Economics

Prize-Winning Behavioral Economics

Earlier this month, Professor Richard Thaler at the University of Chicago Booth School of Business won the 2017 Nobel Prize in Economics. Professor Thaler’s work in behavioral economics has impacted our understanding of human behavior, and has also influenced government's’ approach to behavior as well.

 

A recent article in the New York Times explains some of Thaler’s work and contributions. Standard economic theory assumes that human beings behave “rationally.” Economists knew this was not precisely true, but operated on this assumption for a long time. Professor Thaler pushed the field to try to truly model human behavior by observing the fact that humans consistently behave in ways that deviate from what is expected - in other words, even if people behave “irrationally,” we can still model and predict their behavior.

 

Professor Thaler has found, for example, that people who own a good will value it much more than other people who do not own that good. This is called the endowment effect. This could suggest, for example, that people who own fitness technology or pedometers might value them more than other people do. If they value them more, Thaler’s work suggests that people may be more likely to use them.

 

Thaler also found that people will punish what they perceive to be unfair behavior, “even if they do not benefit from doing so.” It would be interesting to see the link between this sort of behavioral finding and application to health care and children’s health. Since there are so many actors involved in children’s health - the children themselves, providers, teachers, public officials, parents and guardians, and more - unfair practices or policies could be a real complaint that affects relationships between these actors.

 

Thaler hopes that behavioral economics, now part of mainstream economics, will move beyond the discipline alone to become an integral part of how we think about human behavior. More research in its intersection with health and children’s healthcare will be very exciting to see!

 

Lunches For Students in NYC Schools

The new school year in New York City has just begun, and this year there is big news to accompany it: New York City will start offering free lunch at all of its public schools starting this year, according to The New York Times. All 1.1 million NYC public school students will benefit from this program. The universal free lunch is a welcome addition to the already-existing universal free breakfast for NYC public school students.

 

This announcement is notable for several reasons. Although NYC is not the first major city to offer free lunch at public schools (it follows Boston, Chicago, Detroit, and Dallas), it has far more children to feed than the cities listed above. Also, a majority of NYC public school students (75%) already come from families that qualify for free or reduced-price lunches. The combination of these facts means that this new expansion in free lunches affects many New York students and families. According to the Times, this change will impact 200,000 students and save each of their families about $300 per year.

 

New York schools are encouraging families to fill out household income forms that will help the state to better identify students it can aid. The state recently updated the ways in which it tracks and matches families that qualify for benefits like Medicaid. With the updated changes, the new lunch policy should not cost the city more money.

 

School lunches have been making headlines recently for at least two major reasons. Strong evidence for the link between a healthy lunch and school performance or emotional health exists, and researchers are continually confirming this fact. Also, the stigma some students face in a phenomenon known as lunch-shaming - or “holding students publicly accountable for unpaid school lunch bills” - has been generating debate nationwide. The new initiative should directly bolster the former [finding] and work to reduce the latter.

 

Children should have access to all the resources that are possible in order to help them succeed in school. A lunch program for the public school students of the largest city in the US is a big step in the right direction.



 

Healthcare Costs and Exercising Children

An article in the New York Times describes a new study that used complex models to imagine what the health landscape of American children would look like if children exercised every day. The study found that the United States could save more than $120 billion a year in healthcare costs alone if all children exercised every day.

Researchers at the Global Obesity Prevention Center at Johns Hopkins University used computerized models that created avatars for each of the 31.7 million children in the United States currently between eight to 11-years-old. In keeping with real-life statistics, they programmed two thirds of these children to rarely exercise. The researchers then modeled each child’s calorie intake and “virtual body change” day by day, year by year, and tracked these simulated childhoods into adulthood. After these avatars reached adulthood, their health was modeled based on the predictive risk for heart disease, stroke, high blood pressure, etc.

The results were sobering. The models predicted that if eight to 11-year-olds were as inactive as predicted almost $3 trillion in medical expenses would be spent on this population. Furthermore, they would have lost productivity each year once they reach adulthood.

Even if this estimate is not perfectly precise, it is undeniable that the social price tag of physical inactivity is significant - inactive kids will grow to be sedentary adults whose health problems are not only expensive to treat but also cost the economy in lost wages and productivity. Childhood obesity and Type 2 diabetes are only some of the many risks associated with a lack of exercise.

The same researchers also looked at the counterfactual and model of  how society would benefit if these children did exercise regularly. If half of the children in the U.S. were able to receive at least half an hour of exercise three times a week (the recommendation by the Centers for Disease Control and Prevention), childhood obesity would fall and the societal costs of obesity-related disease would drop by $32 billion. 

The numbers are undeniably compelling. The societal burden of disease stemming from lack of exercise would impact us all, regardless of how healthy we imagine ourselves to be. Today’s adolescents live with an unprecedented amount of distractions that might make physical activity seem less appealing, but getting proper exercise is not only a short-term benefit but also a long-term investment.

Economics, Doctors, and Us: A New Kind of Medicine?

A physician wrote a piece in the New York Times recently that is very relevant to our mission and work here at CHIL. Dr. Khullar writes that years of medical and scientific education often do not influence his decisions as much as his patients’ habits and environmental cues. If anything, a decade of diverse and intense training has made him more attuned to noticing subtle “nudges” and cues that incentivizes him to provide the best care he can, or incentivize his patients to be proactive about their health care.

 

According to Dr. Khullar, the field of behavioral economics holds that “human decision-making [often] departs” from what might be expected if agents behaved “rationally.” This description seems to characterize medical care as well, where all sorts of factors (emotions and uncertainties, for example) can complicate medical decisions. Despite this connection, Dr. Khullar says that members of the medical community have “only recently” begun exploring how behavioral economics can improve health. This is a crucial change, since medical experts bear an enormous responsibility in how they present care options to patients and how they encourage patients to pursue treatment options. For example, the framing of default options as opt-in or opt-out can have a huge impact on how healthcare is delivered to patients.

 

Pioneers in linking behavioral economics, decision-making, and medical care are focusing on designing randomized trials or applications to tackle some of the basic, and difficult, challenges in healthcare. Dr. Khullar names some of these challenges as encouraging doctors to provide evidence-based care, incentivizing patients to take their medications (a form of preventative care), and aiding consumers in choosing better health plans that were more comprehensive for their needs. Innovators are also using these challenges as opportunities to create applications to, for example, reward patients for submitting pictures of themselves taking medications each day. These designers create program infrastructures that reward patients for weight loss goals they establish by entering them into lotteries or deposit contracts. Health insurers are jumping onto this wagon as well, and researching goals for patients and doctors to meet when it comes to diseases like diabetes management.

 

The title of the New York Times piece is “How Behavioral Economics Can Produce Better Health Care.” This title leaves out some crucial actors in the study and delivery of a marriage between behavioral economics and health research. Doctors, patients, and economists each play a distinct role in identifying and acting on potential improvements in healthcare delivery. Projects like the ones we have at CHIL are designed with students as patients in mind - behavioral economics isn’t only for economists! We can all use a project-oriented approach to improve our health.