Friends of the Behavioral Economics Club, this week we present the paper “Small business response to regulation: incorporating a behavioral perspective” by Shapiro, S. and Borie-Holtz, D. (2020), in which authors study, from the behavioral economics’ point of view, what is the opinion of the small businesses regarding the government’s regulations in the United States context.
We already know that behavioral economics can be applied to any area of our lives.
Because of this discipline’s rising, we see more and more analysis each time according to its perspective, public policy issues included.
Therefore, studies have been carried out around the world at different levels of government to find out how to incorporate the concept and theories of behavioral economics into political decisions.
Nevertheless, there is a crucial group for whom not enough resources have been allocated. We refer to those who must comply, personally, with the regulations of public policies: small businesses, but also schools or hospitals, among others.
An important point is the arguments authors use to show us how important it is to study how companies perceive government regulations.
Former, these insights can affect the decision about whether to comply with regulations or not. And if regulations are not followed, the overall target benefits will not be achieved.
Latter, perceptions about regulations are important because they reflect people’s opinions about government in general. Why? Because for those who oversee small businesses, these regulations are the main contact with public administrations.
Due to the lack of research of this area from behavioral economics, authors explore in this work how the perception of the different regulations proposed by the government affect the attitudes towards them that these small businesses have.
In addition, authors wanted to shed light in this context to improve how these companies react to regulations, so that they are more effective, and the polarization that characterizes how they are perceived is reduced.
In order to do this, an online survey was carried out with a total of 322 small business owners as participants, and those who wanted were also interviewed in person to collect more specific data.
Before compiling all the information obtained from the study, authors considered several ideas as possible.
For instance, they believed that business owners consider paperwork requirements an arduous task, and a disproportionate burden due to the number of reports and records that must be kept up to date.
Authors considered that these pejorative connotations could be due to negative experiences in the past. Even listening to acquaintances or friends that have passed through them can affect.
After conducting the surveys and interviews, interesting results were obtained.
Indeed, small businesses owners are concerned with keeping records up to date and completing the necessary paperwork for government regulations. In both surveys and interviews it was a recurring topic. Half of the participants reported dedicating more than one hour a week to this matter.
One of the reasons this seems so arduous for them is because, while doing it, they remember the frustrations associated. Moreover, exists the wagon effect. This means the opinion of those close to you is very important, and if they report having suffered negative experiences, you will remember this data very easily.
The wagon effect is also seen in the effects of opinions found on the internet. There, people can say if they agree or disagree with something they are interested in. They can complain about different matters if they are angry, too.
There is also the idea of anchoring. That is to say, we are prone to collect little data before creating a judgement and, besides, we remember a dramatic incident more easily than hundreds of routine events, due to the impression it causes to us.
Among other biases mentioned, the self-service bias appears. This would be the tendency to attribute positive behaviors and actions to oneself while blaming other people for factors that lead to failure.
How do we relate this to the small business matter? When this kind of business fails, the owner can attribute the failure to certain causes, usually external. Due to regulations and negative opinions towards them, it is very possible that blame is projected onto the public administration.
The conclusion is that a vicious circle is produced, in which bad experiences with regulation are reinforced by anti-regulatory gossip on the internet and among acquaintances. All this shapes how future experiences are perceived.
A limitation of this study is that it was carried out with small companies, in which the owner is the one that deals with this type of procedures. This is not the same in larger businesses, so research regarding this should be carried out.
With so much money invested in regulatory costs and benefits, this area is very important for future studies.
In a nutshell, authors consider that, a better understanding of why small businesses react to regulation in the way they do, could improve relations between them and government authorities, creating a very positive environment that must begin to be seen as necessary.
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