Thinking about hormones and cloning . . .

The American Journal of Agricultural Economics just released a forthcoming paper I co-authored with John Crespi, Brad Cherry, Laura Martin, Brandon McFadden, and Amanda Bruce.  Why so many authors?  Because it takes a lot of brains to try to figure out what's going on in people's brains when making decisions about food.

Here's a description from the paper of what we did: 

“In this paper, participants in a neuroimaging (fMRI) experiment made choices regarding
types of milk produced with or without an unfamiliar technology process (cloning or growth hormone) while recording their choices and the time it took to make those choices. Focusing on nine areas of the brain that have been found to be important in previous research for economic valuation, the experiment and subsequent analyses show which of these areas are correlated with the deliberative process and which are correlated with the final choice. One area of particular interest that revealed correlation for both activities was the ventromedial prefrontal cortex. This region is implicated in experiments of valuation and salience, and it was significantly correlated with deliberation and an increased likelihood of choosing the more familiar milk.”

Here's one of the figures from the paper.  The orangish-yellowish areas indicate brain areas that were more active when the person was choosing between milks with different characteristics vs. when they were just looking at milk with different characteristics.  Choosing really is a different mental process than simply looking.

We find that we can predict choice and decision time based on activation in different brain areas.

Here's how the paper ends:

“When making decisions we recall memories, we feel emotions, we weigh costs and benefits, and while we cannot observe these neural processes directly, we can determine which of the valuation areas of the brain slow the process down and which speed it up. That is, which areas are involved in the internal deliberation that eventually becomes choice? While a large portion of the brain (figure 3 and table 3) ponders the decision, the final choice appears most highly correlated with localized areas in the medial prefrontal cortex, and among those, it is fascinating that correlation is stronger, in our study, when the choice is over growth hormones than cloning technology. Why is this? Food labeling has been a source of research interest for years, and neuroscience technology will make it a fruitful area of study for years to come.”

Behavioral Economics and Public Policy

David Just and Andrew Hanks have a new paper forthcoming in the American Journal of Agricultural Economics entitled: The Hidden Cost of Regulation (I noticed Marc Bellemare beat me to the punch in discussing his views on the paper).  

This is an important paper in many respects.  As I see it, one of the general problems with the behavioral economics literature is that the findings of behavioral biases (e.g., status quo bias, overweighting low probability risks, loss aversion, present, etc.) are almost always put forth as motivation for more government regulation.  Yet, it is easy to imagine many behavioral economic findings suggesting just the opposite - though that is rarely the conclusion drawn by the authors.

Here's an  example I used in the Food Police

“Here is the irony. The behavioral economists have told us for years that humans make mistakes by exaggerating the importance of low-probability risks. Yet, I have not seen a single behavioral economist use this insight to tell the food police to relax and put their fears over growth hormones, genetically modified food, or pesticides into perspective. Instead, we see the behavioral economists partner with the food police to advocate policies they want even if it means ignoring the implications of their own research. ”

Now, enter the paper by Just and Hanks.  They show that if consumers have a positive emotional attachment to a good that a government policy that attempts to restrict consumption of that good may cause a backlash by causing people to want it even more.

 Think of the Bloomberg large soda ban.  The very action of telling people "you can't have large sodas" makes them want large sodas even more, which makes banning large sodas even more costly in terms of foregone consumer welfare.  They argue that the reverse  may also be true: subsidizing something like healthy food that people feel like they should be consuming more of makes  them want it all the more.  

The general story here is that people's preferences (what they want) may not be independent of the policies government officials pursue.  It is an issue I've studied on a couple of occasions (here and here) with regard to the effects of mandatory labels on genetically engineered food. If people see a mandatory label as information about the risks of genetic engineering, the very presence of a label could make them even more averse to genetically engineered food.  

All this makes the normal sort of "welfare economics" we economists normally do a bit tricky.    Normally we look at the choices (and prices) before a policy is in place and the choices (and prices) after a policy is in place to determine whether consumers are better off with the policy or not.  How do we determine better off?  With a mathematical function derived from the choices people make.  Think of it like: happiness = f(prices, # of options).   But, if a policy changes preferences, then it is hard to know whether the consumer is happier or sadder because, in a sense, they're now a different person that has different tastes and wants.  Not only have prices and number of options changed but the function relating happiness to these factors has changed too.

While the Just and Hanks paper is largely a theoretical paper, I'm please to see a framework put forward for people to seriously evaluate public policies in a fully consistent behavioral economics framework rather than the ad hoc way it's normally done.  I also hinted as this sort of thing in a paper with Bailey Norwood and Stephan Marette where we ran some experiments where people could either choose for themselves or where other's made choices for them (we called the choosers the "paternalist" and the recipients of the choices (or children as Stephan calls them) the "paternalee)".  

“One interpretation of these results is that paternalees place an intrinsic value on freedom of choice. This does not necessarily imply that the paternalees’ choices are in any sense “optimal” or that, should paternalees suffer from time-inconsistent preferences, their long-term well-being couldn’t be enhanced by restricting current choices. Nevertheless, if this interpretation is correct, the results suggest that any long-term benefits that might arise from paternalism must be weighed against the loss of freedom of choice.”

Environmental Impacts of Vegetarianism

Given the latest report from the new dietary guidelines committee that recommends less meat eating (see some of my previous discussion on that here), I found this study just published in Ecological Economics by Janina Grabs quite interesting.

Grabs ask an important question that is rarely asked.  If people stop spending money on meat, what will they spend their money on instead?  And, what are the environmental impacts of those other non-meat expenditures?  Using data based on Swedish consumers, she calculates that, at first blush, a vegetarian diet does indeed appear to have slightly smaller energy use and carbon impacts, BUT if you take into consideration what the vegetarians do with the extra money they used to spend on meat, those environmental gains become dramatically smaller.  She calls this the rebound effect.

Here's the abstract:

“Sustainable diets, in particular vegetarianism, are often promoted as effective measures to reduce our environmental footprint. Yet, few conclusions take full-scale behavioral changes into consideration. This can be achieved by calculating the indirect environmental rebound effect related to the re-spending of expenditure saved during the initial behavioral shift. This study aims to quantify the potential energy use and greenhouse gas emission savings, and most likely rebound effects, related to an average Swedish consumer’s shift to vegetarianism. Using household budget survey data, it estimates Engel curves of 117 consumption goods, derives marginal expenditure shares, and links these values to environmental intensity indicators. Results indicate that switching to vegetarianism could save consumers 16% of the energy use and 20% of the greenhouse gas emissions related to their dietary consumption. However, if they re-spend the saved income according to their current preferences, they would forego 96% of potential energy savings and 49% of greenhouse gas emission savings. These rebound effects are even higher for lower-income consumers who tend to re-spend on more environmentally intensive goods. Yet, the adverse effect could be tempered by purchasing organic goods or re-spending the money on services. In order to reduce the environmental impact of consumption, it could thus be recommended to not only focus on dietary shifts, but rather on the full range of consumer expenditure.”

A couple caveats.  First, it is important to notice an important clause to sentence claiming a 16% reduction in energy use and 20% reduction in greenhouse gas emissions - this is the reduction related only to their diet.  In terms of overall impact, I believe these only translate to 1.8% and 4.15% reductions, quite simply because food only makes up a small part of the consumers overall energy use and carbon impact.  Of course, all this relates to the "first round" impacts and ignores the rebound effect, which is the main point of this study.

Second, the later part of the abstract, which suggests that the, "adverse effect could be tempered by purchasing organic goods" is mainly due (if I'm understanding the study correctly) to an income effect NOT because organics have substantively less energy/carbon impacts.  Because organics cost more, that leaves less money for the consumer to spend on other things that would require energy.  You could create the exact same kind of result by simulating a person who bought and ate less food, and then took all the dollar bills that were saved, and burned them.  This little thought experiment ought to reveal that the goal in life is not to minimize energy use per se, only to reduce it to the extent that you're not taking into account the impacts on others that are not already reflected in the market price.

None of that should distract from the overall important message of this study: that we need to look at all the effects (even unintended ones) when trying to look at policies that encourage people to change dietary habits.  

How do people respond to scientific information about GMOs and climate change?

The journal Food Policy just published a paper by Brandon McFadden and me that explores how consumers respond to scientific information about genetically engineered foods and about climate change.  The paper was motivated by some previous work we'd done where we found that people didn't always respond as anticipated to television advertisements encouraging them to vote for or against mandatory labels on GMOs.  

In this study, respondents were shown a collection of statements from authoritative scientific bodies (like the National Academies of Science and United Nations) about the safety of eating approved GMOs or the risk of climate change.  Then we asked respondents whether they were more or less likely to believe GMOs were safe to eat or whether the earth was warming more than it would have otherwise due to human activities.    

We classified people as "conservative" (if they stuck with their prior beliefs regardless of the information), "convergent" (if they changed their beliefs in a way consistent with the scientific information), or "divergent" (if they changed their beliefs in a way inconsistent with the scientific information). 

We then explored the factors that explained how people responded to the information.  As it turns out, one of the most important factors determining how you respond to information is your prior belief.  If your priors were that GMOs were safe to eat and that global warming was occurring, you were more likely to find the information credible and respond in a "rational" (or Bayesian updating) way.  

Here are a couple graphs from the paper illustrating that result (where believers already tended to believe the information contained in the scientific statements and deniers did not).  As the results below show, the "deniers" were more likely to be "divergent" - that is, the provision scientific information caused them to be more likely to believe the opposite of the message conveyed in the scientific information.  

We also explored a host of other psychological factors that influenced how people responded to scientific information.  Here's the abstract:

“The ability of scientific knowledge to contribute to public debate about societal risks depends on how the public assimilates information resulting from the scientific community. Bayesian decision theory assumes that people update a belief by allocating weights to a prior belief and new information to form a posterior belief. The purpose of this study was to determine the effects of prior beliefs on assimilation of scientific information and test several hypotheses about the manner in which people process scientific information on genetically modified food and global warming. Results indicated that assimilation of information is dependent on prior beliefs and that the failure to converge a posterior belief to information is a result of several factors including: misinterpreting information, illusionary correlations, selectively scrutinizing information, information-processing problems, knowledge, political affiliation, and cognitive function.”

An excerpt from the conclusions:

“Participants who misinterpreted the information provided did not converge posterior beliefs to the information. Rabin and Schrag (1999) asserted that people suffering from confirmation bias misinterpret evidence to conform to a prior belief. The results here confirmed that people who misinterpreted information did indeed exhibit confirmation, as well as people who conserved a prior belief. This is more evidence that assuming optimal Bayesian updating may only be appropriate when new information is somewhat aligned with a prior belief.”

Consumer sovereignty vs. scientific integrity

This post by Olga Khazan at Atlantic.com highlights some recent food company decisions to remove ingredients of concern to certain consumers.  Yet, the best science we have available suggests these same ingredients are perfectly safe.

Examples mentioned in the story include announcements that Diet Pepsi is removing aspartame, Ben and Jerry's and Chipotle are removing GMOs (the former company's decision is a bit ironic given that they're essentially selling frozen fat with sugar; the later is duplicitous since  they're still selling sodas and cheese that will contain GMOs), Pepsi dropping high fructose corn syrup in some of their drinks, and Clif's Luna Bars going gluten-free.  To that we could add a long list of others such as Cheerios dropping GMOs, many milk brands years ago dropping rBST, etc.  

It's difficult to know what to make of these moves.  On the one hand, we ought to champion consumer freedom and sovereignty.   Whatever one might think about the "power" of Big Food, these examples clearly show food companies willing to bend over backwards to meet customer demands.  That, in principle, is a good thing.  

The darker side of the story is that many consumers have beliefs about food ingredients that don't comport with the best scientific information we have available.  As a result, food companies are making a variety of cost-increasing changes that only convey perceived (but not real) health benefits to consumers.  

The longer-run potential problem for food companies is that they may inadvertently be fostering a climate of distrust.  Rather than creatively defending use of ingredient X and taking the opportunity to talk about the science, their moves come across as an admission of some sort of guilt:  Oh, you caught us!  You found out we use X.  Now, we'll now remove it.  All the while, we'll donate millions to causes that promote X or prevent labeling of X, while offering brands that promote the absence of X.  It's little wonder people get confused, lose trust, and question integrity.  

I'm not sure there is an easy answer to this conundrum.  In a competitive environment, I'm not sure I'd expect (or shareholders would expect) one food company to try to make a principled stand for ingredient X while their competitor is stealing market share by advertising "no-X".  On the other hand, I'd like consumers to make more informed decisions, but I'm not all that sure "education" has much impact or that, at least for many middle- to upper-income consumers, that given the price of food they have much economic incentive to adjust their prior beliefs.  

Faced with the conundrum, I suspect some  people would advocate for some sort of policy (i.e., ban ingredient X or prevent claims like "no-X"), but I don't think that's the right answer.  Despite my frustration, I suspect the marketplace will work it out in a messy way.  Some companies will adopt "no-X", will incur higher costs than their consumers are willing to pay, and will go out of business or go back to X. Some companies that are seen as lacking integrity will lose market share. Some consumers will pay more for "no-X" only later to find out it wasn't worth it, and switch back.  Maybe the scientists wind up being wrong and some consumers avoided X for good reason, and all companies drop X.  The feature of the marketplace, dynamism, that is, at times, frustrating is also the key to ultimately solving  some of those same frustrations.