Behavioral Insights Toolkit

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Behavioral InsightsToolkit-1-

Purpose of this ToolkitThis Behavioral Insights Toolkit was created asa practical resource for use by IRS employeesand researchers seeking to incorporateBehavioral Insights into their work. This Toolkitdescribes the field of Behavioral Insights, itspotential benefits, and how Behavioral Insightscan be practically applied to serve taxpayersand help the IRS achieve its mission. Ithighlights examples of opportunity areas whereBehavioral Insights has been applied bothinternally at the IRS and across the globe.AcknowledgmentsThis Toolkit was sponsored by the ResearchDirectors Coordinating Council (RDCC) anddeveloped in close collaboration with Deloitteand ASR Analytics. We would like toacknowledge the following contributors:RDCC Behavioral Insights Team,particularly the contributions ofDavid Cico, John Guyton,Eric LoPresti, Alicia Miller, andBrenda SchaferSarah Godby, Michael Greene,James Guszcza, Sarah Kovar,Greg Lidrbauch, Shrupti Shah,Steve Watkins, andJacqueline WintersPearl Chan and Michael Stavrianos-2-

Table of ContentsBehavioral Insights Overview 4Behavioral Insights in Tax Administration 8Behavioral Insights Framework 10Individual Factors 12Environmental and Design Factors 20Social Factors 27Behavioral Insights and Organizations 31Behavioral Insights Research Guide 36Process for Behavioral Insights Projects 37Data Analytics for Behavioral Insights Projects 42Research Methods for Behavioral Insights Projects 44Resources 61-3-

What is Behavioral Insights?Recent research in behavioral sciences has brought an exciting shift inour understanding of human behavior, especially about whatmotivates people and how they make decisions. Behavioral Insightsleverages work from the fields of psychology, neuroscience, and behavioraleconomics in considering what influences how people think and behave.By blending insights from seemingly disparate fields, Behavioral Insightshas created a new perspective – evolving from the traditional “rationalactor” model that portrays decision-making from simply a cost-benefitperspective. Instead, Behavioral Insights understands that while somedecisions are made rationally, people sometimes make decisions that arenot in their best interests, due to factors such as expediency, peerpressure, marketing, and the power of habit, to name only a few.Behavioral Insights is the study of why we act as we do.Behavioral Insights considers these factors and the impact they have onimportant life decisions – such as saving for retirement – and aims tobetter understand behavior for the purpose of humanizing public policies,improving government interaction, and achieving positive outcomes.Federal agencies are using Behavioral Insights to aid in streamlining accessto programs, improving presentation of information, and structuringchoices carefully. Like tax agencies in many countries, Behavioral Insightscan be used at the IRS to help drive compliance, positively impacttaxpayer engagement, and reduce taxpayer burden.-4-BehavioralInsightsBehavioral Insights (BI)uses principles from thebehavioral sciences suchas psychology,neuroscience, andbehavioral economics tounderstand howindividuals absorb,process, and react toinformation and appliesthis to design practicalpolicies andinterventions with humanbehavior in mind.

Foundational Principles of Behavioral InsightsAt the foundation of a Behavioral Insights perspective are several key principles:People are faced with more decisions and information than we can consciously process.Research from the cognitive sciences explains that our brains process information in two ways: 1)using deliberate, logical thought; or 2) in an automatic fashion, without a lot of conscious thought.Most of our behavior is fast and automatic, relying on a myriad of cognitive shortcuts to reserveour deliberate processing for the most salient, non-routine, or novel situations.Much of our behavior is unconscious and in response to our surroundings.Because we rely so heavily on our automatic processing system, our actions and decisions areoften conditioned by our environment – both our physical surroundings and things likeadvertising or elements of a task at hand, such as a form we must complete.Humans are social beings who care what others think and do.We go to lengths to match our behavior to those around us, and we act in ways to help presenta positive self-image, especially when we believe others are watching.-5-

Practical Tools of Behavioral InsightsConsidered together, these Behavioral Insights offer the perspective that much decision-making isinfluenced by a combination of individual, environmental, and social factors. The perspective offered byBehavioral Insights isn’t merely explanatory, but offers practical tools that can be applied to helpinfluence behaviors by allowing us to work with, rather than against, human nature. For example:Individual Factors: Understanding that people arefaced with more information than they can processunderscores the importance of simplifying complextasks, processes, and policies. (see Cognitive Load)Environmental and Design Factors: Drawing on thefact that much of behavior is shaped by oursurroundings, prompts and cues can be built intowebsites and forms to guide behavior so that thedesired choice is the easy choice. (see Simplification)Social Factors: Recognizing the importance we placeon our connection to others, we can motivate people tobehave better by comparing their behavior to thebehavior of others. (see Social Norms)Environmentaland DesignIndividualBEHAVIORALINFLUENCESSocialThese practical tools can be applied in several ways: Application: Viewing current challenges and issues through a behavioral lens to identify the keyfactors at play and intervene on them Research: Conducting new research to contribute to the body of knowledge about “what works”-6-

How to Use This GuideThis document serves as a guide for integrating behavioral approaches into tax administration – a toolkitwith options and resources to use in testing and implementing Behavioral Insights approaches relevant totax administration. It is not a comprehensive review of behavioral science but aims to point readers torelevant Behavioral Insights materials, principles, and methods.To begin, we present a framework for understanding behavior that catalogues Behavioral Insightsfactors and concepts that are most relevant for tax administration. This section also offers examples ofhow Behavioral Insights is being used in practice and provides guidance applying Behavioral Insightsprinciples. Finally, we provide an overview of the Behavioral Insights project research process anddiscuss research methods that may be used in different stages of Behavioral Insights projects,including the role of data analytics.Toolkit NavigationIcons and text can be used for easy navigation of the documentTable of Contents (bottom left)Forward / Backward (bottom right)Hyperlinked Words / Phrases (throughout)Further Readings (bottom right)Frameworks (top right)-7-Social Concepts; Data Analytics

Behavioral Insights inTax AdministrationMany of the processes andcustomer interactionsassociated with taxadministration can benefitfrom the application ofBehavioral Insights. Thefollowing table offers a quickreference guide to ways inwhich Behavioral Insights cancontribute to six keyoperational areas.-8-

Quick Reference to Behavioral Insights in Tax AdministrationThe following table offers a quick reference to some possible applications of Behavioral Insights to the IRS.IRS Operational AreasHow Behavioral Insights Can ContributePotential FactorsData analytics tools such as segmentation and usagetracking can identify problem areas across the taxadministration process, and BI nudges can be used toimprove service delivery and increase efficiency. Timing Feedback andReminders Cognitive LoadServicesAllowing us to see where weneed to build our capabilities tosupport arising needs, andwhere there are gaps we needto fillOutreach and Preemptive CommunicationEffectively anticipating needsand providing the appropriatepreemptive communicationBI suggests that the time and way in whichcommunications are delivered can have a significantimpact on response. Messenger EffectTimingFraming/ PrimingSelf-imageVoluntary Compliance and Self-CorrectionHow to promote and assurevoluntary compliance and selfcorrection of errors BI points to the importance of feedback and remindersduring decision-making to help encourage honestreporting. Simplifying forms and processes and appeals to social norms can also help to keep taxpayers honest. Feedback andRemindersSimplificationSocial NormsMath Errors, Soft Notices, and AURDemonstrating where systemicerror detection methods canprovide effective enforcementmethods Cognitive LoadCognitive load may set in when preparing lengthy taxreturns, resulting in declining accuracy. Identifying points Feedback andat which errors tend to happen enables feedback andRemindersreminders to be inserted. SalienceExaminations and PenaltiesDemonstrating how to useBehavioral Insights to increaseexamination and penaltyeffectivenessAppeals to image, identity, and social norms encouragesocially responsible actions. Strategically implementingrewards and penalties can increase the deterrent effect ofexisting penalties and uncover new treatment options. Social NormsRewards and PenaltiesTimingSalienceCollection and Dispute ResolutionDemonstrating how BehavioralInsights can improve theeffectiveness of Collection anddispute resolution processes Intention andA sense of reciprocity can be tapped by appealing to asense of fairness and can also be complemented withCommitmentsocial norms and intention and commitment to emphasize Reciprocityresponsibilities for payment. Social Norms-9-

Behavioral InsightsFrameworkBehavior Insights considers threefactors that influence behavior:Individual factorsEnvironmental/design factorsSocial factorsWithin each factor are its mostrelevant concepts related to taxbehavior – either an underlyingconcept to understand behavior(e.g., cognitive load) or a tool thatcan be used to encouragebehavior (e.g., framing). Thisdocument is organized by thesegroups, with one section for eachof these three factors and oneslide for each concept, describinghow and when it can be used.- 10 -

Behavioral Insights FrameworkClick on any of the factors or concepts to jump to its related slide.Individual FactorsEnvironmental and Design FactorsHuman decision-making is based on bothdeliberate and automatic modes ofinformation processing. These processes canbe harnessed to make compliance easier.Because most information processing isautomatic, our behavior is largely shaped bycontextual factors and cues in the environment.Individual Concepts: Cognitive LoadSelf-imageFast vs. Slow ProcessingHeuristics and BiasesIntention and CommitmentRewards and PenaltiesTime DistortionEnvironmental and DesignConcepts:BEHAVIORALINFLUENCES Choice ArchitectureFeedback and RemindersFraming and PrimingSalienceSimplificationTimingSocial FactorsHow people act and think oftendepends on the actions of thosearound them. Most people makeefforts to conform to social norms andexpectations.Social Concepts: Messenger Effects ReciprocityOrganizational Factors Social NormsBehavior within organizations is complex, involving individual, environmental, and social factors aswell as factors unique to entities (e.g. culture, governance). For a consideration of Behavioral Insightsat the organization level, please see the Behavioral Insights and Organizations section.- 11 -

Behavioral Insights Framework: IndividualHuman decision-making is based on both deliberate and automatic modes of information processing.These processes can be harnessed to make compliance easier.Individual FactorsEnvironmental and Design FactorsHuman decision-making is based on bothdeliberate and automatic modes ofinformation processing. These processes canbe harnessed to make compliance easier.Because most information processing isautomatic, our behavior is largely shaped bycontextual factors and cues in the environment.Individual Concepts: Cognitive LoadSelf-imageFast vs. Slow ProcessingHeuristics and BiasesIntention and CommitmentRewards and PenaltiesTime DistortionEnvironmental and DesignConcepts:BEHAVIORALINFLUENCES Choice ArchitectureFeedback and RemindersFraming and PrimingSalienceSimplificationTimingSocial FactorsHow people act and think oftendepends on the actions of thosearound them. Most people makeefforts to conform to social norms andexpectations.Social Concepts: Messenger Effects ReciprocityOrganizational Factors Social NormsBehavior within organizations is complex, involving individual, environmental, and social factors aswell as factors unique to institutions (e.g. culture, governance). For a consideration of BehavioralInsights at the organization level, please see the Behavioral Insights and Organizations section.- 12 -

Cognitive LoadPeople’s mental resources can become drained by challenges, tedious tasks, and stress, leading to suboptimal decision-makingHaving too many choices or decisions can lead to choice overload or decision fatigue. In theseoverwhelming situations, people tend to make impulsive decisions, often by satisficing (a combination ofsufficing and satisfying). This “short cut” approach to decision-making leads to decisions perceived as “goodenough” rather than truly optimal decisions.How to UseAddressing cognitive load is important when Simplify messages and processes to reduce cognitiverequirementsThis prevents people from having to work too hardto determine their action steps and may keep themfrom the poorer decisions that result from cognitiveload.Provide “do it for me” support when lack ofconfidence makes control a burden rather than abenefitLetters with personalized cost information toMedicare Part D consumers made decision-makingeasier and lowered the costs needed to makecomparisons, saving an average of 100 per yearper recipient.Take steps to avoid decision fatigue when importantdecisions are being madeA study of judges in Israel found that the likelihoodof a favorable ruling is highest at the beginning ofthe day or after a snack break when judges arerefreshed. Also, forms may be redesigned to avoidtoo many decisions in succession. Users are asked to complete complex tasks. Decisionmaking and self-regulation resources can be depleted bythe end of a long process, so people with more on theirplates may be more likely to misreport or make poorchoices toward the end of long days, forms, or processes. Users must repeatedly make similar evaluations.When people have to make routine decisions consistently,they often fall prey to decision fatigue and fail toadequately grapple with important topics before comingto a conclusion. In these circumstances, actions should betaken to keep users refreshed and thinking critically.Make sure that While messages should be simplified, more detailedinformation is available for those who want it. Somepeople, such as “power users,” will want more detail thanothers. It is important to be able to direct individuals tomore detailed information if they desire, asoversimplification can be viewed as manipulative.Tax Applications and Impacts Increase accuracy of filing Increase notice responsiveness- 13 - Increase timely paymentsFurther Reading

Self-imageOur desire to maintain a positive self-image can influence many of our actionsThe way people view themselves is a powerful driver of behavior. We want to think of ourselves positively andoften make decisions to remain consistent with our self-image. The attributes (e.g., honest, smart, good) thatdefine our self-image differs greatly from person to person, and we may act differently based on which aspectof our identity (e.g., wife, mother, lawyer) is most active at the time.How to UseAppeals to self-image work well when Associate behavior with a positive aspect of asocial identityTo reduce littering on highways in Texas, the TexasDOT created a public service campaign focused onstate pride rather than admonishment. Thecampaign’s slogan, “Don’t Mess with Texas”became a rallying cry for the demographic that wasmost prone to littering (young men) and reducedlitter on Texas highways by 29% during its firstyear and 72% within ten years.Include language or offers that make people feelspecial or valuedA text message intervention to individuals whohadn’t enrolled in a program by the City of NewOrleans announced that recipients had beenselected for a free appointment. Recipients weremore than twice as likely to respond to thismessage than to other appeals – likely because thefree appointment seemed like a unique opportunityjust for them. Behavior can be directly connected to a strong senseof self or core beliefs. A successful appeal to a person’sself-image evokes the response, “That makes sense forsomeone like me.” Action can be framed in terms of fairness.People typically want to act in a way that is seen as fair.Messages that encourage people to do their part appeal tothe desire to act fairly within their larger group.Make sure that Identification with a particular population is strongand the identity/group has a strong set of values.Identity is powerful when a person strongly associates witha particular group, especially a group with clear values. The appeal is consistent with how people seethemselves. In terms of both ethics and practice,messaging might not work if the person does not seehim/herself in the image or identity being used. People canrelate strongly with a particular identity, making it risky ifinterventions appear to favor one group over another. Messages appeal to positive aspects of an image oridentity. At the same time, interventions should avoidhighlighting those that may evoke negative stereotypes.Tax Applications and Impacts Appeal to norms during filing Reduce abusive behavior- 14 - Increase quarterly paymentsFurther Reading

Fast vs. Slow ProcessingWe save our limited mental resources for non-routine tasksPeople process information using two different neurological systems – System 1, which is “fast,” meaningthat it happens automatically without a lot of conscious thought (such as bending down to tie your shoe assoon as you see it is untied) and System 2, which is reflective and “slow,” a result of deliberation and logicalthought. Much of our behavior is fast and automatic, a reaction to stimuli in our environments; slow processingis reserved for non-routine or novel situations. See also Cognitive Load and Heuristics and Biases.How to UseDesign contextual cues to make the better choiceautomaticWe react automatically to our environments, whichcan be designed to discourage or encouragebehavior. For example, making higher-fat items in asalad bar harder to reach has been shown to reduceconsumption of fatty foods.Use novelty and salience to trigger slow processingSlow processing of System 2 is activated by eventsthat do not fit the model for System 1 but requirefocus. In an experiment, most people did not see aman in a gorilla suit running across a basketballcourt if they had been instructed to closely watchthe ball.Separate difficult reading tasks and mathematicalcalculations from instructions and “asks”People tend to switch to System 1 processing whencomplex tasks cause high cognitive load.Considering fast vs. slow processing works wellwhen Trying to plan for a task that requires morereflective thought. Because most behavior is automatic,special attention must be given to encourage people touse reflective processing. Allowing for more logical responses to prevail overemotional reactions. Some jurisdictions build in “coolingoff” periods to allow consumers to reconsider purchasingdecisions made in emotional “fast” states using moredeliberative processes.Be careful when Tasks require a great deal of reflective processing.Reflective mental pr

It is not a comprehensive review of behavioral science but aims to point readers to relevant Behavioral Insights materials, principles, and methods. . how Behavioral Insights is being used in practice and provides guidance applying Behavioral Insights principles. Finally, we provide an overview of the . Behavioral Insights project research .

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