Behavioural Transit

Investors act in irrational, but predictably irrational, ways.   
That is the basic tenet of Behavioral
Economics.  (Looking for references, I came across an interesting book by that title,
by the Alfred P. Sloan
Professor of Behavioral Economics at MIT’s Sloan School of Management.)  

For me, these predictable irrationalities provide ways to profit from the mistakes of
others in the market, so long as I do not
fall into the same (or other) cognitive traps which cause the market opportunities in the
first place.  I describe one such technique in this
article.

Applications to Policy Design

In addition to those of us who use it to make a slow buck (it's the people
trying to make a quick buck who are often most responsible for many of the
opportunities) in the stock market, Behavioural Economics also has useful
application to policy.  Richard
Thaler and Shlomo Benartzi,
two of the foremost researchers of Behavioural Finance (Behavioural Economics as
applied to investment decisions) used insights into why people procrastinate to
design the Save
More Tomorrow (SMarT) design for 401(k) defined contribution schemes to help
employees who want to save more but lack the willpower to do so.  This
design is now incorporated into commercial products, such as Vanguard's
Autopilot 401(k) program.

In the researchers' words (links mine):

[Save More Tomorrow] has the following ingredients: First, employees are
approached about increasing their contribution rates a considerable time
before their scheduled pay increase.  Because
of hyperbolic
discounting, the lag between the sign-up and the start-up date should be
as long as feasible. Second, if employees join, their contribution to the plan
is increased beginning with the first paycheck after a raise. 
This feature mitigates the perceived loss
aversion of a cut in take-home pay.  Third,
the contribution rate continues to increase on each scheduled raise until the
contribution rate reaches a preset maximum. In this way, inertia and status
quo bias work toward keeping people in the plan. Fourth, the employee can opt
out of the plan at any time.  Although
we expect few employees to be unhappy with the plan, it is important that they
can always opt out.  Knowledge of
this feature will also make employees more comfortable about joining.

Behavioral Gas Tax

Fellow energy blogger Jeff Vail at rhizome
inadvertently reminded me of Save More Tomorrow by his assertion that "assuming
rational consumer behavior is pretty silly, but any other basis of assumption
is even more silly."  

This begs the question, "How can a policy to reduce gas use be based on the fact that consumers
are irrational?"  Classical economics teaches us that we need to raise
the marginal cost of behaviors which we don't like, but behavioral economics
tells us that we'll get a lot more bang for our buck if we work with people's
irrational tendencies rather than against them. 

Jeff has a clever idea for making a gas
tax work better.  If it were implemented, I expect it would be
effective.  However, the most important
feature of any policy to reduce gas use is implementation.  Voters must be willing to
accept the policy, and while
voters generally think that it's a great idea to punish
others for harming the environment, they're still unwilling to actually make changes
themselves... especially
if it will effect their pocketbook.

Since it's more
effective to reduce driving than to attempt to increase the efficiency of the
cars on the road, I used SMarT as a model to help people make the decision
to use their cars less:

The Department of Motor Vehicles could offer drivers a discount on their
annual auto registration if they agreed to buy an annual transit pass within the next
6 months.  The instant incentive of savings would lure people to buy the
more expensive pass, and because it's the Department of Motor Vehicles, the car
owner could be charged and the pass mailed to them on the date they specified at
vehicle registration.

Some of the money from the transit pass would go to make up for the discount
to the Vehicle Registration Fee, but since all these pass holders would by
definition own cars, they would likely be relatively light transit users,
meaning that the transit authority would still be getting enough money to cover
their costs.

This scheme might not do much to reduce driving.  Nothing is forcing
anyone to opt in, and those who do might not end up using their passes... just
like all the people who buy annual gym memberships and only show up once. 
But just like those "wasted" gym memberships, the extra funds could be
used to improve the city's transit system, over time making it more attractive
and usable, and thus improving ridership.

On the other hand, because the scheme is voluntary, there would likely be
little political opposition to enacting it, and the best way to reduce gas
consumption is the method that actually gets passed.

Room for Improvement

I note that I'm not the only one thinking
about behavioral economics and energy use.  My idea is far from
perfect... mainly because it would likely not do too much to reduce
driving.  If you have a suggestion, the comments are open.