Q&A: Behavioral Economist Dan Ariely On His Plans To Help America's Poor
Today Dan Ariely announced a new research center called the “CommonCents Lab,” funded with a $7.9 million grant from the MetLife Foundation devoted to helping low- and moderate-income families.
Ariely talked with Elizabeth Harris at Forbes about how behavioral economics can aid low income families, how the financial crisis helped give prominence to his growing field and the one change we should all make to improve our financial lives.
How can behavioral economics help low and middle income families gain more financial security?
It can help everybody, not just people with low or middle income. But think about what’s happening in the world. The world is basically trying to tempt us to do things that are not necessarily in our long-term best interests.
One of the basic principles from behavioral economics is the environment matters. If you think about it, what is our environment trying to do? You’re walking down the street, you’re walking in the mall, in every shopping entity, in every advertisement, all of them want something from you. And what they want from you is not your long-term well-being. What they want is your time, money and attention right now. It’s getting harder and harder because our apps are on the phone, websites’ [ads] are popping so this question of resisting temptation is something that is becoming more and more difficult.
On top of that, we have this problem of thinking long-term in general. Think about medication adherence, think about savings think about texting and driving, there are lots of things that show us we don’t think well when it comes to the long term.
Your new CommonCents team will focus on what you describe as the “intention-action” gap—why are we all so prone to this behavior?
Just think about things like procrastination, think about eating unhealthfully. Most people know what is healthy and what is unhealthy. It’s just that life makes it very easy to eat unhealthy and very hard to eat healthy. It’s all the way from unhealthy food to cooking at home. Cooking at home demands upfront costs. You have to get some utensils and olive oil. We’ve been to some homes where the only equipment they have for cooking is a microwave.
Is that problem of income or a lack of planning?
It’s a combination. Imagine you have to equip a kitchen and you had to go and buy a stove and a cooktop and get olive oil and salt and pepper. It’s very expensive to start if you never have the money to start so there’s lots of things that make it hard. Some if it is the environment.
Imagine you work somewhere and you take public transportation and you get to your neighborhood on Friday at 7 p.m. and the only thing that is open is a payday lending place. What are your options? You can wait until Monday maybe. So we’re trying to understand what are the challenges that peoples have and how we might be able to help.