How can you use economic principles to motivate students to overcome procrastination and achieve academic goals? Penn State’s Jadrian Wooten explains in this lecture.
Assistant Teaching Professor of Economics, The Pennsylvania State University
PhD in Economics, MBA in Economics, BBA in Management & Economics, minor in Entrepreneurship
Professor Jadrian Wooten: I’m from Sam Houston State University. That is not in Houston, Texas. That’s where I did my undergrad and my master’s degree. I usually tell my students I’m from Texas. I don’t have a Texas accent, so I don’t think you’re going to pick up anything. The only thing that I say that is slightly maybe weird is that I will say “y’all,” and that’s about it. I’m going to say “y’all” if I ever reference everybody in here. Other than that, I don’t think you’re going to pick up anything. I don’t think I say anything weird.
But then I went to grad school in Washington State, so I [was] 2,000-something miles away from home. I told my mom that I was going to go to grad school. I told her I was going to get a PhD. She asked me why. She said, “You’re wasting your time. You have an MBA. You can make a lot of money working in Houston staying close to home.” Sam Houston State’s like an hour away from Houston. It’s north of that. I grew up kind of near Louisiana. She wanted me to stay at home. I said, “No. I really want to teach. I love the idea of teaching. I want to go get a PhD.”
My mom and I disagree on what I’m about to tell you, so I’m going to say this. That way it’s on the record, because it happened. We were sitting and having lunch, and I told her I wanted to go get a PhD. She looked at me and … she’s going to kill me for saying this. She looked at me and said, “You’re not going to be a real doctor, though.” My mom’s a nurse. She was very upset. But I said, “I love teaching,” so I’m going to talk a lot about teaching today, because that’s what I’m absolutely passionate about. I love teaching. Research is fine, but teaching’s where it’s at. That’s what I really like.
I go to Washington State. Four years later, I finish. I have a degree. My dissertation’s in sports economics, so my technical field is applied microeconomics. I’m not going to you about recessions or expansions or interest rates or anything like that. That’s all super boring to me. I love microeconomics, behavioral aspects of how people act.
Four years later, I promised my mom I would move closer to home. The key thing is, I told you I grew up near Louisiana, which is on the right side of Texas. That’s our joke, the right side of Texas, because it’s the eastern side. That really is, that’s the billboard. I go to Penn State University, I’m actually 200 miles closer to home. My mom did not like that joke when I told her that. But that’s where I’m at now.
I’ve spent the past 4 years at Penn State mainly … I still do some sports econ research. I still do some education research. But really, the past 4 years I have been spending a lot of time developing teaching tools. I wanted to talk to you about these for just a second, because you’re going to recognize some of the names in a second.
The very first thing that we did was we started to go through the Big Bang Theory, and start clipping out examples from the Big Bang Theory. And that’s where we started to really realize that students love these clips, because it kind of shows economics actually happening in their TV shows. If I say it, they don’t believe me. It’s a really weird … I can’t explain this. Maybe somebody else, maybe a psychologist knows better. If I say it, then nobody really takes me seriously. If it’s on a TV show or a news episode, people believe it. They’re like, “That’s real. My instructor, he’s making that up. He’s just biased. That can’t be true.” But for whatever reason, if I show you a clip of Big Bang Theory, and I’m not going to do that … but if you wanted to you could go to the website and see it. Then, all of a sudden, they’re like, “Oh yeah. That makes sense. I get it. Economics is really easy.”
Parks and Recreation, that’s actually my favorite one. That’s the one we just finished this past summer. This summer, or the beginning of the summer…. This summer, we’ve been working on Modern Family, so we’re clipping out Modern Family and talking about the economics of relationships in the household, which are really interesting, and those dynamics. Adam Ruins Everything is something that we just finished working on. Something that was really cool that happened like, 2weeks ago—I’m glad you brought this one up—Adam Conover actually e-mailed us and said, “Thank you,” so that was really neat. That was a really weird surprise e-mail that I have in my inbox from Adam Conover saying that he read my paper on economics and he thinks it’s really cool. There’s a lot of good economics examples in there—and then the media library. I’m a media person. I love—and this is actually going to surprise you. I don’t watch a lot of TV. But I like watching TV and movies and finding economics and showing it to my students.
I think teaching is undervalued. I really think that my purpose in life is to be in front of a classroom and talking about economics and trying to explain economics in a relevant way. Interest rates are important, but, realistically, most of my students are going to see an interest rate once, when they buy a house, and that’s when an interest rate really matters. When they buy a car they probably aren’t paying too much attention to it, and they’re just swiping credit cards. They should care about it, but they really don’t pay much attention. The house one, the mortgage, that’s the one that really matters.
A lot of it is trying to figure out how we interact with people. That’s what I’m going to talk about today, is thinking about…. I’m going to talk a little bit about your behavior, and just things that we do that seem like they make sense but realistically are going to be weird when we actually talk about it. Then, the second half is going to be students. Since we’re all in education—you don’t realize it maybe; I hope you do—but you’re part of an educational community. The things that you’re doing, you need to know how students do weird things. That’s what today’s going to be about.
I figured I’d give you a brief overview of key economic ideas. What do we mean when I say you’re an economist? We have 3 of them. Hopefully you can’t see the other 2. They’re under there. I’ll color those in for you in a second. But basically, economists have 3 big ideas. This is my first week of class rolled into one. The first one—and this is the one that I think economists get made fun of over and over—is that people are rational. We assume people are rational. This is a weird thing. We talk about what does it mean to be rational? One of the interesting ideas is that … it’s like a tautology. If you do something, you’re probably acting rationally, and if you’re rational then you’re doing something that you like. It’s hard to explain, a little bit.
When we talk about rationality, we mean that people are doing things that make them happy. You respond positively to incentives and you respond negatively to costs. I’ll give you an example. Tara actually made a comment about my Fitbit. That was actually what I was going to talk to you about. I wear a Fitbit. I have a gym membership. Never … I’ve been to the gym a couple times. I’ve had a gym membership for a year and a half. Side note: I have lost 20 pounds over the past 2 years. I don’t go to the gym. I tell my students, I’m actually really … I was much heavier when I started at Penn State. I’ve trimmed down a little bit. Got a gym membership. Went to the gym like, 3 times and never really went back. I just didn’t want to go. It sounded real awful.
This is what I typically attribute to why I lost weight. Whether it’s accurate or not, I look at it and I pace around. I walk up and down steps. A lot of it was I just basically started walking a little bit more. It wasn’t necessarily that I was trying to reach a goal. I don’t really care if I reach my daily step target. But it just reminds me. It kind of says, “Hey. Get up. Walk around a little bit.” I think that’s really, for me it made a big difference. That’s what it means to be rational, the idea that I’m responding to this incentive to be reminded to get up and do something.
One of the things we want to think about is whether people are ever really rational in the purest sense. Are you actually making all of the calculations that you think you’re supposed to be making? We assume, as economists, that people are like these lightening calculators. You know all of the costs and benefits. You know everything that’s going to happen, and you’re able to, on the spot, make a decision. On really simple things, yeah. You’re rational most of the time. You know the right place to go.
You know, if you’re lactose intolerant, you don’t eat ice cream. Surprisingly, if I ask some of the people in here who are lactose intolerant if they’ve had ice cream, they’re going to raise their hand. You know it makes you sick, but you still eat ice cream. When we think about rationality, you are lactose intolerant, you know it’s going to make you sick. Rationally, you shouldn’t do it, and yet you still do it. We have this really weird situation where, as economists, we sit here and say, “People are supposed to behave rationally.” You do things that are not rational. Then we step back and I can make up a reason on why you do it. You say the benefits are outweighing the costs. You know you’re going to get sick, but for that one moment it’s worth it. That is delicious ice cream. “I have to have it.” As long as benefits outweigh the costs, we go back to part one, you’re rational. It’s one of those weird situations where we say, “People are rational, but they do irrational things. But don’t worry. The irrational things are rational.” It’s a tautology. Whatever you do, you’re rational. You’re safe.
Second big economic principle: People are motivated by incentives. I think this is the way it’s outlined in my textbook. That seems like it’s fairly straightforward. There’s an incentive. It’s going to motivate you. I decided, just to make sure, in case anybody’s not very good with words, I looked up what it means to be an incentive. What do we actually mean by incentive? Grabbed this straight out of Wikipedia. Let’s look at the first line. “An incentive is something that motivates you to perform an action.” If you go back to my title, people are motivated by motives. That’s basically what it means. Economics is not hard.
I hate flying on planes. I get a lot of reading done. I don’t like TV. I actually read a lot. I try to read about a book a week. I do the 52-book challenge. I’ve done that for the past 3 years. I read a lot on planes. Part of the reason I read on planes is I don’t like people to talk to me. Plane conversation is the worst conversation, because I’ll tell you exactly how it happens every single time somebody tries to talk to me. I sit down on the plane and I don’t have my book out. They look over and they go, “Where are you going?” “San Francisco.” “Oh, that’s cool. Have you ever been?” “No.” Yes, I’ve been before. I don’t know why I lied there. Yes, I’ve been. Please don’t tell me where to go.
“What do you do?” That’s always the very first question. I hate that question. Deep down inside, I hate it. I try to steer away, because most people don’t like economics. Most of you probably had an economics course. It maybe wasn’t your favorite course, because they stood up there and drew graphs, talked about interest rates, and you’re just like, “I just want to go away.” Most people don’t like economics. It’s one of the least popular courses in terms of favorability. I loved it, clearly. I’ve got 3 degrees in it.
But I sit there and I go, “I can tell this person I teach economics, or I can lie.” I don’t fully lie. I say, “I’m a teacher,” hoping that they’ll just stop. Then they go, “Oh, where do you teach?” “Penn State.” I’m like, good. This is about to be over. They go, “What do you teach?” I go, “No. You got me.” So I tell them, “I teach economics.” Their first response is, “Ugh. I hated economics.” I’m just sitting there going, I don’t want to have this conversation with you. You’re killing me.
My smart-ass response is, “You just didn’t have an economics teacher like me.” I make it really interesting, because I think things like this are really popular. We typically think about things like money as our main motivation. Most of you in here are here for a reason. You’re not doing this for free. California is really expensive. You can get people to do things that you want if you pay them. It might not necessarily be the right way. Some people care about intrinsic versus extrinsic motivation, and sometimes we want to be number one—but sometimes we just want to get paid. There’s nothing wrong with that. We can adjust the incentives to make sure that we’re getting the outcomes that we want. Sometimes we have unintended consequences and things don’t work out well.
One of the really popular ones is, actually, I talk about California a lot. We talk about the ban on plastics and using those cloth bags instead, is a really popular one that gets popped up, or soda taxes in Berkeley. Sometimes whenever you have these incentives, they don’t work the way you want. When you ban plastic bags and you have people bringing cloth bags, all of a sudden there’s E. coli outbreaks. Our goal is to get people to use less plastic, but people don’t wash those bags, and so then they end up creating bacteria in their closet. Or things like soda bans. We want to get people to stop drinking so much sugar—as I have a soda up here. But people do goofy things.
When Philadelphia passed theirs, there was this big story that, in order to avoid the tax, coffee shops weren’t putting sugar in their coffees, because if they give you the sugar on the side, it’s not a sugar beverage. So they can avoid the tax as long as they don’t put the sugar in the coffee. We might have motivations. We might have these motives to try to get people to do stuff, but people are smart. Go back to number two: People are rational. People find ways around incentives that you might be trying to do. Some of the things we want to think about is: incentives matter. People can be motivated by things. People are rational.
Then, the last one’s the weirdest one. This is one that’s the hardest one for my students to understand. Optimal decisions are made at the margin. If you’re not well versed in economics speak, all that means is that, when you make decisions about things, ideally you make them one at a time. You sit there and you think about…. I’ll give you my favorite example. I love gummy bears. Typically, if you open a bag, let’s say it’s a big bag, you don’t sit there and go, “I’m going to eat 20 gummy bears right now.” You take a gummy bear and you eat it, and then you take another gummy bear and you eat it, and you go, “I think I’m going to have one more gummy bear. That sounds good.” And you just keep eating all the gummy bears until the bag’s empty. You’re not a monster. You don’t eat a handful. Nobody shoves a handful of gummy bears in their mouth. That would be real weird if somebody, one guy is just like, all the gummy bears.
Actually, I’m a gummy worm person, but I couldn’t find a good image of gummy worms that was an approved image, so you got gummy bears. You eat the gummy worm in half. But you eat one at a time. If you go out to have drinks, you don’t go out and say, “I’m going to have 9 drinks tonight.” That doesn’t…. I was expecting much more response from that. That sounds like a lot. I’m in for a treat for dinner tonight. You have, hopefully, you have a drink, and then you say, “That was good. I think I’d like to have another one. Yeah, I’ll pay $9. I’ll have another one.” That’s what we mean by people acting at the margin. At the end of your decision, you say, “Do I want to have another one?”
For the most part, that makes sense. That works [when] people are rational. If we change prices, that can motivate people. People think at the margin. There are plenty of examples where you don’t, though. When you go grocery shopping, you buy bananas, you don’t put one banana in your cart and go, “I think I’ll have a second banana. I think I’ll have a third banana.” You grab the whole bunch of bananas. Sometimes our decisions can be explained by economics and sometimes they can’t.
That’s the entire economics course. If you go through a Principles of Microeconomics course, nearly everything will come back to these 3 ideas. Why are people not doing what they want to? Maybe they’re not rational, or maybe they don’t have the right incentives, or maybe they’re not thinking on the margin. It’s usually one of those situations.
One of the key ideas out of this is—especially from a policy standpoint or as a designer standpoint or a content standpoint—we could wrap these into one clear image. We have this person who is a thinking person, who goes through all the calculations, and ideally we’re standing there with a stick saying, “Please follow this direction.” If you’re a content design person, the layout of the page is really important, where you’re sending people. You can’t just throw everything on there and hope that they figure it out. You have to lead people into the right direction. That’s the goal with a lot of public policy. How do we get people to stop drinking so much sugary drinks? Let’s tax them and then make them jump through some loopholes, give them tax refunds. Let’s try to push people towards the right direction.
This came out, this started to get really big over the past couple years, when we start thinking about behavioral economics and this idea of nudging and framing and getting people to do what we want them to do without forcing it or making it feel forced. That was your Econ 101 background. Most of what I’m going to talk about really is focused on how we can get students to do what we actually want them to do. How can we use behavioral economics to get people to do better in the classroom. We think about, we can use economics to get people to lose weight. We can use economics to get them to exercise more, to get them to donate more to charity, to cut down their plastic bag usage. Can we use those same tools to get them to do better in classes?
I promised my students that I would make one Vine reference today, so hopefully this works. My students make fun of me nonstop for my lack of cultural awareness of what’s going on, so I promised—I put this on here and I said, “I will not say it.” Only the people who get the reference will understand it. Otherwise, you can look it up later. Hopefully nudging can help people do better. That’s really the goal. When we design things, we want to think about: Can we actually get the outcomes that we want? When we think about behavioral economics, we think about the 3 key ideas of economics, rationality is really hard to do. It’s really easy to sit there and know your tastes and preferences. But sometimes, in the moment, it’s really hard to make that calculation. You don’t exactly know what you’re doing.
This is the slide I tend to show whenever I get to my behavioral economics chapter. The whole course, we really talk about people are smart, they respond to prices, they know what they’re doing. Then I say, “If you’ve ever grown up in a place that had an ice cream truck, this hopefully is familiar to some people.” This is one of the hardest decisions you’ll ever make as an 8-year-old. You’re looking at it, you’re going, “Yeah. These are all good.” We didn’t have ice cream trucks where I grew up. I lived along a highway, so we didn’t live in a neighborhood. I moved to Washington, didn’t live in a neighborhood, didn’t have an ice cream truck. Moved to Pennsylvania, finally moved into a neighborhood.
Then one day, I was just sitting there, and I heard the little ice cream truck music, and I lost it. My wife was so confused. My wife’s not an American. She’s from Thailand. Ice cream trucks are a weird thing to her. She’s like, “What are you doing?” I’m running around trying to find cash. Who uses cash? I’m like, “I need $5.” She’s like, “What are you doing?” I’m digging through stuff. I’m not telling her what’s going on. I don’t think she can hear the music. She’s like, “What are you doing?” I was like, “The ice cream truck is here!” And I just run out the front door. I’m 28, by the way. That should give you an…. At the time, I was 28. I’m not 28 now. I’m 31, in case you’re curious. For a whole solid semester I told my students I was 29, because I actually thought I was 29. I just didn’t know when my birthday was.
Hardest decision of an 8-year-old. Are 8-year-olds irrational? No. Just sometimes it’s hard. You look at that ice cream menu, and you immediately look at it and you think you know what you want initially. For me, when I first looked at this picture, I was like, “Ice cream sandwich. I haven’t had one of those in a long time.” You kind of zero in on one section because you’re trying to make the calculation easy. You don’t really go through and look at each individual picture. You go real fast. But that’s not what it means to be rational. Being rational means you’re supposed to go through and look at each one and say, “Do I want this Popsicle? No. Do I want this ice cream bar? Maybe. Do I want this snow cone? Eh, not as much as the ice cream bar.” You’re supposed to go one at a time, but people don’t go one at a time.
A lot of times, you make mistakes. Some of you, this may be familiar. Some of you are going to have no idea what I’m talking about. You’re going to get the ice cream sandwich, and as you’re paying for it you look at a different part of the menu and you realize that you forgot the best thing that was on the menu, which is the cookie ice cream sandwich. That’s the best thing on the menu. In that moment, you’ve made an irrational purchase. That should break down economics. If you pick the wrong item and realize just a moment later that you’ve picked the wrong thing, you’ve messed up. You’re irrational. That should break all of the rest of the items. That means you can’t respond to incentives. If you’re irrational, I can’t incentivize you. If you’re irrational, you can’t decide on the margin. You’re going to eat the whole bag of gummy bears and you’re not going to stop soon enough.
So, actually being rational is hard. We do a lot of things, and that’s what we’ll talk about in the beginning. We do a lot of things that seem rational in the moment, but then maybe don’t necessarily follow our rules. There are some examples of where we need to figure out, are you rational from an economics standpoint or are you rational from a financial standpoint? Sometimes you may actually prefer worse economic outcomes for a variety of reasons. You might be economically rational but not financially rational.
The biggest one and the easiest one to see is fairness. I ate … I don’t remember where I ate yesterday. I went somewhere. I went to a hot wings place. There’s a tip cup sitting right on the edge. I am literally never going back to that restaurant. I don’t live here. I’m not from this area. But I put a tip in that tip cup. If you think about the reasons we tip, we typically tip for better service. We want to make sure, if you’re getting a haircut, that they don’t shave off half your head, unless you want them to shave off half your head. I want them to always shave my head. You go to a barista, you want to tip because you want to make sure you get a good coffee next time. You tip for the next time, not necessarily for this time. You want to ensure good continual service.
That’s OK. But, for whatever reason, we still tip when we’re at an airport bar. We tip at a coffee shop that we’re never going to visit again. You’re giving up money after you’ve gotten your purchase. You’ve purchased your coffee. Never going to see that person again, and you’re just giving away money. Normally we would say that’s not rational. That doesn’t make sense. Why would you ever do that? But, sometimes we prefer worse outcomes, from an economic standpoint. We care about fairness. We care about happiness. I think there’s a hand?
Audience: Yeah. What about the moral or ethical reasons?
Wooten: That’s OK. This is where economics gets really weird. I’ll be honest…. She asked about moral and ethical reasons. This is where economics gets really weird, and this is why I think a lot of people hate economics. There’s always this joke about a two-handed economist. There’s no such thing as a one-handed economist. An economist will always tell you, “But on the other hand … ” This is why people hate us. It depends on what you consider as part of your happiness. If you only care about money, giving away tips is irrational. The way we phrase it is, if part of your utility function is taking care of other people; buying sustainable products; making sure that people who are low-paid, you’re transferring some of that wealth. If you care about people’s well-being, this isn’t irrational. This is actually a rational thing to do.
This is where it’s going to get kind of weird. The way that this is known is as a “warm-glow altruism.” It makes you feel good to put that dollar in that cup, and so you put that dollar in that cup, maybe because you care or maybe because it makes you feel good about what you’re doing. You’re still kind of doing it for yourself, is the idea behind that. It doesn’t mean you’re irrational. How we define irrational across economics is very different. We want to be careful about irrational from a financial standpoint versus irrational from an economic standpoint. If happiness and fairness is part of your utility function, then that’s OK. That’s perfectly fine.
Another situation is where we pick options that are good enough. We’re too lazy to make the calculations. It takes a really long time to go through all the work. That ice cream menu board is a really good example of that. It takes a long time to sit there and consider every single ice cream and figure out, “Is this exactly what I want or not?” So sometimes we pick the one that’s good enough and we just walk away, and we’re OK with that. Again, it’s not necessarily that you’re irrational. It’s that you’re trying to save time. You’re trying to move through the process really quickly. Again, we would say that you’re maybe not being irrational.
My favorite one is really me. I give up a lot of economic well-being because I’m what’s known as risk averse. Do not like risk. I’m willing to pay money or avoid getting more money so that I can just avoid uncomfortable situations. This is one of those weird ones. What did I just buy last week? I just bought a coffee pot. I checked out at Walmart, and it said, “Do you want to pay $4 for the insurance premium plan so you can return this coffee pot in 2 years?” Four dollars is not a lot of money. I can return the coffee pot. For that, I said no. I never buy the insurance. Ignore it. But, if I’m a real risk-averse person, I should. I should always take insurance plans. I should be scared that I’m going to lose a product. That’s how those insurance companies make money, is because people get scared about insurance and warranties and stuff.
I’ll give you one that maybe you can identify. Everybody in here is a former student. I’m going to show you the idea of risk-averse students. I do eventually want to get to behavioral economics for students. We know students care about fairness and the environment. That’s not surprising, hopefully. Students definitely pick options that are good enough. They don’t go through all of the calculations of everything. That’s OK. We typically think of students as really risky individuals. Can a student be risk averse in the moment?
This is one of my favorite pictures, and I promise she has given me permission to share this picture. This happened 2 years ago. I was proctoring an exam. I was walking up and down the aisles, and I came across a situation that really confused me as an individual, because I had never seen it before at the time. She’s sitting in her desk taking her test. She’s got her calculator. She’s got two pencils up on her desk. I look down and this is what she has down at the bottom. She has 1, 2, 3 … 5 additional pencils and an additional backup calculator that she’s brought in case the calculator on her desk dies. I said … Nicole is her name. I said, “Nicole, have you ever needed all 8 pencils for your exam?” “No. But I like to have them just in case something happens.” I said, “What has ever happened where you needed 8 pencils?” “Don’t know. Never happened, because I always have them in case.” One of them was a mechanical pencil. She’s prepared.
That’s a risk-averse student. Normally we would say this is not rational. She’s paid extra money for a calculator that she doesn’t need. She’s paid extra money for pencils that she doesn’t need. She does it because she’s risk averse. She is willing to pay money to avoid that awkward situation of having to ask somebody for a pencil. But that doesn’t mean she’s irrational. Financially that’s not very rational. You’re not going to need that many pencils. But her happiness is maximized because she has those. She feels more comfortable with those items. So, students can be risk averse. These are situations where it’s fuzzy. It’s kind of like the bananas one. You don’t buy one banana at a time, but that doesn’t mean you’re irrational. This doesn’t mean you’re irrational. Sometimes we do things that seem weird but they’re actually OK. We can explain it.
There are what’s known as holes in decision making. I can pick apart … I’ll give you 6 of them. I’ll give you examples that are relevant to you, then I’ll talk about how we can correct those for students. There are 6 known holes in decision making. The biggest one is misperceptions of opportunity costs. My students are notorious for this. Some of you are probably notorious for this as well. Some of you may have stood in line for something that is free, or maybe you’ve left so that you could go get something that is free. My students do it for Rita’s, which is a … I don’t know. It’s an East Coast thing. I don’t get it. It’s like an ice cream, I think. I don’t know.
Wooten: See, I don’t know. I don’t eat it. I think it’s gross. It’s ice. It’s like a slushie. They stand in line for a free one. I say, “How long does it usually take you?” “About an hour.” I say, “Well, what else could you have done in that hour?” “I could have gone to work.” “How much do you work?” “$10 an hour.” I was like, “Congratulations. That actually just cost you $10 for your free ice cream.” We have a really hard time thinking of what we could have done with our time. One of my favorite examples is the ice cream example. My students do it as well when it comes to t-shirts or pizzas. They’ll stand in line for just about anything, even though that’s not very rational. Their time is more valuable, but they attribute almost nothing to their time. They think their time is free.
The second one is overconfidence, and it’s going to be related to the third one. We tend to think we’re much better at things than we are. One of my favorite questions that I ask my students is to rank their ability in terms of driving, or to rank their abilities in terms of how good they are in school. The creepy one is I ask them, “Look around. What do you think your looks are relative to the rest of the class?” It’s a study. It’s a psychological study. I save it for the end. But people tend to rate themselves as above average. Somebody needs to be average. I typically joke with them and I say, “Look. You guys, two-thirds of you said you’re above average. I look at you, two-thirds of you are not above average. Scale yourself down a little bit.” They don’t like that. They get real mad when I say that.
But we’re really confident individuals. That’s going to mess up some of our decision making. We need to tone things down a little bit. You’ll slowly start to see, what does this have to do with education, in a second, especially when I say we’re really overconfident in terms of our academic abilities. It’s known as the Lake Wobegon effect. Everybody’s pretty, everybody’s strong, and everybody’s easy to get along with.
Some of you may remember this from your undergrad education. One of the worst things you did was probably participate in team projects. Group projects are the worst. The story from the education standpoint is, be prepared to do group projects. You’re going to have to work one day in group projects. But students overwhelmingly hate group projects. Why? Somebody tell me why.
Audience: They don’t trust their coworkers.
Wooten: They don’t their coworkers. Coworkers? It’s a group project. There you go.
Audience: Their group project members.
Wooten: Their group members. “There’s always a lazy group member” is the story that I get.
Audience: There’s always one who feels they do all the work.
Wooten: There’s somebody who thinks they work really hard. Overwhelmingly, people hate group projects for the same reasons. What I tell students is, somebody has to be the lazy one in the room. Somebody in this room is benefiting from other group members. Everybody in the group can’t be the best group member. Somebody has to be the underperforming group member. There’s usually one student who will raise their hand and is like, “I love group projects because I don’t do anything.” It’s very rare. They don’t rat themselves out. So, overconfidence. We’re really confident about our abilities, and so sometimes we overdo things. We invest in the wrong items. We drive too fast, thinking we’re not going to get caught. We try to lift things that are too heavy and we pull a muscle. We’re overconfident individuals, typically.
That leads us to the third one. We have very unrealistic expectations about our future behavior. We procrastinate. That’s what number 3 is. We procrastinate, if you go back to number 2, because we’re overconfident. We think we can wait until a deadline to do something, and then what ends up happening [is] we run out of time. It’s not as good as we could have done, and we would have done things differently. We think things are going to be better than they really are.
One of my favorite examples for that: Some of us stay in relationships that we shouldn’t be in partly because we have unrealistic expectations about what’s going to happen in the future. We say, “Oh, it’s going to be better. We spend a lot of time together. We can make this work.” And really, you’d just be better off to just pull the Band-Aid. Cut the cord. Let them go. But we tend to do things that are not rational because we think we’re better than we are.
Let’s see. Four, 5, and 6. So, mental accounting. That one’s kind of weird. It just means you treat dollars differently. You spent money differently on a debit card than you do with cash. Some people are different. You may save dollars a lot more than on a credit card, you just swipe. Who cares? You’ll worry about it at the end of the month. You may have money that’s allocated to savings and checking and travel funds, and you treat them differently. You say, “No. I will never spend my savings account, but I’ll just burn through this checking account.” But the dollars are the same. You shouldn’t treat the dollars differently.
Loss aversion. We hate losing stuff more than we like winning it, an equivalent win. I’m going to save loss aversion for an example that we’ll talk about. But this is a famous quote that a lot of athletes use. “I hate losing more than I like winning.” It’s in the Moneyball movie with Billy Beane. Larry Bird has a quote about it. We will fight really hard if we think we’re going to lose something, but we wouldn’t fight as hard if we think we’re gaining something. I did not recommend this, I promise. But, if you guys get bonuses, your CEO should give you the bonus and then threaten to take it away. You will work really hard compared to if he just offered you a bonus. Immediately you’re like, “That sounds like an awful idea. Don’t recommend that.” So, offer the bonus and then threaten to take it away. You guys will work really hard. But that shouldn’t make a difference. You should be working hard no matter what.
Status quo bias is the last one. We tend to default to things. This might be different, I don’t know. In a classroom, it’s really easy. For you guys, how long ago did you do your last presentation? A month ago. Are you sitting in relatively the same spot? Yeah. Your default is to go to the same spot every single time. That tends to be irrational. Even though there are better seats right here, you go to your comfort zone, because comfort is easier. It’s a quick decision. I was talking about this at lunch, and this is something that a lot of you guys do.
If you had options on your 401k or your retirement when you started, realistically you picked the default and you’ve never checked it since. Who knows how many years you’ve been here or how much money you’ve given up because you just picked something of your retirement age and never touched it again? From an economics standpoint, we’d say that’s extremely irrational. You should be checking and making sure that you’re invested in the right things. But that takes a lot of work. It’s close enough to just go with the same thing over and over.
A really cool story, at least from a public policy perspective—one of my honors students worked on this a couple years ago. It was an amazing project. It’s how we treat organ donation. In the United States, we have an opt-in policy. If you want to donate your organs, you have to check a box that says, “Yes, I will donate organs.” As a result, in the United States, not a lot of organs get donated. In other countries, it’s an opt-out policy. It’s assumed you’re an organ donor, and if you want to get out of organ donation you have to check a box that says, “I do not want to donate my organs.” It’s essentially the same decision. You’re checking a box one way or another. The opt-out countries in Europe tend to have about a 90% organ donation rate. The opt-in countries are like a 12 to 15% donation rate. It’s essentially the same decision, do you want to donate your organs? But how we frame the default is really important, whether you have to opt in or opt out of something. Again, that’s a known and predictable hole in decision-making.
This became really popular a couple years ago. Richard Thaler won the Nobel Prize, it’s a little off, won the Nobel Prize in behavioral economics for his work in nudging. A lot of you maybe have recognized this book cover. It’s this idea of a nudge, the idea that we can design things to get people to do what we want them to do without ever taking away an option. This is really where you’re at in this profession. We don’t want to limit people, but we want to push them in the right direction. We don’t want to ban items. Banning plastic bags is not an example of a nudge.
A better example of a nudge, especially on the social context side, is to look at things where we can convince you to change your mind a little bit. You still have the option of taking all of those paper towels, if you really wanted all of them, but immediately it’s a little clearer, the impact when you do that. I was in the airport yesterday, coming up those little walkways. On the treadmill … it’s not a treadmill. On the little moving walkway, there’s one side that says “Walk” and it says, “Stand” on the other side. That’s an example of a nudge. You can walk on the stand side and stand on the walk side. There’s no law saying you can’t. But it’s a simple little way to get people to separate and do what we want them to do. Those are an example of nudges.
The idea that we put the fruit at a higher level or at an eye level, and we put the cookies down on a bottom shelf. If you reverse that, if you put cookies at a high level, people are going to grab cookies. If you put bananas down at the bottom, nobody’s going to reach down to get a banana. Switch it and people eat healthier, but you still give them the option of getting both items. That’s what a nudge is. You want to be able to give them options. Don’t take things away, but you want to push them in the right direction.
I’ll give you an example of that. A lot of the way this works out is we have to change the way we frame things. We can frame losses as gains or gains as losses. One of my favorite examples from teaching is we can trick people into things. We reframe the moving walkway as left-side walk, right-side stand. When we think about this in terms of teaching, I can frame the way that we present material to get people to actually like things they typically don’t like. I don’t do group projects, so I don’t know how to fix that yet. But I also know the second thing that students hate are pop quizzes. Nobody likes a pop quiz. You might not be there that day. You might not be prepared. I actually gave pop quizzes in class, and the students didn’t realize they were pop quizzes. It’s actually the sheet on the left. I call them blue sheets. I say, “We’re going to do a blue sheet today.”
I only found out that I didn’t realize they were pop quizzes when I did them until I told a student about it. I said, “I’m thinking about doing pop quizzes in my next course. What do you think?” They said, “Don’t do that. Students hate pop quizzes.” I said, “You did fine on it.” She said, “I don’t know what you’re talking about. We didn’t do pop quizzes.” I said, “Yeah. That blue sheet. You never knew when I was going to do them. I showed up with stacks of paper. They were for a grade and you had to turn them in within 10 minutes.” I was like, “What’s a pop quiz? You don’t know when it’s going to occur, it’s for a grade, and you have 10 minutes to do it.” She goes, “Yeah, but I loved the blue sheets.” I know you did. My classes love the blue sheets. I did pop quizzes. It’s still a quiz.
The person in the office next to me does this. He basically designed his course. He has exams every couple weeks. He stopped calling them exams. He just called them quizzes. He just changed the name of it. He said, “We’re going to have a quiz on Friday.” One semester later, I had students outside of my office and they said, “Oh, take this professor. He doesn’t do exams. He does quizzes.” I go, “You can’t be serious? You can’t fall for that. That’s the same thing.” A quiz is not as bad as an … You have a ranking system. An exam is the worst. A quiz is not that bad. That’s the only real change he made. He chopped them up, called them quizzes. There’s no rule that says a quiz has to be a small portion of your grade. You can have a quiz worth 20%. I can give you a midterm quiz if I wanted to.
We can trick people. We can frame things slightly differently in order to get them to do things they normally wouldn’t like. We don’t like being told what to do, but if we change the definition it makes it a lot easier. The pop quiz one is my favorite one. She was real mad at me for like a week afterwards because she said I was one of her favorite instructors and it changed her mind, because I gave them pop quizzes. It was real disappointing. I didn’t think I did anything that bad. We can get people to do things we want.
I’m going to talk about using your rationality for good. I tell my students, “If you can come up with business models that attack one of these 6 things, you can make a lot of money.” Since I’m at Course Hero, we’ll just look at number 3. People have unrealistic expectations about their future behavior. People wait. People wait too long to do things.
One of my favorite examples in terms of a business idea is, some of you may have seen a Clocky. It’s an alarm clock that rolls off the table. Same thing. Unrealistic expectation about future behavior. We set an alarm the night before for…. You guys wake up way earlier, because you have to commute. But you set an alarm for maybe 6:00. I’m going to go with 6:00. You set an alarm for 6:00, and then some of you might go, “No. I need to snooze. Let me get just 10 more minutes.” Your prior self was really confident that your morning self would wake up, but those are two different people. Nighttime person and morning person are not the same. Nighttime person’s lots of fun. Morning person hates nighttime person.
The Clocky was a really good example. When the alarm clock went off, it rolled off the table. You had to get up out of bed and chase it to turn it off. They have some, I just saw it the other day, where you have to lift the clock as a weight to turn the weight off. You have to do a math problem to turn the weight off. What else have I seen? There’s a helicopter one that turns the weight off. I had a Clocky. It spins in circles, rolls around your desk. The idea is it forces you to get up, get out of bed, and as soon as you’re out of bed it’s fine.
They have gym apps where if you don’t go to the gym, it’s going to charge your bank account $10 every time you skip. That’s just, ugh. That would be awful for me. You pay a gym membership. You check in. I don’t have my phone, but you check in on your phone. You say, “I’m at the gym.” Even if you’re just driving by. If you’re driving by, you’re probably close to going. You check in. But, if you don’t check in 3 times a week, it’s a direct withdrawal out of your account. That’s an example of unrealistic expectations about your future behavior. If we can create these ideas, we can make a lot of money.
I would love one that’s about education, that you need to check into the library 4 times a week or else it’s going to charge you money. I would love that. It would finally get my students in the library. I don’t think they realize there’s books in there. They just go and they just play on the Internet. They just play on their phone the whole time. But, if you can create a business idea off of these, it’s a really great idea. But that also means that I can redesign my course off of these things as well.
I’m not going to talk about status quo bias, because that’s the only one that’s a little weird, because status quo bias is changing the default, and it’s really hard to change the default of a classroom. You see some of that in terms of a flipped classroom, so we’re going to change the way we approach a classroom. That’s really changing the default, but you’re still learning the same material. But that’s a whole course change, not an individual change. So I want to focus on little things that we can do, especially from an education standpoint, that changes how we get people to behave in the classroom.
I’m going to combine number 1 and number 3 together, because in this situation, 1 and 3 go really well together. It’s this idea of misperceptions of your opportunity cost and unrealistic behavior. It’s something that people do with their homework, typically. They tend to skip homework that’s worth a low weight, but then they also think they’re going to do it later. If an assignment’s only worth 3 or 4% of your grade and you miss it, no big deal. It’s just 3 to 4%. Whatever. I’ll do the next one.
This was something that I worked with, with some people that I went to grad school with. They came up with this idea of, again, an example of a nudge. What they did was essentially e-mailed students and gave them a reminder about the impact of missing an assignment. About a week before the assignment was due, no matter the weight of the assignment, whether there was an exam or a homework, they got an e-mail. It basically just said, “Good afternoon. You have a homework coming up in about a week. This homework is worth about 100 points in the class,” like 100 points out of 1,000. This person’s not doing very well. It reminds them of their grade in the class. If you get higher than a—you currently have a D. If you do better than that, your grade’s going to go up. If you do worse than that, you’re going to drop a letter grade. You’re probably going to get an F in the course. Just a reminder about what’s going on.
This doesn’t seem like it should make a big difference. If people are rational, when they get a homework assignment, they should do the homework assignment. Why wait a week to do something when you could do it today? I say that sarcastically, because all of you have been students. Why do homework a week before? Due in a week means you do it in a week. That’s what my students tell me.
They sent this email out—there’s no way this could possibly work—just reminding them. Turns out it does work, and it works really well. We did it at the University of Nebraska Omaha. Or, no. Sorry. This is at the University of Nebraska Omaha and Washington State. Two classes we did it in: sports economics and microeconomics; 112 students, 18 assignments—so exams, homeworks throughout the semester. The very first thing that popped up that came about: This was the change in the assignment score. You saw about a 4% change, percentage point change, in their assignment scores just by reminding them to do the assignment. It doesn’t sound like a lot. But, if you think about that over the course of an entire semester, you’re talking about going from maybe a B- to a B+, a B+ to an A- throughout the whole semester. That’s a significant movement upwards in the overall score.
This had a huge impact in the beginning of the semester. You kind of saw it in that first assignment. Let’s say you do pretty well on your first assignment, you get a 90. But your second homework—you only have two homeworks. Not doing a second homework should drop your grade significantly in terms of weight, and doing better on it doesn’t change it much. What ended up happening is, when students got this e-mail on the very first assignment, it basically said, “You have 100% in the class,” because they haven’t done anything. “Don’t do this assignment and you have a 0% in the class. Do it and you maintain your A.” It has a really big impact in the beginning, but it’s an example of a nudge. We’re not taking away the option of doing your assignment later. All we’re doing is trying to reframe this idea of how important it is to not wait and how big of an impact even a really small assignment would have on a grade.
How do we know this helped people out? We looked at evaluations. People actually commented in their evaluations that this made them work harder and they wanted to try to do better in their assignments and they wished they had this in other ones. We asked them, “How did you respond? Do you actually think you worked harder?” They said it did. It gave them a bigger picture of what was going on.
The second one is a really fun one. It’s an overconfidence idea. I asked my students, I said, “Basically it’s a bonus question worth two points.” I said, “Predict your score plus or minus two points on this exam.” The idea is trying to figure out how many people are actually overweighting their ability. I did this in my fall 2016 class: 73% was the average. About 95% of the people made prediction—again it was bonus; not everybody made a prediction. Predicted scores along the bottom, actual scores along the top. If you’re a perfect predictor, you’re going to have a 45-degree vertical line across. I made sure to pick good colors for my presentation.
Something that pops out to you: Whoa, what’s going on in that upper left part? That’s kind of weird. One of the problems that popped up is I don’t think these people knew what they were doing when I asked them the question. My question was, “Predict your score, plus or minus 2 points.” The problem was this exam was worth 230 points. People don’t naturally think in points; they think in percentages. So some people put 40%. They didn’t write a percent sign. They just wrote “40.” Then it’s 40% of 230. Or, realistically, they put 90%, or they just put “90.” But the problem is, 90% of 230 comes out to the equivalent number of points, so it made it … 90 out of 230 points looks like 40%. I do not believe that two people got almost 100% on the exam and thought they were going to get a 40%. They probably wrote “90” meaning 90% and then it came out as 90 points.
Realistically, what does this have to do with overconfidence? Ignore those people up at the top. What it means is we can do a little bit to help those people in the bottom right corner. Those are the overconfident people. These are the people who put and say they think they’re going to get a 90 on the exam and they actually got a 58%. That’s a big gap in terms of overconfidence. Those are the people that perhaps we can intervene and help with. A lot of this is early intervention. There’s ways that you can pretest people and say, “If you get below a certain score, you need to come in for extra tutoring, extra remedial help,” and trying to push them towards that. That’s harder to do, because you have to do the first assignment to figure out if they’re overconfident.
In one of my upper-level courses, we do a pre-class assignment, or an assignment at the very beginning, that tests their math abilities. If they don’t do well on that, then I force them to come to tutoring before they ever take their first assignment. Sorry. Do you need me to go back?
Audience: I just have a question.
Audience: It seems like people who did well were more likely to answer the question at all. Do you have any insights on that?
Wooten: There weren’t very many people who didn’t answer, so 95% of the class answered it.
Audience: They did really well on this exam in general?
Wooten: Yeah. They tend to do pretty well—80%, there’s that upper chunk. Actually, I guess actual score is what you need to look at. So 60 would be a D, so you still have a lot of … you want to look at the upper portion of how they actually did. That upper row is people who got B or better. It’s a principal score. The principal students are really good at Penn State.
Audience: What about [inaudible]?
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Wooten: No. She asked about underconfidence rather than overconfidence. I’ll tell—for a fact, I’m an extremely under-confident person. If Tara … Tara’s not here. Tara has to put up with me constantly telling her that I don’t know what I’m doing. I think Ereen’s heard some of it, of like, “What do you want me to talk about?” “Whatever you want.” I’m like, “Well, I’m not good at anything. I need you to tell me exactly what you want me to do.” Actually, no. Daniel has had to deal with me on our micro projects. I have zero confidence in anything. I didn’t look at underconfidence. Whenever a student came in and they did really well, typically I would look and see what they predicted, then I ask them why they thought they did so poorly.
In this example, it was a bonus question at the end of the test, so they clearly saw exactly—they should have known in the moment how they did. Versus underconfidence, in terms of what you said, preparing beforehand, is different than preparing after. For some people, being under-confident is like a risk-aversion type thing. By overpreparing, it makes them feel more comfortable. That’s not necessarily irrational. It’s probably a waste of resources. But if it makes that person happy, then it’s not necessarily a bad idea. This is an in-the-moment portion rather than a pre-part. Did that kind of answer your question? It wasn’t perfect. OK. That’s a good under-confident response, right?
Audience: I was about to say.
Wooten: Sorry. It wasn’t a perfect response. Mental accounting. Something that I do, I mentioned that the exam was worth points. I don’t do percentages. I can trick students into thinking that things are more valuable than they are by turning them into points. My class has 1,000 points that they can get. Those of you who—hopefully most of you are really good at math. If you just take off one of the last digits, it’s the exact same. It blows their mind. 900 points is an A-. 900 out of 1,000 is a 90%. The weights are still the same. But if an assignment is worth more points, they work harder. If you tell them it’s worth 50 points rather than 5%, they tend to work harder on those items.
You could take mental accounting, treat them differently. The idea behind this is to basically say that a point on an exam is worth the same as a point somewhere else. People tend to put too much weight on exams and ignore the small-percentage assignments. But as soon as you say that a reading set is worth 50 points, they can now convert those points between the assignments to make it a little easier. You can do a little bit of rationality in terms of changing how they treat things.
Then, the very last one I’m going to talk about is my favorite one of all time. We did it in Nebraska Omaha and Washington State. There’s a bunch of people on there, but that first row are people that we went to grad school with, so Rebekah, Dusty, and Ben. The four of us all were in the same econ group. Basically, what we said was, “Can we take this idea of loss aversion, people hate losing points, and turn it around? Can we make you work harder to avoid losses?” What we did was we took an accounting course, Accounting II, Macroeconomics, Microeconomics, Business Law—about 200 students. All these had two sections. One section counted up. You earned points throughout the semester, zero to 1,000. The other course, you started at 1,000 points and you lost points as the semester went on.
You take that exam, say it’s worth 200 points in the counting up. Congratulations. You move from a zero to a 200 if you get everything right. In the 1,000-point course, you stay at 1,000 points. But the difference is, in the counting-down course, you see your grade slowly falling as the semester goes on. Once you hit 899, you know that an A is no longer possible. Your grade’s only going down. But the problem is, the grading is the exact same. If you had 800 points before, maybe the highest grade you could get is an 899, and so you never could have gotten an A before but you couldn’t make the calculation. We just changed the counting structures between these two classes.
What we found shouldn’t surprise you, given my talk, is that students did better when grades were falling throughout the semester. Same material. Same exams. They took the exams at the same time. Same instructor in both classes. The Macro instructor was the same in both classes. The Accounting II instructor was the same in both classes. They were offered at the same times, Monday/Wednesday, Tuesday/Thursday, so similar time blocks. About 3% difference in your final score in the semester. Depending on the specification, 2.5 points to 4 percentage points in the final score. Again, it means moving from a B- to a B+, not necessarily because the material’s different but because you worked harder in one class because you’re scared of losing things in that one class.
Again, it’s an example of a loss aversion. That’s what, as instructors and educators, that’s what we want people to do. We want people to work harder on the material. One of the concerns was that female students wouldn’t respond well to the criticism or the counting down, the losing portion. We didn’t find that result. Other people have said that competition is not good for females, but it really depends on the literature. Sometimes it’s fine and sometimes it’s not. The idea is that loss aversion can help people. You can get people to do things that you want them to do by just reframing things.
One of the things we found, too, we did a survey. We don’t talk about it in the paper, but we did a survey and said, “How likely are you to take an economics course again?” The classes where they counted down overwhelming—I shouldn’t say overwhelmingly, but significantly different. Students wanted to take more economics courses, in terms of whether it was majoring in economics, taking an elective course. We posit basically that, because grades are counting down and you hate losing stuff, you actually studied the material. You’re doing better in the classes. You’re actually learning the material and you find it a little bit more interesting. People tended to want to major in—or not major, but take another economics course again. That’s what we want as educators, is to get people to work hard. That might not necessarily be what the student wants, though.
Audience: I could imagine that people in the bottom cohort who are really struggling experience a loss of hope and they’re less likely to try hard in the falling scenario. Do you agree with that?
Wooten: Sure. As soon as I said you can—as soon as you hit 899, you’re not going to get an A. But that also means as soon as you hit 699 you failed the course. You’re not going to get a C. There’s two trade-offs. Part of it is trying to figure out: How do we make sure that the bottom distribution of students stay motivated? Then sometimes it’s also worth noting when to cut your losses. Students really struggle … it’s that overconfidence. It’s part of the overconfidence issue. Students think they’re going to do really well. I have a lot of students who are like, “What do I need to pass this course?” “You need a 98% to pass.” “I can do it.” Your pass grades say you can’t. You’re sitting at a 60%. That’s why you need a 98.
In some senses, we may actually be help—it’s one of those weird, perverse ways that we say we might be helping students where, if you’re coming into the final exam and you’re sitting at 701 and you’re only able to lose two points, you should probably drop the course. That is probably better for the student, long run, than to waste all their resources only to fail on their own, rather than letting them sit at 500 points and saying, “You need 198 out of 200.” A lot of it’s trying to think about how a student would use their resources. It’s different. It depends on whether you’re on the instructor side or on the student side. It’s definitely—it could be disheartening to a student. There’s a lot of reasons why instructors don’t use this, and that’s exactly why.
If you’re a student who watches their grade hit that threshold, and then you failed, you’re going to respond negatively in your student evaluations. For a lot of us, student evaluations are what matter the most. There is some feedback. Not everybody gets it. But there are definitely some criticisms, especially from students towards the bottom. If you’re a student like me, I was super stressed out about grades. This would have stressed me out, just watching my grade … I was an A student, but watching my grade tick down close to an A probably would have stressed me out a little bit. But, at the same time, it probably would have made me work a little bit harder.
I don’t really know what would have happened otherwise. I would say it’s good for students as a whole; it’s not good for every individual student. That’s the best way I think of saying it. It’s good for the sample, but not necessarily every student inside of it. Some students are definitely going to be negatively affected. Loss aversion can help some students, in terms of getting them over that threshold. That actually I think should, yeah, wrap that portion up.
You can use economics in a sense of getting people to do what you want. A lot of it is recognizing that people don’t behave the way that we always want them to. Loss aversions shouldn’t exist. People should perform the same way no matter what the frame looks like. But, realistically, people perform differently. That doesn’t necessarily mean that they’re irrational, but a lot of it means that as somebody—and this is you guys as you’re making products. You’re known as what’s known as a choice architect. You get to pick the choices that people get to see. How you design that frame is really important. You can push people into doing really cool things or performing better just by tweaking little things as you work through stuff.
I think that puts me at almost exactly an hour.
Audience: Thank you.