Monday, February 24, 2014

This waste solution is in the bag - Cass Sunstein on loss aversion #apmp

Last week, Dr. Tom Sant of Hyde Park Partners gave a presentation to the California chapter of the Association of Proposal Management Professionals. In his presentation ("The Art and Science of Compelling Value"), Dr. Sant briefly mentioned Dr. Daniel Kahneman, a Nobel Prize winner for economics who doesn't happen to be an economist.

One of Dr. Kahneman's concepts is that of "loss aversion." I was searching for some easy-to-understand examples of loss aversion, and I ran across three of them in a Cass Sunstein article that I found on LinkedIn.

[taberandrew, some rights reserved]

In his article, Sunstein's second example concerned efforts by the District of Columbia to reduce the use of plastic bags in grocery stores. First, the District tried an incentive:

One approach was to offer a five-cent bonus to customers who brought reusable bags.

It turns out that the incentive didn't work. So the District moved to the penalty phase:

More recently the District tried another approach, which is to impose a five-cent tax on those who ask for a grocery bag.

This was very effective. As Sunstein comments, "Five cents is not a lot of money, but many people do not want to pay it." Carol Rucker notes that the fee resulted in a 50% reduction in disposable bag use in Washington, DC grocery stores.

See Sunstein's other two examples here.
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