Thursday, July 15, 2010

Can behavioral economics really help solve big problems?

Great NYT op-ed today by Carnegie-Mellon's George Loewenstein and Duke's Peter Ubel titled "Economics Behaving Badly."  Behavioral economics is a fairly hot area right now, given the seeming irrationality of the housing bubble or the rise in obesity.  (For a good overview, I highly recommend Richard Thaler and Cass Sunstein's Nudge, which I read last week.)  Loewenstein and Ubel argue that the tools of behavioral economics are being applied to problems that are not well suited to such an approach.  For instance, behaviorists argue that if people had better nutritional information, they would make better eating choices.  Recent studies show labelling does have an impact, but it is pretty small.  Loewenstein and Ubel argue that to get big changes, we will need to do something to increase the price of calories.  Finding a way to get supermarkets with real produce to locate in tough neighborhoods would help too. 

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