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Introduction

Behavioral economics—loosely defined as an approach to examining human behavior and decision making that integrates research and evidence from psychology and related fields such as sociology, anthropology, and cognitive science with economics analysis—has had a growing influence on research and policy. Since economics was established as a scientific discipline in the 19th century, economists have explored the nature of individual choices. In what is called the traditional, conventional, neoclassical, or standard framework, economists have assumed that people make rational decisions in the sense of maximizing possible benefits that are assessed through logical analysis. In this framework, people are assumed to know their own preferences regarding different choices, and those preferences are assumed to be consistent over time. This approach assumes that people correctly perceive the nature of the world around them, at least roughly and with some uncertainty, and that they systematically choose the best alternatives for themselves without being distracted by factors that are irrelevant to the underlying virtues of the alternatives. Economists have always understood that these assumptions about human behavior are only approximate, but that they are useful approximations for many purposes.

Challenges to this framework have come from many other intellectual frameworks, but the one that has had the greatest effect on economics arose around the middle of the 20th century. The work of psychologists Daniel Kahneman and Amos Tversky was an influential counter influence, though many other scholars played a role (as discussed in Chapter 2). The influence of this work on the discipline of economics has grown and led economists to take seriously the limitations of the traditional model’s assumptions

about behavior (e.g., Rabin, 1998; Camerer, 2003). Today, behavioral economics is a major subfield within the discipline of economics that has had an influence on the study of individual behavior in the contexts of financial behavior, health, education, and many other domains. Indeed, its influence is so widespread that one observer proposed that “we’re all behavioral economists now” (Angner, 2019).

While the discipline of economics has a strong theoretical element, it is increasingly an applied discipline with a focus on analyzing the effects of government policies and the actions of other parties and institutions, such as commercial firms and nongovernmental organizations. The development of behavioral economics and its application in many domains has led to changes in the structure and evaluation of government policies designed to promote health, safety, well-being, and other societal objectives (National Research Council, 2012; National Academies of Sciences, Engineering, and Medicine, 2017). Behavioral economics has been formally integrated into public policy in other countries, starting with the Nudge Unit (now the Behavioral Design Team) in the United Kingdom in 2010.¹ Other countries followed suit, and a growing number of nongovernmental entities, such as the Behavioral Science and Policy Association, are now helping to foster international collaboration among behavioral science researchers and policy makers.

In the United States this influence was evident when the Obama administration established a Social and Behavioral Sciences Team that was charged with looking across agencies for areas where behavioral economics and other ideas from the social and behavioral sciences could be used in tackling urgent policy challenges, such as increasing retirement security for military service members, supporting sound decision making about claiming Social Security benefits, and supporting consumer adoption of renewable energy sources (Office of the Press Secretary, 2016).

Researchers have continued to explore policy applications, accumulating evidence about when, how, and under what circumstances the tools of behavioral economics can help shape policy in desirable ways. Ideas associated with behavioral economics have also become influential beyond academia and policy making: for example, consultants offering to practice it for commercial purposes have proliferated (Hollingworth & Barker, 2017). Given the growing influence of the field, there is a need for an assessment of its contributions.

The Sloan Foundation and the National Institutes of Health requested that the National Academies of Sciences, Engineering, and Medicine conduct a consensus study to review the evidence regarding the application of behavioral economics to public policy objectives. The committee’s charge is shown in Box 1-1. The Committee on Future Directions for Applying

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¹ See Chapters 2 and 4 for definition and discussion of nudges.

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. This report describes the committee’s conclusions and recommendations and the evidence on which they are based and presents an agenda for future research.

STUDY APPROACH

The committee reviewed a range of information to develop a clear picture of the current state of the field, its theoretical foundations, its contributions, and the issues behavioral economists may need to address. An early question was how the committee should identify the boundaries of the field. Definitions of behavioral economics vary, along with ideas of what it should encompass, when it really began, and what might be considered its essential features. The boundaries of behavioral economics are not precise because work in the field builds and draws on work in economics, psychology, sociology, and other fields. Because the study charge focused on the application of insights that can guide future progress, the committee chose

to consider what can be learned from research, whether conducted by economists or other scientists, influenced by findings from domains in the behavioral sciences. Our focus was on exploring applications that use tools, methods, and approaches with a behavioral economics bent, rather than establishing arbitrary distinctions among fields. We explored key developments in the growth of the field and ways in which behavioral economics has differed from traditional economics as both fields have evolved over the past few decades. We used the term “traditional” when there was a need to address distinctions between the behavioral approach and other economic approaches, but we did not establish a filter for classifying different types of work. These issues are discussed in detail in Chapters 2 and 3.

Reviewing the evidence regarding the application of insights from behavioral economics to key public policy objectives called for an explicit tradeoff between breadth and depth. A systematic review of behavioral economics research across all relevant domains was not feasible. Instead, the committee determined that an overview of a varied subset of fields would best meet the charge of surveying the available research to identify features of clearly successful and less successful applications and assess this body of work, including controversies and questions that have arisen. Thus, the committee focused on the published literature in six domains: health, retirement benefits, social safety net benefits, climate change, education, and criminal justice. Within each of these domains we concentrated on a handful of important topics, recognizing that it would be necessary to leave out other important societal issues in which valuable work has been done (e.g., reducing credit card debt, obesity, behavioral finance). The six domains we selected are all policy domains of prime importance to society in which behavioral ideas have been tested.²

We supplemented our own information gathering with additional input through informal consultations with experts, a public workshop,³ and three commissioned papers:

• Linos, E. (2022). Translating evidence into policy and practice.
• Messer, K., Ganguly, D., & Xie, L. (2022). Applications of behavioral economics to climate change mitigation and adaptation.
• Svorenčík, A., & Truc, A. (2022). A history of behavioral economics and its applications: What we know and future directions.

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² The charge also directed the committee to consider evidence from other countries; however, we were not able to do this systematically with the available time and resources.

³ See https://www.nationalacademies.org/event/07-18-2022/workshop-on-behavioral-economics-exploring-applications-and-research-methods

GUIDE TO THE REPORT

The report is organized in three parts. The first part functions as a primer on behavioral economics, offering an overview of the development of the field: its origins, influential ideas, and evolving influence (Chapter 2); a discussion of its theoretical foundations and core principles (Chapter 3); and an overview of the principal implementation strategies used in policy and practice and how they relate to the foundational ideas from the theoretical literature (Chapter 4).⁴

Part II presents the committee’s findings: the evidence from applications of behavioral economics in the six policy domains we chose. It was not possible for the committee to examine the entire landscape of applications, even confining our attention to developments over the past 10 years, as our charge directed. For each of the six domains (Chapters 5–10), we reviewed the available literature selectively, seeking synthetic reviews and meta-analyses where they were available and attempting to obtain a clear sense of the primary areas in which behavioral economics tools have been studied. These are not comprehensive literature reviews: our objective was to learn how and under what circumstances behavioral economics ideas have been effectively applied and what can be learned from contexts in which that has not yet happened. We looked for themes and patterns that might be apparent across contexts and drew lessons about the factors that appear to influence success and the matching of tools to objectives. Chapters 5–10 each end with a summary of principal findings from the research. The overall themes and the conclusions we drew from this body of work are discussed in Chapter 11.

Part III provides the committee’s guidance for the future of the field. Chapter 12 addresses ways to strengthen behavioral economics research methods. Chapter 13 discusses the significant challenges associated with implementing tested ideas from behavioral economics research in real-world policy settings. Chapter 14 presents the committee’s general conclusions about the contributions of behavioral economics, offers recommendations for strengthening the field, and suggests directions for future research.

REFERENCES

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⁴ A number of terms used in this report may be unfamiliar to some readers; they are defined when they first appear.