Economic Incentives and Household Waste Reduction — A Prospect Theory Experiment
Supervisor: Dr. Ayşe Kocabıyıkoğlu
Overview
The effectiveness of environmental policy instruments depends critically on how they are framed. A fine for exceeding a waste threshold and a subsidy for staying below it can be economically equivalent in expected value — yet Prospect Theory (Kahneman & Tversky, 1979) predicts they will not be behaviorally equivalent. Because losses loom larger than gains of equal magnitude, the pain of paying a fine should produce stronger behavioral change than the pleasure of receiving an equivalent subsidy.
Global food waste alone runs to an estimated 93 kg per capita annually. Translating theoretical predictions about loss aversion into empirically tested design principles for waste reduction policy has direct practical significance. This project tests the Prospect Theory prediction in a controlled household setting.
Experimental Design
A between-subject design with three conditions:
| Group | Condition | Incentive Structure |
|---|---|---|
| Loss (Group 1) | Fine | Participants fined for waste exceeding the Turkish national average (2.5 kg / 10 days) |
| Gain (Group 2) | Subsidy | Participants receive a subsidy for waste below the same threshold |
| Control (Group 3) | None | No incentive; baseline for comparison |
Participants recorded household waste daily for 10 days. Pre- and post-study surveys assessed baseline waste management habits and environmental awareness. Real financial stakes were used — no deception — ensuring the incentive salience necessary to trigger genuine behavioral response. The pilot comprised 10 participants per group (N = 30); a full production study requires 30 per group to achieve adequate statistical power.
Results
| Group | Mean Waste (kg / 10 days) | Change vs. Baseline (2.5 kg) |
|---|---|---|
| Loss (fine) | 1.8 | −28% |
| Gain (subsidy) | 2.3 | −8% |
| Control | 2.6 | +4% |
The Loss group achieved the most substantial reduction — 28% below the national baseline. The Gain group reduced waste modestly (8%), and the Control group increased marginally (+4%), consistent with baseline variability in a small sample. The directional gap between Loss and Gain conditions is large and theoretically predicted.
Interpretation
The results confirm the loss aversion mechanism central to Prospect Theory: the prospect of a financial penalty produced substantially stronger behavioral change than an economically equivalent subsidy. This asymmetry arises because losses and gains are evaluated relative to a reference point (here, the national average threshold), and the loss utility function is steeper than the gain utility function.
A secondary finding: higher-income participants showed greater waste reduction across all groups, suggesting a possible interaction between financial sensitivity to penalties and household income — a confound that a larger, stratified study should address.
Policy Implications
For policymakers, the asymmetry between fine and subsidy conditions supports the design of loss-framed instruments — per-bag charges, pay-as-you-throw systems, threshold-based fines — as more behaviorally effective alternatives to subsidy programs. Prospect Theory provides both theoretical grounding and a practical design principle: when the goal is behavioral change, framing matters as much as the magnitude of the incentive.