Behavioral Economics (BE)

1. Behavioral Economics (BE) • Behavioral economics integrates insights from psychology and economics to systematically understand a person’s values, preferences, and the factors that affect decision making. • The approach emphasizes the importance of people’s values, decision-making preferences, and, ultimately, the choices they make as essential determinants of health behavior.

2. BE: Focus • The behavioral economic approach has been most commonly applied to behaviors that involve consumption of commodities (e.g., smoking, drug use, over-eating). • The goal of behavioral economics is to unravel the factors that underlie the choices people make. • The paradox that autonomous personal choices to engage in behaviors that are ultimately self-defeating and associated with major health problems is at the heart of a behavioral economic approach. • BE focuses on understanding the nature of rationality and irrationality in human behavior

3. Introduction • What is rationality? • Economic definitions of rationality are diverse, but core features include: • Utility maximization (i.e., people or other economic agents will attempt to maximize positive outcomes, profit, etc.) • Consistency (i.e., peoples preferences will apply equally to equivalent choice and not shift over time)

4. BE: Assumptions • Rational decision making is a common assumption in economics, but, when studied at the level of the individual, this is not often the case. • Behavioral economics emerged as a discipline from the programs of research investigating the systematic ways people tend to be irrational. • However, decision making biases are not entirely haphazard, but are present in ways that consistently deviate from the assumption of rationality.

5. BE: Origins • One of the earliest forms of behavioral economics is game theory. • Game theory is a mathematical analysis of strategic interactions between individuals. • A second form of behavioral economics is the integration of cognitive psychology and economic decision making through prospect theory. • Prospect theory proposes that we have more conservative preferences for gains but more risky preferences for losses.

6. Prospect Theory • Prospect theory reveals that preferences are not only a function of absolute resources, but relative changes in resources. For example, If given the opportunity to make a gamble with a 50% chance to win $150 but a 50% chance to lose $100, very few people will accept it. In contrast, however, if given the choice between definitely losing $100 and a gamble with a 50% chance of winning $50 and 50% chance of losing $200, the majority will take the gamble.

7. BE: Framework • People operate within a fixed set of environmental conditions and allocate finite resources (e.g., time, behavior, money) to gain access to activities of variable value (e.g., eating, drinking, leisure). • Behaviors are conditions in which the relative value of commodities (e.g. alcohol, tobacco) remains persistently high in spite of escalating health and psychosocial costs. • Addictive commodities operate like other economic commodities, but are substantially overvalued for addicted individuals, reflecting differences in degree, not in kind. • Temporal and probabilistic value preferences also contribute to persistent excessive consumption.

8. Framework • A strong preference for immediate rewards at the cost of larger delayed rewards (impulsive temporal discounting or overvaluation of immediate rewards and devaluation of future rewards), plays an important role in overconsumption. • Conversely, insensitivity to risky outcomes, that is, willingness to accept greater probabilities of negative outcomes to gain larger rewards, contributes to excessive consumption. • The relative value of an outcome is jointly determined by the outcome itself and alternative sources of reinforcement. • Thus, the relative value of a preference is not determined absolutely, but is, by definition, relative to the alternative possible options. Just like value-expectancy theories!

10. Quantifying Relative Value • A fundamental law in economics is the law of demand. • Demand: the level of the commodity sought or consumed by an individual at a given price. • Law of demand: all other things being equal, as the cost of a commodity goes up, its consumption tends to go down, eventually terminating at zero. • The relationship between consumption and price can be visualized on a demand curve.

11. Figure 7-3a: Quantifying Relative Value

12. Characteristics of demand curves • Consumption at zero or very low cost (the Y-axis intercept) reflects the initial level of consumption, which is referred to as intensity of demand. • At the other end of the demand curve, at high prices, demand is typically completely suppressed to zero, reflecting the costs outweighing the benefits, and the price that first achieves this is referred to as breakpoint.

13. Characteristics of demand curves • The slope of the demand curve, summarizing the relationship between consumption and price, is described in terms of elasticity. • Inelastic portions of the demand curve are defined by smaller decreases in consumption relative to increases in price. • Elastic portions are defined by larger decreases in consumption relative to increases in price.

14. Characteristics of demand curves • The point at which demand transitions from being relatively insensitive to price to elastic demand is termed Pmax (i.e., price maximum). • Pmax is an index of elasticity because it reflects how far demand goes before it starts to be affected by costs.

15. Quantifying Relative Value • Demand at each price translates into varying levels of expenditure, which can be translated into an accompanying expenditure curve. • An expenditure curve escalates during the inelastic portion of the demand curve (price is going up faster than consumption is going down) and then decreases once demand is sensitive to prices (consumption is going down faster than price is going up).

16. Figure 7-3b: Quantifying Relative Value

17. Characteristics of expenditure curves • The peak of this expenditure curve is commonly used to measure the relative value of a commodity, termed Omax (i.e., output maximum). • Omax reflects the maximum amount of money or other resource the individual was willing to spend on the drug.

18. Quantifying Relative Value: Summary • Demand curves tells us a person’s level of consumption if price were no object (Intensity), maximum allocation of resources (Omax), price limits before the costs outweigh the benefits (breakpoint, Pmax), and overall cost-benefit ratio (elasticity).

19. Delay Discounting • Delay discounting is a behavioral economic measure of impulsivity and refers to how much a reward is devalued based on its temporal distance (i.e., how deeply a reward is discounted based on its delay in time). • Delay discounting is also referred to as capacity to delay gratification.

20. Delay Discounting: Example • When given the choice between $100 and $200 today, with no delay, people unanimously choose the larger immediate reward over the smaller reward. But, as delays of increasing length are introduced, the preference for the smaller, but immediately available option becomes more attractive and people switch their preference toward the immediate reward. This is a person’s “indifference point.”

21. Delay Discounting • Indifference point represents the time at which the combination of amount and delay makes the smaller immediate reward equal to the larger delayed reward. • There is considerable variability across people in terms of where the switches take place, but the smaller the delay to provoke a switch, the more impulsive the individual is considered. • The mathematical properties of delay discounting can provide insight into behavioral self-control.

22. Delay Discounting • Overvaluation of immediate rewards (i.e. impulsive delay discounting) plays a key role in many unhealthy behaviors: • Positively associated with overeating and excessive alcohol, tobacco, and other drug use. • Inversely associated with exercising, attending dental visits, getting influenza vaccinations, cholesterol testing, mammogram screenings, Pap smears, and prostate exams.

23. Probability Discounting • Probability discounting refers to how sensitive a person is to the risk associated with rewards (i.e., how much a reward is discounted based on the probability of its receipt). • As delay discounting is an index of impulsivity, probability discounting is a measure of risk taking.

24. Probability Discounting • If two rewards are both certain, there is unanimous preference for the larger of the two. But, as the larger reward becomes more uncertain, there is greater variability in preferences for larger, riskier rewards compared to safe, smaller rewards. • In contrast to delay discounting, the less sensitive individuals are to increasingly uncertain rewards, the more risky their decision making is considered. • Example: gambling, substance abuse, unprotected sex

25. Implications for Intervention • A behavioral economic approach to health behavior comprises specific interventions to promote health behavior change. • Examples of intervention approaches include: • Community Reinforcement Approach • Contingency Management • Behavioral economics has also been applied in clinical research to predict treatment response and prognosis.

26. Table 7-2: Implications for Intervention

27. Take Home Messages • Behavioral economics applies insights from psychology and economics to systematically understand the factors that influence individuals’ values, preferences, and choices. • Demand curve analysis provides a systematic approach to measuring a person’s cost-benefit motivation for a given commodity or behavior. • Delay and probability discounting provide systematic methods for measuring impulsivity and risk-proneness.

28. Goodson Chapter 4: Which Theories Get Used? • Critical assessment of the theoretical frameworks currently used in health promotion. • NOTE: Such assessment IS theoretical thinking • This assessment consists of: • Examining which theories are “in fashion”. • Assessing weaknesses in the theories, as a whole (weaknesses in the “theoretical landscape”). • “Travel Gear” • Understanding of basic terminology • Awareness of historical contexts • Awareness of theories’ blinding effects

29. Review of Basic Terminology • Concepts / Constructs • The units, or “molecules,” of a theory. • Often used interchangeably. • Concepts: non-technical ideas or notions. • Constructs: ideas or notions that gain technical labels, when discussed within a theory. • Variable • “A variable is a measurable version of a concept or construct that can take on two or more values.” (Shoemaker et al., 2004, p. 16) • Constructs contain variability (high/low; a lot/a little; large/small)

30. More Basic Terminology • Independent variable: the cause • Dependent variable: the effect • Hypotheses • Speculations about how things might work in the real world, “guesstimates” • Stories scientists weave to explain how constructs, concepts, and variables relate to each other. • Hypotheses allow scientists to develop the storyline, the “plot” of a given theory. • Hypotheses guide scientists in a search for evidence to support them.

31. Historical Contexts • Besides concepts, constructs, variables and hypotheses, the historical context in which a theory was developed SHAPES the theory. • Example: the use of the constructs “Locus of Control” vs. “Self-Efficacy”. • Number of published articles citing “self-efficacy” increases ~ 6xs , while number of articles citing “locus-of-control” remain the same, over time. • 1980-90, 327; 1990-2000, >4000; 2000-10, >10,000 • For locus of control, about 1,800/decade • A theory is a product of its time.

32. The Blinding Effects of Theory • Theory is a way of seeing and of not seeing. • Choosing a specific theory “blinds” you to other directions, other theories. • The chosen theory forces you to look only in a certain direction. • So, always consider multiple theories!

33. Current Landscape - Patterns • Significant overlap of theories in all books • A few theories “dominate” the field • Problems • An exaggerated focus on individual-level factors • An undue emphasis on rationality • A deliberate privileging of linearity

34. Goodson, Chapter 5 • Exaggerated Focus on Individual-Level Factors

35. Levels of Theory • Levels in socio-ecological models • Intrapersonal • Interpersonal • Institutional/Organizational • Community • Policy • Some authors suggest adding others : • Societal Level • Supranational Level • Global Level

36. Exaggerated Focus on Intra-personal Theories • Most theories in Table 5.1 focus on intrapersonal or interpersonal factors. • In 1988 McLeroy and colleagues already critiqued this focus on changing persons (one at a time, in isolation), not social structures or social norms. • Focus on individual-level variables is not a problem in itself. • The problem  the over-emphasis on personal-level explanations.

37. Value-Expectancy and Rational Choice Theories • An exaggerated focus on individual-level theories is problematic. • However… • Individuals are one of the essential units of health education and health behavior theory, research, and practice. This does not mean that the individual is the only or necessarily the most important unit of intervention. But all other units, whether they are groups, organizations, worksites, communities, or larger units, are composed of individuals. (Glanz, Rimer, & Viswanath, 2008, p. 41)

38. Example • Example of individual-centered bias in health promotion: • Healthy People 2010 • Goal 1: Increase quality and years of healthy life • The first point made in that goal: • Health People 2010 seeks to increase life expectancy and quality of life over the next 10 years by helping individuals gain the knowledge, motivation, and opportunities they need to make informed decisions about their health.

39. An Alternative • A focus away from individual-centered factors has been proposed by many scholars, but has not had wide-spread acceptance: • “Dissidents” have proposed: • Ecological Models • Called for systems-science models • We’ll cover systems theories in Week 7

40. Goodson Chapter 6 & French et al. • Value-expectancy as rational choice • Importance of affect, emotions, etc. • Dual-process theories

41. Value-Expectancy Theories • Propose that human choices / behaviors result from “calculated reasoning”from a rational checks-and-balances calculation. • Do not explain why a person would give up an exercise session to have coffee with a friend (rationally, the risks of not exercising might outweigh the benefits of meeting with a friend). • Health-related decisions are not always made through rational calculations.

42. Human Behavior • Not driven, primarily, by rationality or cognitive forces • Driven by • Emotions • Desires • Habits • Likes/Dislikes • Biological imperatives • Memories buried in the subconscious mind

43. French et al., Importance of Affective Beliefs • Fishbein and Ajzen did not understand or communicate very well the affective nature of evaluation and motivation to comply • Two components of Attitudes • Affective component • refers to emotions and drives engendered by the prospect of performing a behavior • Instrumental component • refers to more cognitive consideration of the extent to which performing a behavior would be advantageous

44. Renewed appreciation for dual process theories: Affective and Cognitive Elements These elements interact continually Theories vary on how much emphasis is put into each element Recently applied to the study of how people manage risk information Scholars have been calling for the addition of affect, emotions, or feelings to current theoretical models of human behavior. Dual Process Theories – Beyond Rationality

45. An Alternative • Include affect-type variables within existing behavioral models. • Adopt other, dual process theories. • Other examples of available options: • Cognitive Experiential Self-Theory (CEST) • Developed by Epstein (1994) adds AFFECT to a set of cognitive factors. • Model of Interpersonal Behavior (MIP) • Developed by Triandis (1980) adds HABITS, or habitual behavior, to reasoning constructs