NPR has a great segment about how many of Obama's policymakers are promoting behavioral economic techniques to encourage individuals to make smart decisions in matters that will affect their health and financial well-being. "The human brain is wired to make serious errors in judgment," which is "not traditionally the way economists have viewed human behavior," says the narrator. But behavioral economics can help steer them straight.
As an example, in Greensboro, NC, teenage mothers are paid $1 a day by the city if they don't get pregnant. That's not a lot of money, but the small incentive is enough to reduce the rate of teenage pregnancy in the town. The cost of the program is, of course, much cheaper than assisting young mothers with new children. (This reward program reminds me of how people will reduce their home electricity bill if they are rewarded with a smiley face on their power bill.) Cass Sunstein, chosen by the President to run the Office of Information and Regulatory Affairs, approves of this program because of the way it uses psychology to help people make decisions that serve their best interests.
The piece also explores the origins of behavioral economics, which go back to 1955, when Daniel Kahneman was a psychologist in the Israeli army and learned that his test for choosing military officers (seeing which men in a group took charge of a task to lift a telephone pole over a 6-foot wall) didn't work. Data revealed that his test had no correlation at all with how the soldiers actually behaved on the battlefield. Nevertheless, Kahneman's faith in his own judgment was so great that he continued to put soldiers through the test, ignoring the data that showed his test was worthless. Eventually, Kahneman became fascinated by his own "cognitive error" and started studying and cataloging the different ways that people misjudge the world around them. Thus, behavioral economics was born.
Listen to this fascinating NPR segment for more about this intriguing topic.