Economics is about choices. But how can people be persuaded to make healthy choices, or socially responsible or environmentally friendly choices? Behavioural economists have studied how people can be ‘nudged’ into changing their behaviour. One version of nudge theory is ‘fun theory’. This studies how people can be persuaded into doing desirable things by making it fun to do so.
I came across the first video below a couple of days ago. It looks at a highly successful experiment at the Odenplan underground station in Stockholm to persuade people to make the healthy choice of using the stairs rather than the escalator. It made doing so fun. The stairs were turned into a musical keyboard, complete with sound. Each stair plays a piano note corresponding to its piano key each time someone treads on it. As you go up the stairs you play an ascending scale.
After installing the musical staircase, 66% more people than normal chose the stairs over the escalator.
The fun theory initiative is sponsored by Volkswagen. The Fun Theory website is ‘dedicated to the thought that something as simple as fun is the easiest way to change people’s behaviour for the better. Be it for yourself, for the environment, or for something entirely different, the only thing that matters is that it’s change for the better.’
VW held a competition in 2009 to encourage people to invent fun products designed to change people’s behaviour. There were over 700 entries and you can see them listed on the site. The 13 finalists included the musical staircase, traffic lights with quiz questions on the red, a Connect Four beer crate, fun tram tickets (giving entry to an instant-win lottery), a pinball exercise machine, a speed camera lottery where a winner is chosen from those abiding by the speed limit, a jukebox rubbish bin (which plays when people add rubbish), a one-armed vending machine, a fun doormat, car safety belts linked to a car’s entertainment system, car safety belt with a gaming screen which turns on when buckled, a bottle bank arcade system and the world’s deepest bin (or at least one which sounds as if it is). The winner was the speed camera lottery.
The fun theory site
Thefuntheory.com
Fun theory videos
Piano Staircase – Odenplan, Stockholm (on Vimeo)
The Speed Camera Lottery (on VIMP.com, Kevin Richardson)
Garbage Jukebox (on YouTube)
The World’s Deepest Bin (on Vimeo)
Bottle Bank Arcade (on YouTube)
Questions
- Does fun theory rely on rational choices?
- Other than through having fun, how else may people be nudged into changing their behaviour?
- Go through some of the entries to the Fun Theory Award and choose three that you particularly like. Explain why.
- Invent your own fun theory product. You might do this by discussing it groups and perhaps having a group competition.
Much of the east coast of England is subject to tidal flooding. One such area is the coastline around the Wash, the huge bay between Norfolk and Lincolnshire. Most of the vulnerable shorelines are protected by sea defences, usually in the form of concrete walls or earth embankments, traditionally paid for by the government. But part of the Norfolk shoreline is protected by shingle banks, which require annual maintenance.
Full government funding for maintaining these banks ended in 2013. According to new government rules, only projects that provide at least £8 of benefits for each £1 spent would qualify for such funding to continue. The area under question on the Norfolk cost of the Wash does not qualify.
Between 2013 and 2015 the work on the shingle banks is being paid for by the local council charging levies. After that, the plan is for a partnership-funding approach, where the government will make a (small) contribution as long as the bulk of the funding comes from the local community. This will involve setting up a ‘community interest company’, which will seek voluntary contributions from local residents, landowners and businesses.
Sea defences are a public good, in that it is difficult to exclude people benefiting who choose not to pay. In other words, there is a ‘free rider’ problem. However, in the case of the Wash shoreline in question, one borough councillor, Brian Long, argues that it might be possible to maintain the flood defences to protect those who do contribute while ignoring those who do not.
Not surprisingly, many residents and businesses argue that the government ought to fund the defences and, if it does have to be financed locally, then everyone should be required to pay their fair share.
Radio podcast
Holding back the sea BBC Radio 4, David Shukman (19/11/14)
Articles
What is the price of holding back the sea? BBC News, David Shukman (19/11/14)
Firms will have to pay towards cost of sea defences between Heacham and Wolferton in West Norfolk EDP24, Chris Bishop (1/8/14)
Businesses between Snettisham and Hunstanton will have to pay for flood defences. EDP24, Chris Bishop (19/11/14)
Wash and west Norfolk sea defence repairs now under way BBC News (13/12/13)
Consultation document
Managing our coastline Borough Council of King’s Lynn and West Norfolk, Environment Agency
Questions
- What are the two main features of a public good? Are sea defences a pure public good?
- Is there a moral hazard if people choose to live in a coastal area that would be subject to flooding without sea defences?
- Who is the ‘public’ in the case of sea defences? Is it the whole country, or the local authority or just all those being protected by the defences?
- What are the problems with relying on voluntary contributions to fund, or partly fund, sea defences? How could the free-rider problem be minimised in such a funding model?
- Discuss the possible interpretations of ‘equity’ when funding sea defences.
- If ‘flood defences could be built or maintained to protect those who do contribute while ignoring those who do not’, does this mean that such defences are not a public good?
- Find out how sea defences are funded in The Netherlands. Should such a funding model be adopted in the UK?
On my commute to work on the 6th October, I happened to listen to a programme on BBC radio 4, which provided some fascinating discussion on climate change, growth, capitalism and the need for co-operation. With more countries emerging as leading economic powers, pollution and emissions continue to grow. Is it time for a green revolution?
The programme considers some ‘typical’ policies and also discusses some radical solutions. There is discussion on developing and developed nations and how these countries should be looked at in terms of compensation, entitlement and aid. Carrots and sticks are analysed as means of saving the planet and how environmental damage can be reduced, without adversely affecting the growth rate of the world economy. I won’t say any more, but it’s certainly worth listening to, for an interesting discussion on one of the biggest problems that governments across the world are facing and it is not going to go away any time soon.
Naomi Klein on climate change and growth BBC Radio 4, Start the Week (6/10/14)
Questions
- What are the market failures with the environment?
- Why is global co-operation so important for tackling the problem of climate change?
- Which policies are discussed as potential solutions to the problem of climate change?
- What has been the problem with the European carbon trading scheme?
- Why may there be a trade-off between capitalism, growth and the problem of carbon emissions?
- To what extent do you think that countries such as Bangladesh should be ‘compensated’?
The Office for National Statistics (ONS) reported that the quantity of retail sales in the UK was 3.9% higher in August than it had been in July. However strong price competition meant that the value of these sales increased by only 0.4%. What were the key factors driving the big increase in the quantity of sales? Was it simply the response of consumers to falling prices?
The data indicated that there was strong demand for goods associated with the housing market such as carpets, fridges and cookers. Spending on furniture increased very rapidly with sales rising by 24% over a 12 month period. Flat packed furniture proved to be particularly popular with consumers.
There was also strong demand for electrical goods and more specifically vacuum cleaners. The ONS estimated that a boom in the sale of vacuum cleaners in August was responsible for 25% of the increase in retail sales.
Why did the sales of vacuum cleaners increase so rapidly in August? Did UK households suddenly decide to keep their houses cleaner? The sales data shows that certain types of vacuum cleaners sold in much larger numbers than others.
For example, Tesco reported a 44% increase in the sales of 2,000 watt vacuum cleaners in the last two weeks in August while the Co-op reported an increase of 38%. Referring to the last weekend in August, the head of small domestic appliances at the on-line retailer ao.com stated that
We saw a huge surge in sales of corded vacuums over 1,600 watts over the weekend, with sales quadrupling.
There were also reports that a significant number of customers were buying more than one vacuum cleaner with these larger motors.
The key reason for the sudden surge in demand was the implementation of new regulations by the European Union as part of its energy efficiency directive. The ultimate objective of this directive is to reduce climate change. The specific policy that appears to have had such a big impact on consumers in the UK was the ban imposed on firms in the EU from making or importing vacuum cleaners that have motors above 1600 watts. This ban came into effect on the 1st September 2014.
A spokesperson for the consumer group Which? stated in August that
If you’re in the market for a powerful vacuum, you should act quickly, before all the models currently sell out. A Best Buy 2,200-watt vacuum costs around £27 a year to run in electricity – only around £8 more than the best scoring 1,600-watt we’ve tested.
The EU plans to reduce the maximum permitted wattage in vacuum cleaners to 900 watts in 2017. Restrictions have already been imposed on bigger electrical appliances such as televisions, washing machines and refrigerators. The EUs Ecodesign directive may also be extended to a range of smaller electrical appliances such as toasters and hair dressers in the future. It’ll be interesting to see if consumers respond in the same way to regulations imposed by the EU in the future.
Ten days left to vacuum up a powerful cleaner BBC (21/08/14)
Housing boom, food discounting and vacuum ban boost UK spending The Guardian, Larry Elliott, Phillip Inman, Lisa Bachelor (18/9/14)
UK retail sales boosted by vacuum cleaner sales BBC (18/9/14)
Retailers sell out of vacuum cleaners ahead of EU ban The Telegraph, Elliot Pinkham (30/8/14)
Power surge! Fourfold rise in sales of super vacuums: Some customers buying two or more models to beat new EU regulations Daily Mail, Andrew Levy (1/9/14)
Energy Efficiency Directive European Commission (accessed on 24/9/14)
Vacuum cleaner splurge pushes up UK retail sales The Guardian, Phillip Inman (18/9/14)
Questions
- Using a demand and supply diagram, illustrate what has happened in the market for high wattage vacuum cleaners in August. Pay particular attention in your answer to the role of expectations.
- What did your previous diagram predict would happen to the price of high wattage vacuum cleaners in August? Did this in fact happen?
- A fully informed rational consumer may purchase a higher wattage vacuum cleaner if they consider that the improvement in cleaning performance is greater than the extra cost of purchasing and using the cleaner. Can you provide an economic rationale for banning the sale of these machines in these circumstances?
- Using a demand and supply diagram illustrate the impact of banning the sale of a product in a competitive market.
Every year thousands of entrepreneurs will have another great idea that is sure to take off and bring in millions of customers. However, most of these great ideas will turn into another business failure. But, in the case of Dropbox, it is multiple business failures that eventually created a huge success, giving hope to millions of budding entrepreneurs.
With 300 million users, the file sharing ‘Dropbox’ is certainly a success, estimated at a value of $10bn. But it didn’t happen immediately and was preceded by a few failures. So, what is the secret to success in this case? The co-founder of Dropbox, Drew Houston, said that it is all about providing something that customers want. In the case of Dropbox, customers are crucial: the more people use it, the easier it becomes for others to use it too, as it allows file sharing on a much larger scale. Perhaps here we have a case of network externalities.
With Dropbox people would tell their friends about it and collaborate. So when you go into work and work on a project with colleagues you recruit them in essence to become Dropbox users because you’re all working on a project together.
No doubt there are many other examples of businesses that have proved a success after several failed attempts. Providing customers with what they want, at the time when they need it is clearly a key ingredient, but so, it appears, is business failure. The following article from BBC News considers the rise of Dropbox.
Dropbox and the failures behind it BBC News, Richard Taylor (1/7/14)
Questions
- Customers are clearly crucial for any business to succeed. How can a new entrepreneur find out if there is a demand?
- Why was timing so important in the case of Dropbox?
- Given that customers can actually use Dropbox for free, how does this company make so much money?
- What are network externalities? Explain them in the context of Dropbox.
- Drew Houston says that ‘distribution’ is another key ingredient to success. What do you think is meant by this and how will it help create success?
