Personal Finance

NPR: Obama’s Policy Advisors Are “Devotees” of Behavioral Economics

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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.

Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.

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  • OBunny

    This might be a dumb question, but did you mean “teenage mothers are paid $1 a day by the city if they don’t get pregnant AGAIN”?

  • Mel Bent

    ya, how are you a “teenage mother” if you don’t have a kid?

  • River Tam

    You can be a teenage mother without being pregnant at the moment.

  • http://ran-the-monkey.livejournal.com/6770.html ran

    $1.00 will not change the mind of someone who wants sex.

  • Max

    No but it will remind them maybe to use a condom.

  • John Galt

    So they get $1 a day to NOT have children.
    thats 31 dollars a month…
    If they get have a child, they get $900/mo in welfare programs…

  • Midnight

    NC isn’t the only state to have welfare retirees. PA is as bad, if not worse. These little brats have babies, and never work a day in their pathetic lives, yet make as much as I do without overtime. They get housing, food, cash, medical, car allowance (yes, they get so much per year for “vehicle maintenance” and $1,000 to go buy one) and tons of other things they don’t pay for. Yet, I WORK for a living, and don’t get jack, even if I were to need it. Why? I’m not a baby factory. To you know what with paying them not to go on welfare, make welfare go away.

  • Faction Red

    This is bull****. I actually have a job, working what few hours I can actually get, and trying to go to college at the same time. No one (but me) pays my bills, gas, food, etc. I thought the whole point of not having a kid in high school was to give yourself a chance at actually graduating – that’s it’s own reward. I mean, I don’t even qualify for food stamps (and at $10,000 a year, it sucks), but apparently, if I get my girlfriend knocked up, I can go on the dole and have all my bills taken care of. Great system, guys…

  • http://www.yovia.com/blogs/kimberly Kimberly Sepulveda

    This is really crazy, I think if they just promoted abstinence and showed graphic details of what having sex can really cause, teen pregnancy and sex itself would diminish. And not just the schools, parents should be involved insanely in their kids sex education lives. I heard that there is a gap between the ages of 8 and 12, where if you talk to you kid then about sex, they will be a lot more comfortable talking to you about it later. And they are more likely to respect your wishes(:

  • Lisa

    Yeah, because preaching abstinence has worked out really well so far. Sex ed should teach not only the consequences of having unprotected sex, but the responsibility involved when you decide to have sex. Abstinence-based sex ed just leaves you with a bunch of horny and uneducated teens.

  • VoR

    If they get have a child, they get $900/mo in welfare programs… and have to pay to feed a child. Trust me, it’s cheaper not to have children.
    Midnight: At $10k/year, with no one to claim you as a dependent, you get an $8,950 deductible. That means you have $1000 in taxable income, which works itself out to about $100 federal taxes. Rest assured, none of YOUR tax money is keeping single mothers from getting pregnant. Or is this about entitlement? They’re not entitled to free money, so damn the results, they’re not getting a dime.

  • http://www.japanesethegame.com Bojnik

    Behavioral economics is the easy way out. It’s also inherently immoral at least in this case.
    What happens is this: someone has to make a value judgement on people’s behavior in the first place. You’re saying that it is wrong (or at least injurious to the public, if you care to parse that far) for these people to do what they’re doing, but you’re not legislating against it. That’s ludicrous.
    Instead you’re taxing everyone who would be compromised by the folly. How is that just?
    Do you see the problem here? This is not legitimate government.

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