The Behavioral Economics of Health and Health Care

Abstract

People often make decisions in health care that are not in their best interest, ranging from failing to enroll in health insurance to which they are entitled, to engaging in extremely harmful behaviors. Traditional economic theory provides a limited tool kit for improving behavior because it assumes that people make decisions in a rational way, have the mental capacity to deal with huge amounts of information and choice, and have tastes endemic to them and not open to manipulation. Melding economics with psychology, behavioral economics acknowledges that people often do not act rationally in the economic sense. It therefore offers a potentially richer set of tools than provided by traditional economic theory to understand and influence behaviors. Only recently, however, has it been applied to health care. This article provides an overview of behavioral economics, reviews some of its contributions, and shows how it can be used in health care to improve people's decisions and health.