Behavioral Economics

class discussion: Do people rationally assess the costs and benefits of health behaviors?

-no

-what behavioral economics tries to answer; “rationally”=know good for you so do it

-models assume rationale, but not always appripiate approach (ex=inaccurate to think obesity is a preference; ignores complexity)

what is behavioral economics?

-How do psychological, cognitive, emotional, and social factors affect decisions?

-Prospect Theory=core theory; decision errors, starting point matters; preferences are inconsistent; discount the near future; interventions; regulations and policies

*lot of factors go into a decision beyond $, time, etc.

Prospect Theory

-core theory of behavioral economics

-late 1970’s; Kahmen and Traversky, saw traditional economics couldn’t be applied to all behaviors

-4 components: reference dependence, diminished sensitivity, loss aversion, hyperbolic discounting

Reference Dependence

-How would you feel if you had $5 million today when you had $100,000 yesterday? What about if you had $7 million yesterday?

-have to consider other factors; what is the reference for the patient (rationally); ex=BP 130/90 depends on reference

Diminished Sensitivity

-Dependent on reference point

-Consider the usefulness of receiving $500 if your wealth is currently $1 million compared to if you have no money…

*heodonic adaptation: use to good things occurring; motivation decreases overtime

Loss Aversion

-Disutility of loss is much stronger than the utility of an equivalent gain

*message framing

class discussion: Would you enter a gamble if there was a 50-50 chance of winning $150 or losing $100?

-TE: should do it, math says yes; BE: No, loss aversion strong

-how present certain things matter; loss aversion applied beyond $

-chart: if gain, avoid gambles (want certainty, fearfull of losses); if loss, more will take risk

Hyperbolic Discounting

-Would you prefer $10 today or $30 in a month? Would you prefer $10 in one year or $30 in one year and one month?

-tendency people to take sooner smaller rewards over later larger awards; like delayed gratification; more have to wait it doesn’t matter as much

-why exist: immediate use needed improves survival (evoluntiary; need immediate rewards)

Asymmetric Paternalism

-Help individuals achieve goals while protecting them from themselves without limiting freedom of choice

-Poor decisions as errors

*how much help or restrict ability to choose; need to be like a parent bc irrational

*buffet-healthier options up front but can still choose, nudge people to make a healthy decision; book: big in shaping how we should approach behavior change

Present-biased Preferences

-Overweigh immediate costs and benefits relative to those occurring in the future

-Increase motivational impact of immediate rewards and punishments (*how get around; ex=habit staking, schedule, ice cream after; use present based preferences and maximize that; use incentives)

*focused on maximizing comfort and pleasure now, make that a priority

Nonlinear Probability Weighting

-Overweigh outcomes with small probability of occurring and underweigh outcomes with high probability

*pretty effective; ex=WL, smoking cessation, lottery; don’t feel effects as much in middle compared to extremes, bc want to avoid risk

Overoptimism

-being over-optimistic about life outcomes (self-control)

*”false hope syndrome”; take advantage of at times such as w/ deposit system

*study: lottery=increase WL → increase chance lottery, deposit=give $ if don’t achieve goal; financial incentives to elicit better long-term changes; shows people not rational

*ex= gym memberships

Peanuts Effects

-Small gains or losses are not motivating

-Provide frequent feedback on rewards (present-bias), but bundle the delivery

*each event on own hard to understand larger effects; thinking more long-term can be more helpful

Narrow Bracketing

-Process of making decisions in isolation

*we tend to focus on local consequences vs those overtime (present bias); should focus on smaller

*ex: focus on next run vs want to run a marathon; oppositie of “keep your eye on the prize”

Regret Aversion

-Individuals dislike regretting decisions and make decisions to reduce risk of regret

-May affect preventive behaviors

*TTM chronic contemplators; ex=vaccines, if don’t get vaccine but then get flu; how use=be aware, talk to patient

Default Bias

-Tendency to continue doing what one has been doing (or what comes automatically)

*don’t like to change, we like automatic

*ex: we think big food size normal; US low % organ donors bc other countries have default system; people don’t get meds refilled

Rational-World Bias

-Assumption that people’s choices are considered and rational

-most important decision error

*can’t assume patients will do what you tell them; acknowledge decision errors, and use nudge to assist in change

summary decision errors