Foundational concepts of behavioral economics

Behavioral economics studies the individual’s decision-making process and behavior. A central tenet is the role of the individual, indicating that it is appropriate to place the user at the center of scrutiny in the chosen research context. The perspective assumes that the individual’s decisions are neither predetermined nor necessarily optimal, but are based on the information that the individual is able to compute and process (Tversky & Kahneman, 1974). The

environment that the individual resides in offers information to the user, but due to restrictions in computational capacities, it is not always possible for the user to take in all of the information (Simon, 1955). This dissertation adopts this as its departure point; it is relevant to consider when discussing the user’s perception and experiences of self-tracking in everyday activities because it offers an understanding of how the user processes information, specifically personal data.

Thus, a focus is placed on the individual’s decisions in an everyday yet complex environment, which is made up of available cues and the framing of a context (Kahneman, Ilana, & Schkade, 1999; Tversky & Kahneman, 1974). This focus is opposed to one that assumes the individual is continuously making the optimal choice. Nevertheless, the individual might aspire to have the will to do the right thing, yet individuals are not always able to compute all environmental cues and can fall short of arriving at the optimal solution. This assumes an emphasis of cognition and argues that individuals have restrictions in information processing and “limited capacity for controlled, deliberate or systematic thinking”(Samson &

Voyer, 2012, p.59). Therefore, the individual’s decision may come across as irrational to others, whereas it will seem entirely rational to the self. These circumstances argue that the individual has a bounded rationality that affects the decision-making process as well as the behavior (Kahneman, 2003b). This dissertation adopts a behavioral economics perspective to be able to discuss the above issues, many of those stemming from a bounded rationality. It acknowledges and addresses the user’s susceptibility to limitations in decision-making and behavior when approaching the topic of self-tracking in the context of experiential computing.

The behavioral economics perspective is distinguished from standard economics or neoclassical economics. Neoclassical economic theory departs from the assumption that agents or groups are rational, and act accordingly (Becker &

Murphy, 1988; Becker, 1976). This perspective expects the agent to have stable preferences (Simon, 1955) and the capacity to conduct a cost-benefit analysis by deliberating and considering all factors in a situation (Becker & Murphy, 1988).

This presupposes that the agent has access to all the relevant information and options, and thus the preconditions to compute the most beneficial outcome. It also means that the agent has the capacity to evaluate and rank options based on all of the information to arrive at the most beneficial outcome, namely maximizing utility. However, behavioral economics does not accept this premise because it

does not believe that agents are able to evaluate all of the information surrounding the user, even though it is available. Instead, the user is only able to process some of the information due to bounded rationality (Kahneman, 2003b; Simon, 1955).

Behavioral economics is thus a counter perspective to standard economics, where additional perspectives, such as psychology, are invited to factor in the irrational, impulsive and unpredictable human nature into economic theory (Kahneman, 2003b; Sunstein, 2013).

Thus, the intricacies of (ir)rationality are present in behavioral economics because the user is understood to have a bounded rationality (Kahneman, 2003b; Simon, 1955). The concept of bounded rationality suggests that the individual makes decisions that are limited by information, knowledge, time or cognitive processes.

The limitations arise when the individual is not able to process or compute all the information available in the surrounding environment. In turn, this individual carries his or her own limitation into the process of making the optimal decision (Kahneman, 2003a; Simon, 1955). The individual then makes decisions based only on the information that he or she can process, even though there is more information available. In other words, the individual makes limited use of the extant information because the environment is too complex to fully grasp. The approach stems from the work of Simon (1955; 1982), who reunified economics and psychology to propose that decision-makers are not necessarily rational, as asserted in neoclassical economics (Weintraub, 2007), and put forward a model that was focused on ‘satisficing’ instead. “Satisficing” means a combination between satisfying and sufficing, which roughly refers to a “good enough” attitude that individuals can adopt.

Inspired by Simon, Kahneman and Tversky (1972; 1974; 1992) set out to explore bounded rationality by investigating individual beliefs versus individual choice.

This exploration evolved over a period of thirty years and they are now recognized as pioneers of behavioral economics. Kahneman and Tversky depart from a cognitive psychological perspective that is usually compared to economical models in research on individual decision-making. The literature points to the evidence that the individual is prone to make decisions deemed as adequate, but not necessarily optimal. The complexities of bounded rationality are also incorporated and investigated in prospect theory, a theory originating from the early works of the behavioral economics field (Kahneman & Tversky, 1979), and

serves as an alternative to neoclassical economic thought. It focuses on the individual’s actual decisions rather than optimal decisions, by acknowledging the influence of individual experiences (Camerer, 1999).

The user evaluates how to pursue decision-making according to his or her computing capacities and information, yet the decisions made may seem irrational to others, even though they are perfectly comprehensive to the user. Individuals continue to behave in irrational ways that do not maximize utility, by acts such as procrastination, brawling with friends, and unhealthy eating habits (Ariely &

Wertenbroch, 2002). In the same way, people currently and continuously make forecasting errors as “they predict that activities or products will have certain beneficial or adverse effects on their own well-being, but those predictions turn out to be wrong” (Sunstein, 2013, p.4). This in turn might lead to behavioral market failures that might eventually justify the incorporation of reprimands from the government sector. Accordingly, behavioral economics focuses on the underlying forces that drive individual behavior, such as whether social or economic factors influence the individual. In other words, there is a distinction between what the individual does, rather than says he or she will do (Kahneman et al., 1999; Kahneman & Ritov, 1994). This is relevant and interesting for the investigation of self-tracking because it encapsulates both performance and perception of a lived experience.

In summary, behavioral economics focuses on the user and suggests that he or she has bounded rationality and this affects the cognitive process and computing capabilities, thereby affecting the ability to make optimal decisions. The user does not have any predefined preferences but is influenced by the environment, yet the user is not able to process all of it due limitations in his or her inherent computing abilities. Moreover, the environment also influences the user’s dual system of cognitive processes. This dual system includes System 1, where the intuitive, impressionable and automatic thoughts often lead the decision-making process away from System 2, an approach that involves a more controlled and structured process. The presence of the dual system is applied to this research context as a departure point to continue discussing the relationship between the user and technology and the experience between them, focusing on the cognitive processes and the behavior of the user. This perspective places emphasis on the user’s cognitive challenges, whereas the previous chapter identified the challenges for

the technology. The lens allows the user’s experience to be placed at the center.

By presenting the visibility of the technology’s challenges in relation to the user’s challenges, it also provides a richer framework that is increasingly accommodating discussion of the dynamics in-between. The next step is an examination of the dual system in relation to self-tracking by separately discussing the features of System 1 and System 2 in depth. The distinguished yet related systems are both addressed in relation to the desire to make sense of the personal data.

This section served as an introduction to give a general understanding of the core concepts of behavioral economics. The next section proceeds to look closer at a central concept that is applied in this research setting, namely the dual system.