Behavioral Economics Policy Impact and Future Directions (2023) / Chapter Skim
Currently Skimming:
Pages 37-58
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 37... ...
. Nevertheless, the bulk of behavioral economics research conducted by U.S.
|
From page 38... ...
American Economic Review, 90(1)
|
From page 39... ...
The American Economic Review, 69(4)
|
From page 40... ...
Hand book of behavioral economics: Foundations and applications, 2, 345–458. https://doi.
|
From page 41... ...
. Dark nudges and sludge in big alcohol: Behavioral economics, cognitive biases, and alcohol industry corporate social responsibility.
|
From page 42... ...
Commissioned paper prepared for the Committee on Future Directions for Applying Behavioral Economics to Policy, National Academies of Sciences, Engineering, and Medicine. https://nap.nationalacademies.org/ resource/26874/BE_history_20221009.pdf Thaler, R
|
From page 43... ...
Behavioral economics is a response to the fact that the traditional economic model, which assumes that rational individuals behave in predictable ways, is incomplete and fails to account for important aspects of human behavior. Evidence from the behavioral sciences has demonstrated the critical role of phenomena such as biased perception, attention bias, memory bias, and complex influences of context in decision making that are not considered in traditional economic models.
|
From page 44... ...
Economists use formal mathematics to portray the world in a set of equations intended to illustrate the key mechanisms in a given scenario they wish to analyze, taking into account many kinds of behavior. Behavioral economics models are not radically different from traditional economic models and do not constitute a complete rejection of those models.
|
From page 45... ...
. There are many other types of models that extend this version of the traditional model in various ways.
|
From page 46... ...
Because they address other behavioral phenomena, behavioral economic models lead to policy recommendations that differ from those supported by traditional models. Decades of research have explored the possibilities for conducting economic analyses that incorporate behavioral concepts.
|
From page 47... ...
Social An important aspect of the context for decision making is Preferences perceptions of how one's actions relate to those of others, and Social including the well-being of others: people make comparisons Norms between themselves and others, and they care about their social standing, how they signal their values and preferences to others, and how they conform with social norms. Behavioral economics research illustrates how each of these core principles functions in the context of decision making.
|
From page 48... ...
In all of these cases, the implicit assumption is that people are well informed of those features -- they know the tax rate, the savings subsidy, the costs and benefits of health decisions, the price of energy consumption -- and they take these incentives into account in making decisions. Counterintuitive Responses to Incentives Behavioral economists have carried out empirical research to determine whether and how these assumptions operate and to what extent limited attention and cognitive limitations may affect people's decisions.
|
From page 49... ...
. That is, the employees responded to the change in incentive but disregarded the precise structure of the incentives, ignoring the special treatment of preventive care.
|
From page 50... ...
Providing more evidence on this margin -- of the degree to which attention is allocated in accord with the perceived value of acquiring information -- could be important in the future if it leads to policies that encourage people to pay more attention to opportunities or risks that are important to their well-being. For policy developers, however, both the behavioral economic models of limited attention and of rational inattention imply that processing of complex information is costly and that complex incentives, such as taxes, or the details of health insurance plans, will often be missed.
|
From page 51... ...
Inaccurate beliefs in this context does not mean occasional or unsystematic errors: as noted, above, traditional economic models assume that people do not have perfect information. Behavioral economists have focused on instances in which inaccurate beliefs are systematic and could be corrected
|
From page 52... ...
.) One example is overoptimism: people tend to overestimate the positive aspects of their own lives, such as their likely success in a future job search effort or commitment to investing in retirement savings.
|
From page 53... ...
This pattern is especially pronounced if the county of residence of the homeowner shares a media market with the county affected by the flood, which suggests that salience of the news in the media is largely responsible for the finding. In another example, investors who, by the traditional model, should incorporate all past investment returns of companies instead overweight their own experiences (Kaustia & Knüpfer, 2008)
|
From page 54... ...
. Such studies follow an extensive literature on belief elicitation in economics, which predates behavioral economics research and provides evidence on methods for capturing beliefs (e.g., Manski, 2004; Hurd, 2009; Delavande, 2014)
|
From page 55... ...
. Present Bias Limited attention, cognitive barriers, and incorrect beliefs are factors in the way people perceive and comprehend economic information and the probabilities of future events.
|
From page 56... ...
Procrastination is a natural explanation for the very large default effects (tendency to accept whatever is the default option) that are found repeatedly in behavioral economics.
|
From page 57... ...
. Reference Dependence and Framing One of the most influential models in behavioral economics is reference dependence, which is based on prospect theory (see Chapter 2)
|
From page 58... ...
. A classic example of reference dependence and loss aversion is the discrepancy between willingness to pay for an object and willingness to accept something in exchange for the object: this is the endowment effect described by Kahneman, Knetsch, & Thaler (1990)
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.