Can Predictably Irrational People Make Rational Health Decisions?
Traditional economic theory suggests that people are hard-wired to make "rational decisions." We know this isn't the case -- especially when it comes to health. Given this, how do we encourage predictably irrational people to make rational health decisions?
When I was in graduate school I was introduced to some of the concepts underpinning the field of health economics. Most of my course work was dry and rudimentary. I learned about numerous topics, including the impact of demand on supply and pricing and how to define a duopoly.
I was most intrigued by behavioral economics and the “rational man” concept. Many economic models suggest that most people act rationally and in their own best interest. From a health perspective, a strict interpretation of this model would lead one to assume that people will eat healthily, learn all they can about their health provider and seek out the least expensive, but highest quality care.
In some respects, this thinking underpins the consumerism movement. It is assumed that people – if given enough incentives, information and financial power – will take charge of their own care and seek out information whenever and wherever it is available.
Yet, we know that people don’t do this. Studies suggest that they much rather leave the heavy health-related decisions to other people. In addition, when given the option of enrolling in a consumer-directed plan, they prefer the old tried and true managed care option. Finally, they make all sorts of bad decisions when it comes to their individual health. What’s going on?
Well, a book by Dan Ariely explains some of this behavior. Titled, “Predictably Irrational,” it explains why “people tend to behave irrationally in a predictable fashion.” For example, people are perfectly willing to pay for a more expensive medication because they believe it works better. Does this mean that a “super placebo” effect could be thwarting efforts to encourage people to take generic medications?
So, what do we do? Well, another book, “Nudge” by Richard Thaler and Cass Sunstein suggests we can do it through a kind of subliminal behavioral tweaking. For example, they talk about how urinals became much more sanitary when a cartoon fly was taped to it. It encouraged men to “aim straight” instead of crooked.
Instead of mandating change “Nudge’s” authors suggest that we can institute “libertarian paternalism.” In a Wall Street Journal article Thaler said: “Although the phrase sounds like an oxymoron, we contend that it is often possible to design policies, in both the public and private sector, that make people better off -- as judged by themselves -- without coercion.”
So, what do you think. Is “nudging” people toward healthy behavior the best way to improve health and encourage better decision-making? It sure sounds like a good idea to me.
Previous: An All-Out Assault On Hospital Errors
Behavioral Economics
Last week, Newsweek had this to say in their weekly health care column: "After failing to find answers with brute computing power, economics is now seeking help from psychology. Known as 'behavioral economics,' this controversial combination of psychological insights and economic methods is moving fast into the mainstream. After Years as a fringe idea, it's being taught at Princeton, studied in Washington and preached at investment seminars from coast to coast. Business is paying close attention, too. Drugmaker Merck uses behavioral psychology to run its pension plans and to plot its bids for sales contracts. At an annual conference previously dedicated to number crunching, Prudential Securities introduced investors to a Harvard psychologist."
Last summer, as reported in Food USA Navigator, USDA's Economic Research Service (ERS) unit issued a report that "suggests behavioral economics - or consumer psychology - could aid in the understanding and modifying of consumption habits, where standard economics has failed. It comes in response to the growing realization that the divide between consumers' awareness and implementation of dietary guidance shows no sign of diminishing: almost 90 percent of consumers surveyed in 2005 knew that diet and exercise influence health, yet most Americans are still choosing diets out of sync with dietary guidance. According to the ERS report, economists usually address the issue by examining the usual economic suspects: prices, income, dietary information and time preferences. But this may not necessarily provide policymakers with any attractive options to reverse the trends, wrote the agency. In contrast, behavioral and psychological studies indicate that people regularly behave in ways that contradict some basic economic assumptions, seen, for example, in responses to changes in income, or to information processing. 'Incorporating such idiosyncrasies into economic analysis of consumer behavior can expand our understanding of what motivates food choices and health outcomes. This can help us think of new ways to encourage all people to choose more healthful diets,' wrote the report."
Express Scripts just issued a press release announcing establishment of the Center for Cost-Effective Consumerism, an initiative to "accelerate development of an advanced understanding of the consumer and of what works - and what doesn't work - when trying to change the way consumers use health care." The initiative was spurred by Express Scripts application of consumer behavioral research that they claim yielded $600 million in savings linked to increasing consumer use of generic statin anti-cholesterol drugs, following the availability of generic Zocor in mid-2006. Express Scripts combined financial incentives with an advanced and aggressive communications program, and usage increased from 8% in mid 2006 to 53.2% in March 2008. As the Wall Street Journal reported it," Express Scripts' experiment with incentives is rooted in a discipline called behavioral economics, which draws heavily from principles of social and cognitive psychology. The field attempts to understand why people make economic decisions that aren't based solely on saving or making money."