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INTRODUCTION

Tobacco use, physical inactivity, unhealthy diet, excessive alcohol use, and other individual behaviors are estimated to underlie 40% of premature mortality in the United States. Approximately 75% of the $3 trillion currently spent on health care in the United States is attributable to cancer, heart disease, type 2 diabetes, and obesity, and each of these conditions is strongly influenced by behavior. Nearly one-half of patients prescribed medications to lower their cholesterol within 1 year following myocardial infarction stop taking these drugs—even when they are provided free of charge. Despite great advances in the science and technology of health care, a large gap separates theoretically achievable goals in health and health care from what individuals and populations actually reach. Human behavior is both a major contributor to health problems and a barrier to the successful implementation of solutions to address them.

Recognizing that there are many reasons people do not take action to improve their health, behavior change experts have focused efforts on strategies targeted at individual behavior, introducing incentives for weight loss and smoking cessation, environmental strategies such as mandated food labeling, and combination approaches. For example, Section 2705 of the Affordable Care Act (ACA) allows employers to provide incentives of up to 50% of total premiums based on outcomes such as reduced body mass index, lowered blood pressure or cholesterol, and smoking cessation; this legislation puts as much as $300 billion worth of employee health incentives in play annually.

Many of these approaches have built-in limitations, largely because they have been designed around the pervasive view that people always act to improve their self-interest. Existing policy solutions presuppose that health care decisions are rationally based economic transactions and that rational people will dispassionately assess the net present value of the costs and benefits of alternative paths and pursue the best path forward. These approaches are normatively appealing but seem better suited to support the health of people who behave as economists assume they do, and perhaps less effective when exposed to such realities of human behavior as limited attention, overconfidence, and problems of self-control. It is not just the magnitude of incentives that matters, but also other critical features such as the specific nature of rewards, feedback frequency, saliency, and framing. Public health programs, including those involving financial incentives, are more likely to achieve their goals if designed based not on how perfectly rational people ought to make health decisions but rather on how humans actually make them. The field of behavioral economics, which uses insights from psychology to identify ways that human decision-making often falls short of the ideal, and which offers a more realistic account of human behavior, provides a natural framework for such efforts, including a range of insights relevant to understanding how people respond to financial and nonfinancial (e.g., health) incentives.

CONCEPTS OF CLASSICAL ECONOMICS AND HOW THEY DIFFER FROM BEHAVIORAL ECONOMICS

Classical economics ...

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