It seems that every week a new book or major newspaper article appears showing that irrational decision-making helped cause the housing bubble or the rise in health care costs.
Such insights draw on behavioral economics, an increasingly popular field that incorporates elements from psychology to explain why people make seemingly irrational decisions, at least according to traditional economic theory and its emphasis on rational choice. Behavioral economics helps to explain why, for example, people under-save for retirement, why they eat too much and exercise too little and why they buy energy-inefficient light bulbs and appliances. And, by understanding the causes of these problems, behavioral economics has spawned a number of creative interventions to deal with them.
But the field has its limits. As policymakers use it to devise programs, it’s becoming clear that behavioral economics is being asked to solve problems it wasn’t meant to address. Indeed, it seems in some cases that behavioral economics is being used as a political expedient, allowing policymakers to avoid painful but more effective solutions rooted in traditional economics.
Take, for example, our nation’s obesity epidemic. The fashionable response, based on the belief that better information can lead to better behavior, is to influence consumers through things like calorie labeling — for instance, there’s a mandate in the health care reform act requiring restaurant chains to post the number of calories in their dishes.
Calorie labeling is a good thing; dieters should know more about the foods they are eating. But studies of New York City’s attempt at calorie posting have found that it has had little impact on dieters’ choices.
Obesity isn’t a result of a lack of information; instead, economists argue that rising levels of obesity can be traced to falling food prices, especially for unhealthy processed foods.
To combat the epidemic effectively, then, we need to change the relative price of healthful and unhealthful food — for example, we need to stop subsidizing corn, thereby raising the price of high fructose corn syrup used in sodas, and we also need to consider taxes on unhealthful foods. But because we lack the political will to change the price of junk food, we focus on consumer behavior.
If you have 3 minutes, you can check everything here: http://www.nytimes.com/2010/07/15/opinion/15loewenstein.html
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