Behavioural Economics and Public Policy
Behavioural economics and public policy examines how insights from psychology and behavioural economics can be applied to improve public policy. It focuses on understanding how individuals make decisions and how policies can be designed to account for these behavioural biases. By incorporating these insights, policymakers can create more effective and impactful interventions.
8 Key excerpts on "Behavioural Economics and Public Policy"
eBook - ePubContemporary Approaches to Public Policy
Theories, Controversies and Perspectives
- B. Guy Peters, Philippe Zittoun, B. Guy Peters, Philippe Zittoun(Authors)
- 2016(Publication Date)
- Palgrave Macmillan(Publisher)
...The subsequent section discusses the paradox that the very decision-makers themselves are subject to the same biases as the objects of behavioral economics, which might imply limitations in the choices of such interventions. Here this chapter re-engages with the classics of decision-making theory. To set out the later part of the argument, the chapter notes how behavioral sciences need not depend on a top-down approach but can incorporate citizen voice. The following section goes one step further and reviews how citizens and other groups can use behavioral cues to alter the behavior of policy-makers in socially beneficial ways. The final and concluding part discusses how behaviorally informed measures could be integrated within the policy-making process in ways that advance the effective use of evidence and nudge decision-makers to formulate better policies. Behavioral Economics and Behavioral Science The study of behavior has been central to social science since its foundation, and academics have always sought to understand it. In political science, for example, models to understand behavior, such as voter decisions, are core to the discipline and appear in its early texts on the subject (e.g., Campbell et al. 1960). A more concerted approach to studying behavior is a recent phenomenon. Significantly, it emerged from the discipline of economics. Economics has long been a privileged discipline in social science and policy-makers have given economists precedence. As traditionally conceived, economic behavior has been widely assumed to be the consequence of cost-benefit assessments by individuals or firms so that an increase in the cost of an activity can be associated with a reduction in the incentive for carrying on with it and the other way round with respect to benefits. In public policy, a regulation that increases the costs of rule violation should lead to the reduction of the harmful activity (Becker 1968)...
- Gideon Keren, George Wu, Gideon Keren, George Wu(Authors)
- 2015(Publication Date)
- Wiley-Blackwell(Publisher)
...Public economics is the study of how government policies influence economic markets. A primary emphasis of public economics involves the topic of taxation. Given the increasing role of government policy on the health-care market, health economics has started to become intertwined with public economics, and we will discuss both fields in this section. Bernheim and Rangel (forthcoming) discuss the emergence of “behavioral public economics” and survey much of the key early literature in the area. Here we survey primarily recent field studies in this literature. Arguably the biggest impact that the behavioral approach has had in economics is in the analysis of retirement saving, particularly decisions of employees around 401k contributions. 1 A series of highly influential papers have documented that employees’ decisions about their retirement savings are strongly influenced by defaults and that employees show substantial inertia in their behavior (e.g., Carroll, Choi, Laibson, Madrian, & Metrick, 2009; Madrian & Shea, 2001). The seminal paper in this area (Madrian & Shea, 2001) emphasized the importance of psychological theories that can help explain the effects that they find. They discuss theories including procrastination, complexity and choice overload, status quo bias driven by the endowment effect, anchoring, and framing. When employees do make active choices, empirical research has identified that they use naive and often ineffective diversification strategies (Benartzi & Thaler, 2001; Choi, Laibson, & Madrian, 2009a). Many employees also fail to take advantage of clearly valuable employer-match opportunities in their 401k plans, even if these options are carefully explained (Choi, Laibson, & Madrian, 2011)...
eBook - ePub- Alan Devlin(Author)
- 2014(Publication Date)
- Routledge(Publisher)
...Importantly, behavioural economists have shown not just that people act irrationally, for as just emphasised the fact that some, or even many, people do so has been long known, and is in itself irrelevant if such departures are randomly distributed. Instead, they have produced theoretical and empirical evidence that people tend to err in a particular direction, which, if true, means that large-scale behaviour will not gravitate toward the predictions of neoclassical models. Applied to law, behavioural economics similarly possesses positive and normative qualities. In enriching the assumptions underlying economic models to render them more realistic, the field can in some (and perhaps in many) circumstances enhance those models’ predictive power. Likely the most influential aspect of the behavioural movement, however, is normative. By demonstrating how cognitive defects lead people to make decisions that run contrary to their best interests, behavioural economics undermines the argument that people are the best determinants of their welfare, such that the state should regard their choices as sacrosanct. Coupled with the fact that people’s preferences are contingent, manipulable, and sometimes arbitrary, it suggests that the law may have a legitimate role in protecting people from themselves. Application of this principle need not take the form of an authoritarian regime in which individual liberty is subjugated to the superior mind of the government. Instead, leading behavioural economists have advocated a policy of “libertarian paternalism”. 1 The idea is to use default rules to induce people to act in a manner more beneficial to their welfare, but without depriving them of the right to follow another course should they so choose. This Part discusses the key features of behavioural law and economics, including prospect theory and the various biases that lead people systemically to make irrational decisions...
eBook - ePub- Maria Alejandra Madi(Author)
- 2019(Publication Date)
- Routledge(Publisher)
...This applicability is justified by the principles of Libertarian Paternalism where interventions impose almost no costs on rational individuals and preserve their freedom of choice. In view of the methodological background of behavioural economics, a relevant topic for our analysis is whether economic policy-making should rely on the results of laboratory experiments and the interests are hidden behind. The experimental setup The transportation problem Today, behavioural science, aims to identify patterns of individual behaviour. Its evidence-based scientific rigor is focused on causality: different behaviours are responses to identifiable stimulus and occur in a systematic pattern that supports predictions (Monsell 2017). In accordance with the situational determinism in behavioural economics, human behaviour is influenced by the framing of choices, that is to say, it is context-dependent (Mäki 2003, 17). Then, there is the belief that researchers can make predictions about human’s conscious behaviour. As Liam Monsell (2017) argues, the dual challenge facing behavioural science is to formulate a theory that reflects real human behaviour in economic decision making, but also to acknowledge the limitation of the results of randomized control trials (RCTs) when extrapolating to other contexts. Taking into account the relations between economics and psychology, Stefan Heidle (2014) states that psychology is treated as a mere add-on to mainstream economics and, therefore, behavioural economics faces the same methodological limitations...
eBook - ePub- Morris Altman(Author)
- 2012(Publication Date)
- For Dummies(Publisher)
...Behavioral economics is concerned with the decision-making processandthe choices people make, paying special attention to the realism ofsimplifying assumptions(the bare-bones assumptions of economic models; see Chapter 2 for details).In the past, neither approach has paid much attention to how the brain helps us understand decision making. The focus has mainly been on what researchers can see, on what’s tangible. Increasingly, behavioral economists are examining not only how the brain is structured but also how the brain works as an additional tool to help understand people’s economic behavior and improve the power of our economic models.Neuroeconomics is one of the newest components of behavioral economics. It involves the study of the brain and how the brain impacts our understanding of economic behavior. So far, neuroeconomics has largely reiterated the empirical finding of behavioral economics that people typically don’t behave according to conventional wisdom. It also suggests that some unconventional behavior is hardwired in the brain.An important focus of neuroeconomics is the use of brain-imaging technology to measure people’s physiological responses to economic stimuli. This technology helps map the chemistry of the brain from the perspective of economic issues, such as decision making, price changes, unfair economic treatment, trust, and cooperation. There remains considerable debate on how useful imaging studies are for mapping or explaining economic behavior.Neuroeconomics also focuses on the study of brain-damaged individuals to figure out how the loss of functionality of certain parts of the brain affects decision-making capabilities. This area of study has been particularly important in determining the significance of the emotional side of the brain in day-to-day decision making.Many scholars study the brain to determine if people behave in a manner inconsistent with the predictions of conventional economics...
eBook - ePubEconomics for an Information Age
Money-Bargaining, Support-Bargaining and the Information Interface
- Patrick Spread(Author)
- 2018(Publication Date)
- Routledge(Publisher)
...It has consequently been possible for theories of wider scope, including economic theory, to assimilate behavioural theory as adjunctive to existing theory, supplementing but not replacing it. The World Bank takes this approach in its 2015 Development Report on Mind, Society and Behaviour. The various psychological traits identified by Kahneman, Tversky and many other writers on behavioural theory are sifted for their implications for such issues as pay-day lending, energy usage, recycling of waste, school enrolment, accident prevention, immunisation and voting. They write: The approach expands the set of tools and strategies for promoting development and combating poverty. The strength of standard economics is that it places human cognition and motivation in a ‘black box’, intentionally simplifying the ‘messy and mysterious internal workings of actors’ 63 by using models that often assume that people consider all possible costs and benefits from a self-interested perspective and then make a thoughtful and rational decision . . . The new tools based on this full consideration of human factors do not displace existing policy approaches based on affecting self-interested personal incentives; rather, they complement and enhance them. Behavioural theory is seen as complementary to economic theory, reflecting the limited significance of laboratory-derived behavioural theory on the neoclassical economic model. Rational decision-making is still the dominant assumption regarding conduct in the real world. But behavioural theory has already left the laboratory and been put to use in business...
eBook - ePubTrusting Nudges
Toward A Bill of Rights for Nudging
- Cass R. Sunstein, Lucia A. Reisch(Authors)
- 2019(Publication Date)
- Routledge(Publisher)
...Research, Working Paper No. 19484). 7 Maya Shankar, Using Behavioral Science Insights to Make Government More Effective, Simpler, and More People-Friendly, White House Blog (February 9, 2015, 12:19 PM), www.whitehouse.gov/blog/2015/02/09/using-behavioral-science-insights-make-government-more-effective-simpler-and-more-us. William J. Congdon and Maya Shankar, The Role of Behavioral Economics in Evidence-Based Policymaking, The Annals of the American Academy of Political and Social Sciences (AAAPS) 678, 81–92 (2018). Article first published online: June 18, 2018; https://doi.org/10.1177/0002716218766268. 8 See The World Bank, supra note 1. 9 See Exec. Order No. 13707, 80 Fed. Reg. 56, 365 (Sept. 15, 2015). 10 See Thaler, supra note 1, at 309–22. 11 See generally Frank Beckenbach and Walter Kahlenborn, eds., New Perspectives for Environmental Policies through Behavioral Economics (2016); Lucia A. Reisch and John Thøgersen, eds., Handbook of Research on Sustainable Consumption (2015). 12 See generally Sendhil Mullainathan and Eldar Shafir, Scarcity: Why Having Too Little Means So Much (2013). 13 See generally Douglas E. Hough, Irrationality in Health Care: What Behavioral Economics Reveals About What We Do and Why (2013). 14 The best discussion is Rebonato, supra note 1. See also the various contributions to Nudge, Rev. Phil. Psych. 6, 341–529 (2015); White, supra note 1; Jeremy Waldron, It’s All For Your Own Good, New York Review of Books (October 9, 2014), www.nybooks.com/articles/archives/2014/oct/09/cass-sunstein-its-all-your-own-good. Consider in particular this question: “Deeper even than this is a prickly concern about dignity. What becomes of the self-respect we invest in our own willed actions, flawed and misguided though they often are, when so many of our choices are manipulated to promote what someone else sees (perhaps rightly) as our best interest?” Id.at 4. We shall have something to say about this question in Chapter 7. 15 T. M...
- Benjamin Ewert, Kathrin Loer, Benjamin Ewert, Kathrin Loer(Authors)
- 2018(Publication Date)
- Palgrave Pivot(Publisher)
...J. (Eds.). (2017). Behavioral economics and healthy behaviors: Key concepts and current research. New York: Routledge. Howlett, M. (2011). Designing public policies. Principles and instruments. Abingdon: Routledge. John, P. (2018). How far to nudge? Assessing behavioural public policy. Cheltenham/Northampton: Edward Elgar. Crossref Kananen, J., Bergenheim, S., & Wessel, M. (2018). Conceptualising public health: Historical and contemporary struggles over key concepts. Oxon/New York: Routledge. Crossref Kickbusch, I. (2007). Health governance: The health society. In D. V. McQueen, I. Kickbusch, & L. Potvin (Eds.), Health and modernity: The role of theory in health promotion (pp. 144–161). Berlin: Springer. Crossref Korpi, W. (2001). Contentious institutions: An augmented rational-action analysis of the origins and path dependency of welfare state institutions in western countries. Rationality and Society, 13 (2), 235–283. Crossref Lowi, T. J. (1972). Four systems of policy, politics, and choice. Public Administration Review, 32 (4), 298–310. Crossref McQueen, D., Wismar, M., Lin, V., Jones, C. M., & Davies, M. (2012). Intersectoral governance for health in all policies: Structures, actions and experiences (Observatory Studies Series 26). Copenhagen: WHO Regional Office for Europe. Milio, N. (1981). Promoting health through public policy. Philadelphia: F. A. Davis Company. Nakhimovsky, S. S., Feigl, A. B., Avila, C., O’Sullivan, G., Macgregor-Skinner, E., & Spranca, M. (2016). Taxes on sugar-sweetened beverages to reduce overweight and obesity in middle-income countries: A systematic review. PLoS One, 11 (9), e0163358. Crossref OECD. (2014). Social expenditure update – Social spending is falling in some countries, but in many others it remains at historically high levels. Retrieved June 14, 2018, from https://www.oecd.org/els/soc/OECD2014-SocialExpenditure_Update19Nov_Rev.pdf Rootman, I., Pedersen, A., Frohlich, K., & Dupéré, S. (2017)...
