Annotated Bibliography

Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. The Econometric Society47(2), 263–291.

The authors, Daniel Kahneman and Amos Tversky examine how presenting the expected outcome as a gain or loss relative to a neutral reference point, and losses loom greater psychological effect than gains. This paper presents a critique of expected utility theory as a descriptive model of decision making under risk and develops an alternative model, called prospect theory.

As experienced behavioral economists, Kahneman and Tversky are aware of the limitations of the definition of gains and losses and the reference point (by the amounts of money that are obtained or paid when a prospect is played, and the reference point was taken to be status quo or one’s current asset) in their experiments. Plus, due to the construction of the gain or loss framing, the paper has been concerned mainly with monetary outcomes, but ignores expected results, like the quality of life or lives that could be lost or saved as a consequence of a policy decision. Thus, it is likely to applying framing effects to construct donation solicitation that emphasizes the positive consequences of saving lives or negative consequences of losing lives. 

Madrian, B., & Shea, D. (2001). The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior. The Quarterly Journal of Economics, 116(4), 1149-1187. Retrieved March 21, 2021, from

The paper analyzes the impact of automatic enrollment on 401(k) savings behavior of employees in a large U.S. corporation. The authors, Madrian and Shea had two key findings: first, 401(k) participation is significantly higher under automatic enrollment; second, the default contribution rate and investment allocation chosen by the company under automatic enrollment have a strong influence on the savings behavior of 401(k) participants. These results indicate the “power of suggestion” in changing people’s behaviors. Equally important, the authors also emphasize automatic enrollment as a win-lose approach to changing 401(k) savings behavior (win aspects: dramatically enhances participation; lose aspects: creates a tremendous amount of participant inertia). 

Madrian and Shea identify the need of conducting further research to understand why we observe a dramatic difference in savings behavior, even when the economic incentives to save appear to be the same because the reasons underlying the behavioral differences will inform the discussion of how best to create savings incentives. Additionally, the authors also point out the direction for turn automatic enrollment from a win-lose proposition to a win-win proposition: finding methods to move individuals into higher contribution rates and more aggressive investment strategies through participant education or improving the default. 

Keller, P. A., Harlam, B., Loewenstein, G., & Volpp, K. G. (2011). Enhanced active choice: A new method to motivate behavior change. Journal of Consumer Psychology21(4), 376–383.

This paper highlights the fact that a decision that needs to be made increases the attention paid to the decision-making process. This is especially useful for typically passive choices, like donating organs. After analyzing several large sample sizes in four experiments, the researchers assert that Active Choice can increase participation rates in medication adherence, Enhanced Active Choice can produce significantly higher compliance than Active Choice. Enhanced Active Choice refers to the presentation of options that emphasizes the cost of making a “no”, and it can serve as a complement to automatic enrollment or when automatic enrollment is infeasible or unethical. 

The author suggests that the effect of Enhanced Active Choice on participation rates can be tested in a context such as encouraging individuals to voluntarily enroll in programs such as Save More Tomorrow. Additionally, the authors imply that there are likely to be further positive consequences of Enhanced Active Choice, such as improve self-efficacy or confidence, perceived responsibility, and satisfaction. These indications provide me with a direction to study the effect of Enhanced Active Choice in nonprofits sectors.

Mullainathan, S., & Shafir, E. (2009). Savings Policy and Decisionmaking in Low-Income Households. Rebecca M. Blank and Michael S. Barr (Editors)

Mullainathan and Shafir discuss the features of the physical space and surroundings in a task-oriented environment that can either facilitate or hinder the achievement of the task in the context of poverty. The authors explore several important insights: first, context matters; second, how we construe a situation matters; third, the actual way people use mental accounting suggests that a core economic assumption about the fungibility of money often fails; finally, certain behaviors can be facilitated or blocked by opening or closing a channel. A fundamental implication of this research is that the poor are neither irrational nor in need of change, at least no more so than the rest of us. 

Simonson, I. (1989). Choice Based on Reasons: The Case of Attraction and Compromise Effects. Journal of Consumer Research, 16(2), 158-174. Retrieved March 21, 2021, from

The author, Simonson exams that choice behavior under preference uncertainty may be easier to explain by assuming that consumers select the alternative supported by the best reasons. The research results indicate that (1) brands tend to gain share when they become compromise alternatives in a choice set; (2) attraction and compromise effects tend to be stronger among subjects who expect to brands are associated; and (3) selections of dominating and compromise brands are associated with more elaborate and difficult decisions.   

As an experienced researcher, Simonson admits that this research had two limitations that suggest directions for future research. First, the present research focuses on only two specific effects (attraction effects and compromise effect); second, in this study, the sets were limited to two or three alternatives. It is expected that future research can increase the complexity and realism of the decision task and thus test whether the attraction and compromise effects still hold in the more natural consumer environments. 

Felipe, K., Stephan, M., & Dina, P. (2012). Under-savers anonymous: Evidence on self-help groups and peer pressure as a savings commitment device. IZA Discussion Papers

This paper investigates the effectiveness of one institution that is potentially available to anyone, including those working in the informal sector. The researchers conducted two randomized field experiments among low-income micro-entrepreneurs in Chile to study the power of self-help peer groups as a commitment device and to investigate the importance of actual in-person meetings and peer pressure for their effectiveness. The result indicates that self-help peer groups increase can serve as a powerful tool to help individuals participants reach an individual but a mutually shared goal. Plus, self-help peer groups can be achieved without actual meetings, through simple follow-up text messages.  

The author of this research indicates that follow-up through text messages has many potential applications in other areas where people make resolutions but find it difficult to follow through, so future research is required to investigate interactions between multiple messages, as well as the effect of follow-up messages over a longer period.

Thaler, R. H., & Benartzi, S. (2004). Save More TomorrowTM: Using Behavioral Economics to Increase Employee Saving. Journal of Political Economy112(S1), S164–S187.

Thaler and Benartzi designed a program called Save More Tomorrow to help employees who would save more but the willpower to act on this desire. The authors present three implementations of Save More Tomorrow: first, midsize manufacturing company (1998), second, Ispat Inland (2001), third, Philips Electronics (2002). The initial experience with the SMarT plan has been quite successful. Many of the people who were offered the plan elected to use it and a majority of the people who joined the SMarT plan stuck with it. 

Soman, D. (2001). Effects of Payment Mechanism on Spending Behavior: The Role of Rehearsal and Immediacy of Payments. Journal of Consumer Research27(4), 460–474.

Soman explored the mechanism used to make past payments influences spending behavior and found that payment mechanisms were shown to affect the memory for, and the aversive impact of past expenses and hance moderate the effect of these past expenses on spending behavior. Specifically, Soman found that consumers who made past payments by credit card were more likely to purchase an additional discretionary product. Plus, the research shows that rehearsal and immediacy of wealth depletion, the two manipulated features of payment mechanism moderate the effect of past payments on future spending. 

Since the pain of payments can be reduced by paying by credit cards or other online paying methods, fundraisers may adopt this effect to decrease the pain of donation, and thus to enhance donation rate and contribution levels. 

Shu, L. L., Mazar, N., Gino, F., Ariely, D., & Bazerman, M. H. (2012). Signing at the beginning makes ethics salient and decreases dishonest self-reports in comparison to signing at the end. Proceedings of the National Academy of Sciences109(38), 15197–15200.

This paper examines how intervention enhances one’s identity as a virtuous person increases the likelihood that they will make virtuous choices. However, the intervention must happen before the choices have to be made. The researchers found out that ask individuals’ signatures before the reporting can decrease the extent of misreporting and cheating in self-reporting income. 

In the light of this research, I can improve my survey for investigating individuals’ donation willingness by requiring participants to the signature at the top of the survey form. 

Milkman, K. L., Minson, J. A., & Volpp, K. G. M. (2014). Holding the Hunger Games Hostage at the Gym: An Evaluation of Temptation Bundling. Management Science60(2), 283–299.

This paper discovers the potential for temptation bundling to improve outcomes for those facing self-control problems is considerable, especially given that they offer a low-cost, simultaneous solution to two common willpower problems and harness the potential motivational benefits of complementarities between wants and shoulds. The researchers investigate the novel engineered type of commitment device – a temptation bundling device in promoting gym attendance.

Nevertheless, the study displays that temptations at the gym lose their allure after a period of abstinence. Thus, a significant question of this research is how to address the declining effectiveness of temptation building over time or as a result of natural breaks in gym access that result from holidays and vacations. The authors provide a possible solution that is to periodically renew individuals’ appetites for the temptations bundled with exercise. As experienced researchers, the authors are aware of the possible underestimation of the potential benefits of temptation bundling for encouraging gym attendance because they adopted audio novels to template the participants. 

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