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DR. DAVID EDWARD MARCINKO MBA MEd CMP

By Staff Reporters

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DEFINITION: Behavioral economics is grounded in empirical observations of human behavior, which have demonstrated that people do not always make what neoclassical economists consider the “rational” or “optimal” decision, even if they have the information and the tools available to do so.

For example, why do people often avoid or delay investing in 401ks or exercising, even if they know that doing those things would benefit them? And why do gamblers often risk more after both winning and losing, even though the odds remain the same, regardless of “streaks”?

CITE: https://www.r2library.com/Resource

By asking questions like these and identifying answers through experiments, the field of behavioral economics considers people as human beings who are subject to emotion and impulsivity, and who are influenced by their environments and circumstances.

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The state and federal governments and health insurance companies are harnessing lessons from a still-emerging academic field of behavioral economics to nudge clients and customers into spending more money.

“Behavioral economics was developed by incorporating ideas from psychology into standard economic theories,” said Cait Lamberton, a professor of marketing at the University of Pennsylvania’s Wharton School. “If you see a deal that is available for only a short amount of time [like Medicare open enrollment periods], and thus pay more than you usually would, standard economics would say you’ve made an irrational decision. Behavioral economics says that no, what your brain is doing is responding to scarcity.”

These seemingly irrational choices are called “biases,” many of which can affect how we shop. For example, “loss aversion” makes us hypersensitive to losing money and more likely to buy something like whole life insurance for children.

The “decoy effect” makes us more likely to choose between two sub-optimal options when a third, even worse option is presented. For example, Medicare Part D providers may offer a decoy like an high costs, which may make the cheaper Medicare Part C with more [so-called] benefits look more appealing.

Most companies are well aware of these tendencies and how they drive our decisions. So to save money customers, patients and clients need to understand how the purchasing and shopping experience has been engineered to exploit our biases.

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Filed under: Ethics, Experts Invited, Health Economics, Health Insurance, Health Law & Policy, Marcinko Associates, Risk Management | Tagged: behavioral economics, biases, Cait Lamberton, David E. Marcinko, Health Economics, Health Insurance, Healthcare Finance, loss aversion, Wharton School | Leave a comment »