How Social Norms Shape Economic Choices

How unwritten rules about what others do and expect influence decisions about work, saving and spending, and how correcting misperceptions can change behaviour.

Social norms are informal rules about how people are expected to behave. They can shape economic decisions as powerfully as prices or laws.

Examples

Women’s work: in many societies, norms discourage women from working outside the home, especially after marriage.
Spending on ceremonies: expectations about wedding and funeral spending can push families into debt.
Tax compliance: people are more likely to pay taxes if they believe others do.
Energy use: households reduce electricity use when told they use more than their neighbours.

Misperceived norms

Sometimes people misjudge what others think. A study by Leonardo Bursztyn, Alessandra González and David Yanagizawa-Drott in Saudi Arabia found that most young married men privately supported women working outside the home, but underestimated how many other men agreed. When men were shown that most of their peers supported women working, more of them helped their wives search for jobs.

This shows that correcting misperceived norms can change behaviour.

Using norms in policy

Governments and organisations use norms to encourage good behaviour:

Tax letters: in the United Kingdom, letters telling late taxpayers that most people in their area pay on time increased payment rates.
Energy reports: the company Opower sent households reports comparing their energy use with neighbours, reducing consumption by around 2 percent on average, according to research by Hunt Allcott.

Changing norms

Norms can change through education, media, economic opportunities and role models. Research in India found that exposure to women leaders, through village council seats reserved for women, raised parents’ aspirations for their daughters.

The neighbour comparison

A household receives an energy report showing it uses more electricity than most similar homes nearby. Wanting to fit in, the family switches off unused appliances and lights. Nothing about prices changed, only information about what others do.

Thinking people only respond to money

People care about what others think and do. Social norms can influence decisions as strongly as financial incentives, and they can be used to encourage beneficial behaviour.

Key takeaways

Social norms are informal rules that shape economic choices.
People often misperceive what others believe, as with men's views on women's work in Saudi Arabia.
Tax letters and energy comparisons use norms to change behaviour.
Norms change through education, opportunity and role models.