In this first in a series of podcasts, BETA interviews Research Director, Professor Robert ‘Bob’ Slonim who joined PM&C from The University of Sydney earlier this year. Bob talks all things behavioural economics and the people who inspired him, giving us an insightful look into traditional economics versus behavioural economics and why it’s important to consider human behaviour in these models. Professor Slonim also shares some of his research and how his findings have been applied more practically.
Disclaimer: BETA's podcasts discuss behavioural economics and insights with a range of academics, experts and practitioners. The views expressed are those of the individuals interviewed and do not necessarily reflect those of the Australian Government.
Elaine Ung: Hello, and welcome to BETA's first podcast. BETA's a nifty acronym for the Behavioural Economics Team of the Australian government and we sit in the Federal Department of the Prime Minister and Cabinet. My name's Elaine and I work in this dynamic team and we're so excited to start BETA's podcast series.
Today I have with me BETA's research director, Professor Robert 'Bob' Slonim, who is a professor of economics at the Sydney University. Bob's been with BETA since July this year and it's been so great having him. In fact, we thought he and his work are so interesting, we've decided to focus our first podcast on him. Welcome, Bob. Can you please give us a bit of background? Who you are and where you've come from?
Robert Slonim: Well, by my accent, I’ve come from the United States. I have been an economist for most of my life now, for about two-thirds of it. I got into economics sort of in a roundabout way. I started as an electrical engineer, but I dabbled in taking other courses and was fascinated by the ideas that I was hearing as an undergraduate at UC Berkeley and quite motivated by a number of the academic faculty at the time.
People like George Akerlof and Janet Yellen, quite influential people, and the discussion of really big ideas. And at the time, things like the introduction of an understanding of externalities in markets and public goods and imperfect information. And these were all around the ideas of where markets were not providing optimal solutions for a population, and then the ideas of regulation and market interventions and the role of government to make and help people have better lives. So that very much motivated me.
I switched from engineering into economics at that point. I went to graduate school and I was very interested, actually, in much more mathematical issues. I was interested in game theory and what motivated and excited me there, I think as many other people do, was it turned out that outcomes really depended on really small details and that people's welfare and lives and the way they interact in markets actually could hinge and could be critically effected by these really tiny things. But then sort of my next motivation, what really drove me sort of, I think ultimately to become where I am, a behavioural economist today, was the work of Al Roth and the work of people that were saying this isn't an abstract theoretical idea, that these things could really matter a lot.
In particular, there was a series of work that Al Roth did at the time, eventually he wins a Nobel Prize for this, I think it was very inspirational to many young economists of the day. And the idea being where markets could really fail based on really small, sort of, rules that could be changed quite easily, and then they could succeed quite dramatically. He demonstrated this in labour markets. He did this within one particular program, it's called the National Residency Program. And what we found was, and what he found was, that these really small differences in the way students were being assigned could be the difference between terrible matches where students’ lives would be dramatically affected and get placed into the wrong programs and the wrong specialties, to programs that worked really quite beautifully. And you really got the right match between the needs of the hospital and the needs of the patients to get the right outcome.
That was very inspirational, I think for me, thinking about the roles of economics to really solve practical problems. And I think that's sort of led me to where I am today as a behavioural economist.
Elaine Ung: Great. So, in a nutshell then, what is behavioural economics?
Robert Slonim: It's a great question and I think currently in the way behavioural economics is practised by units such as BETA, the BIT team, I think it's a bit of a misnomer as a name. Behavioural economics, the way it's practised is really much more closely related to cognitive and social psychology. It's about the process by which people gather information and use information to make choices. Whereas, economics traditionally has been much more about price determinations, equilibrium, people making optimal choices and also, how those choices would affect and work their way through an economy.
So the way it's being practised today, I believe, behavioural economics is much more sort of closely rooted in psychology than it is in economics.
Elaine Ung: Could you tell us about an interesting project you've worked on?
Robert Slonim: Yeah. We joke as academics that the most interesting project we're working on is whatever we're working on in the last 20 minutes. But in a more serious way, the project that I think I've worked on, and this is for about 12, 13 years in my career, has been on the provision of whole blood or blood supply. It's interesting because from a societal point of view, there typically are shortages. Even in wealthy countries, they go through episodes of shortages and in less wealthy countries, there's just dramatic shortages. And this can affect, obviously, people's lives and matter of life and death in some cases.
It's interesting because the conventional wisdom for the last 50 years, until we were doing our research, was that a solution did not involve any form of reward, incentive, any sort of what we think of as traditional economic motivation. It was interesting because there were also moral issues involved about human dignity and how you should encourage or not encourage people to help others.
And then, the part that is the most interesting is that our work basically overturned 50 years of conventional wisdom. We found that even the most small of rewards or gifts, like t-shirts or coffee mugs, could actually have a dramatic increase in the supply of blood. And I think the most interesting part possibly, ex-post to all of our work, was the negative reaction we received from some major organisations, like the Food and Drug Administration of the United States, the WHO, who basically felt that even if the evidence was there, which they didn't agree with originally, but now they're okay with the evidence, they still sort of thought this was a moral issue. In the end, they think that you should never compensate people for something that involves the human body. I think it's a really interesting and open question.
Elaine Ung: So fascinating. Do you have any favourite behavioural economic concepts?
Robert Slonim: Yes, absolutely. And this is very interesting because of my work at BETA, this almost comes up in virtually every project that we've worked on. And I think it's such a fundamental issue and it's known as present bias. And present bias is this notion about how much weight we give when we're making decisions about the values, what we can gain or lose in the present versus in the future. What we find is, through probably evolution, the absolute needs of survival, we seem to have brains that are fairly well wired and the psychology which is about putting all of our attention on the present. And we give not all but most of our attention on the present, and what this means is that we make choices for the present over the future.
Now that we live for 70, 80, 90 years, this can actually lead to very poor choices, such as in health where we consume unhealthy food. We enjoy it in the moment, but it's coming at the cost of our future health. You can come in the area of savings for the future where we want to actually spend money today and not have as much money for the future. Well, that's fine if we're only living for the next three days, but if we're living for the next 70 years, having savings is important.
It comes in the space of education and how much we invest in our own education. We see this almost throughout all types of decisions that we work on and almost all of our projects: that there tends to be this bias towards too much emphasis on the present, and the costs then get born in the future.
Elaine Ung: So, do you use behavioural economics in your every day life, and can you give us an example of how you do?
Robert Slonim: I've become aware of how much behavioural economics is used in marketing campaigns and in advertising and I BE my life in a lot of ways to protect myself against being BE'd by corporations and organisations. So for instance, one of the things we observe in behavioural economics is that once you make a choice, it becomes a status quo and then you are really hard to change your behaviour.
So for instance, in the space of charitable giving, I BE myself by protecting myself for ever signing up for a programme where they're gonna take a chunk of money out of my paycheck every month or they're gonna take a chunk of money and charge it to my credit card every month. 'Cause I know once I sign up, it's gonna be really hard for me to then reverse that decision. It's going to become the status quo.
Another area where I BE my life is with my children. In referring to present bias, I spend probably an unordinary amount of time trying to convince my children that the future matters and they should be studying for a test. And I try to give them all the right incentives about why it's even valuable in the present to be studying as opposed to playing League of Legends.
Elaine Ung: So, for someone who is completely new to behavioural economics, what's a book, podcast, or author you'd recommend?
Robert Slonim: There are many. I'm gonna go away from the most popular books and podcasts. The one I've been really fascinated by is a 10 minute podcast by Dan Ariely. This is about the behavioural economics of dishonesty and sort of doing small, slightly immoral or unethical or corrupt type of behaviours and he walks through all the motives for this. It's beautifully entertaining, so you'll be laughing as you watch this video and it's beautiful and I think it's incredibly important also, because as it turns out, I think this is an important phenomena throughout all walks of life.
We can think of this from minor insurance frauds to stealing pencils from the office. We can think of this as with the massive uptake of self-checkout at grocery stores. The forgetting to just claim one item I just happened to forget or, "Oh, that bag of onions that I just claimed, it was avocados but I forgot about that and I just charged them as onions," because they're, of course, a third of the price.
There's just countless examples of where people are doing these small things and unfortunately in society, that adds up, 'cause someone ultimately has to pay for that, you know, and that's the problem.
Elaine Ung: So, one final question, are you enjoying the research director position in BETA?
Robert Slonim: I am, and I'm enjoying it for so many different reasons. But the leading reasons are I think, one, it's exposed me to be able to work on and think about a large number of new problems. Second issue to me, which is really fascinating, is working on the complications of the real world. In my academic life, you tend to focus fairly narrowly on specific problem and it usually is in an isolated, almost like a bubble type of environment and that's just impossible here.
If we're working on one project, we have to think about all the implications across all. It might be in the health space, but it also could have something to do with workplace issues or diversity. Or it could have to do with something to do with taxation also. And so thinking about all the complications and having to bring that into a simple report that is communicated and it can be effective in sort of changing behaviour, the way we think about things, has just been ... It's been a fascinating ... It's great opportunities, it's great challenges, and it definitely, I think any academic coming into the public service space, really opens up sort of the world of ideas and challenges in richness that I think is just fascinating to be in.
Elaine Ung: Thanks so much, Bob. That was a great way to start BETA's podcast series. Stay tuned! In this series, we hope to interview a whole range of academic and practitioners in the behavioural economics and insights field. I'm Elaine, I'm part of the Behavioural Economics Team here at the Department of the Prime Minister and Cabinet and with me today was BETA's research director, Professor Robert Slonim.