participants would get hooked to getting the right answers.

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1) Do Republicans respond differently than Democrats when their utility bills tell them how much energy they are using? Hat tip: Danny Vincent.

2) Remember the alarm clock that donates money to organizations you despise when you don’t get out of bed? How about a web site that donates money to those organizations when you procrastinate online. Hat tip: Gilad Buchman.

3) Do cities make signs about neighborhood parking confusing as a way to nudge people to park at meters and free up more space for neighborhood residents? Hat tip: Lou Wigdor.

4) Another web application for scoring your home’s energy efficiency. This one just raised $315,000.

5) PBS special Mind Over Money is available online (filmed, in part, at the University of Chicago).

6) The NCAA makes sickle cell testing the default option. Hat tip: Robert Barricelli.

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1) Self-control and self-admiration are part of a virtuous feedback loop.

2) Humans grossly underestimate the likelihood that someone will give them help if they ask for it. It turns out that others are more willing to help than most think.

3) A North Carolina electric company adopts a version of the Keep the Change program called Operate Round Up. Customers can choose to have their utility bills rounded up to the nearest dollar with the difference donated to area charities. The average donation is $6/year and the company serves about 2 million North Carolinians. So that could work out to about $12 million a year in charitable donations if every customer participated. Hat tip: Colin Smith

4) Virtual worlds give behavioral economists better environments to test models of behavior.

5) First carbon footprints, now water footprints.

6) A healthy behavioral decision isn’t as simple as taking personal responsibility. Hat tip: Jodi Beggs.

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1) Zero-sum ethics. People who feel good about their green purchases cut a few ethical corners later.

2) Starwood Hotels experiments with letting environmentally-minded guests opt out of room cleaning (plus get a small discount). Hat tip: Kare Anderson.

3) Split the check by bumping iPhones. Hat tip: Adam W.

4) NCAA selection bias. Playing in one of the six power conferences is worth an extra 1.75 seeds in the NCAA tournament.

5) Looking to get elementary school kids to be more active? Paint brightly colored castles, dragons, clock faces, mazes, snakes and ladders on the playground. Hat tip: Randy Scott.

Addendum: Calorie counts at chain restaurants are going to be harder to ignore, says AP.

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1) Using a web form to register people at your site? Trying to boost conversion rates? Consider a mad libs style form.

2) What behavioral economics can add to the health care debate.

3) Talk of the Nation’s Science Friday asks how nudges can help people save energy. Segment runs 13 minutes.

4) Automatic enrollment coming to Canada?

5) A subscription service for lazy guys that will send fresh socks, t-shirts, and underwear every three months. Hat tip: Raj Shah.

6) In the U.K., casinos require memberships. Once you fill out the paperwork, you have to wait 24 hours before going to the casino.

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To help you save water instead of electricity.

Designed by Paul Priestman, the “Waterpebble” is an innovative device that keeps an eye on water consumed when you take shower in the bathroom. Designed to be fully recyclable, the smart device monitors water going down the plughole, after each shower, to compare it with earlier showers, so you could manage or reduce your shower time and thus water consumption. Featuring an automatic mechanism, the Waterpebble takes your first shower as a benchmark and gently flashes “from green through to red” to stop the shower.

More at Design Blog. Hat tip: David Tannenbaum.

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