Applied Economics Teaching Resources

an AAEA Journal

Agricultural and Applied Economics Association

Teaching and Educational Methods

Nudge or Sludge? An In-Class Experimental Auction Illustrating How Misunderstood Scientific Information Can Change Consumer Behavior

Laura A. Paul(a), Olesya M. Savchenko(b), Maik Kecinski(a), and Kent D. Messer(a)
University of Delaware(a), University of Florida(b)

JEL Codes: A20, D82, D83, D90, D91, Q25, Q28
Keywords: Behavioral economics, classroom game, experiential learning, informational nudge, second-price auction, willingness-to-accept

Publish Date: March 11, 2022
Volume 4, Issue 1

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Abstract

Scientific information can be used to help people understand and describe the world. For example, consumers regularly seek out information about their food and drink to help inform their purchasing decisions. Sometimes, however, consumers can respond negatively to this information, even when the information did not intend to convey a negative signal. These negative responses can be the result of misunderstandings or strong, visceral, emotional behavior, that can be challenging to foresee and once arisen, difficult (and expensive) to mitigate. In this paper, we show how educators can use an in-class economic experiment to introduce the power of a sludge—a small behavioral intervention that leads to worse outcomes. We provide a step-by-step guide to take students through a demand revealing design using a second-price, willingness-to-accept (WTA) auction that tests preferences for tap water and bottled water when students receive total dissolved solids (TDS) information. Additional classroom discussion topics are presented, including comparing nudges and sludges, the public response to the treatment of tap water, and the role of safety information in consumer response.

About the Authors: Laura A. Paul is a Postdoctoral Researcher at the University of Delaware (Corresponding author: lpaul@udel.edu). Olesya M. Savchenko is an Assistant Professor at the University of Florida. Maik Kecinski is an Assistant Professor at the University of Delaware. Kent D. Messer is the S. Hallock du Pont Professor and Director of the Center for Experimental & Applied Economics at the University of Delaware. Acknowledgements: This research was supported by the U.S. Department of Agriculture National Institute of Food and Agriculture, #2019-67023-29854.

Copyright is governed under Creative Commons CC BY-NC-SA

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