Behavioral economics - a field based in collaborations among economists and psychologists - focuses on integrating a nuanced understanding of behavior into models of decision-making. Since the mid-20th century, this growing field has produced research in numerous domains and has influenced policymaking, research, and marketing. However, little has been done to assess these contributions and review evidence of their use in the policy arena.
Behavioral Economics: Policy Impact and Future Directions examines the evidence for behavioral economics and its application in six public policy domains: health, retirement benefits, climate change, social safety net benefits, climate change, education, and criminal justice. The report concludes that the principles of behavioral economics are indispensable for the design of policy and recommends integrating behavioral specialists into policy development within government units. In addition, the report calls for strengthening research methodology and identifies research priorities for building on the accomplishments of the field to date.
Behavioral economics has had a growing influence on public policy over the past several decades. The awarding of two Nobel Memorial prizes in economics for work in the field is a mark of the influence of this interdisciplinary approach. The field, which encompasses and draws on findings from many disciplines, can be loosely described as an approach to understanding human behavior and decision making that integrates knowledge from psychology and other behavioral fields with economic analysis.
The field took shape as a growing number of economists recognized the work of psychologists who demonstrated that people do not behave as traditional economists had assumed: as rational actors who consistently make decisions that will optimize their expected benefits. These scholars observed, for example, that people do not have complete self-control; make inconsistent choices over time; show selective attention; and respond unconsciously to an array of influences. People also do not necessarily prioritize, or accurately assess, the benefits and costs of different actions, particularly those that accrue over long time intervals; their decisions are often influenced by the social context in which they are made; they respond unconsciously to the way a choice is framed and presented; and they have limited capacity to overcome logistical obstacles that stand in the way of an objectively optimal choice.
While economists continue to consider behavioral influences in their work, behavioral economics is a narrower field that draws on insights from the behavioral sciences; often builds on those insights; and, most important, incorporates those insights into economic models of human behavior. Behavioral economists have explored ways to apply knowledge of human behavior in the design of policy interventions to encourage people to make beneficial choices that, for example, promote health, support financial well-being, and encourage actions to protect the environment. The field has accumulated evidence about when, how, and under what circumstances the knowledge and approaches from behavioral economics can support effective policy. Along with its influence have come questions and challenges, such as the possibility that behaviorally based interventions may in some cases be paternalistic, ethical concerns about how knowledge of behavioral principles may be applied outside of research settings, and the risk of unintended negative outcomes for some populations.
Recognizing the growing influence of the field, the Sloan Foundation and the National Institutes of Health (NIH) requested that the National Academies of Sciences, Engineering, and Medicine assess the contributions of the field to public policy. The Committee on Future Directions for Applying Behavioral Economics to Policy, whose members have expertise in economics, behavioral economics, health policy and behavioral design, psychology, cognitive science (e.g., judgment and decision making), methodology, and public policy, was appointed to carry out the study. The committee was charged to review evidence about the application of behavioral economics to key public policy objectives in a range of domains and synthesize what has been learned from this body of work, to suggest guiding principles for future work and applications, and to offer direction for future research.
To carry out its charge, the committee explored the history and theoretical foundation of the field and the available research in six public policy domains: health, retirement benefits, social safety net benefits, climate change, education, and criminal justice. Recognizing that the charge called for a tradeoff between breadth and depth, the committee chose these six as a varied set of important policy domains in which the ideas of behavioral economics have been tested. Three commissioned papers and a public workshop supplemented the committee’s survey of the literature.
Foundational theoretical work that has integrated understanding of cognitive and psychosocial processes with economic analysis shows that decision processes are dynamic, malleable, and context dependent and that insights from this work help to explain how and why people make decisions that seem to run counter to rational analysis. This work points to the importance of five behavioral principles that affect people’s decision making: limited attention and cognition, inaccurate beliefs, present bias, reference dependence and framing, and social preferences and social norms. . . .
Committee on Future Directions for Applying Behavioral Economics to Policy:
https://www.nationalacademies.org/our-work/future-directions-for-applying-behavioral-economics-to-policy
Book:
https://nap.nationalacademies.org/catalog/26874/behavioral-economics-policy-impact-and-future-directions