In our last segment on behavioral economics, I wanted to discuss for a bit some of the “solutions” that have come out of the research — or rather, helping people make better decisions by using behavioral economics for good.
Perhaps the most famous application of behavioral economics is nudge theory, developed by Richard Thaler. This system uses a series of “nudges”, based on biases, to lead people into committing certain behaviors. Perhaps the most famous use of the nudge theory was applying the “default option” rule to 401ks — initially, the default option was to opt in of a 401k. However, Thaler and his team set a new principle to make the 401k option opt out. Because of this, we saw a wide increase in the amount of 401ks in use — and a large increase in retirement savings.
Another, similar idea is that of behavioral incentives. Incentives may sound similar to nudges, but they aren’t exactly the same. While nudges are changes in the environment to get people to commit to certain tasks, incentives are more so the results of the tasks that change. To be fair, the use of incentives far predates behavioral economics — you can pinpoint its use to B. F. Skinner’s experiments, which have been part of psychology for approximately 70 years!
Finally, we have incremental improvement, which is actually the model for which I use in my longevity boosting habit tracker, Shanah. The idea here is that people are more likely to do activities that are simple, since it lightens their cognitive load. Therefore, if you chop up a complex task into enough pieces, it will feel a lot easier to handle.
Alright, I think that finishes up behavioral economics. Stay tuned for the next topic!