Questions: Behavioral Health Economics

Question 1

Standard economic theory predicts that providing people with information about the health risks of smoking should lead rational individuals to quit. Behavioral economics explains why this prediction fails for most smokers. Which behavioral bias is most directly responsible?

• A. Anchoring bias — smokers anchor their risk estimate to their starting health
• B. Present bias — the immediate pleasure of smoking and the immediate discomfort of withdrawal are weighted far more heavily than the distant, probabilistic health consequences, even when the smoker fully understands those consequences
• C. Availability bias — smokers can easily recall other smokers who lived long lives
• D. Framing bias — health risks are presented as percentages rather than absolute numbers

Answer: (B)

Present bias (also called hyperbolic discounting) is the dominant behavioral explanation for persistent unhealthy behaviors. A smoker may genuinely believe that smoking will shorten their life by 10 years and still be unable to quit because the craving is immediate and certain while the health damage is years away and probabilistic. This is not ignorance or irrationality in the loose sense — it is a systematic, predictable deviation from the exponential discounting assumed in standard economic models. The person's 'planning self' wants to quit; their 'experiencing self' reaches for the cigarette. This dual-self conflict is why commitment devices (paying a penalty for relapse, removing cigarettes from the house) can be effective — they give the planning self tools to constrain the experiencing self.

Question 2

Organ donation rates in countries with opt-out (presumed consent) defaults are dramatically higher than in countries with opt-in defaults, even when the effort to change one's status is minimal in both systems.

• T. True
• F. False

Answer: True

Johnson and Goldstein's (2003) landmark study showed that organ donation consent rates in European countries with opt-out defaults (Austria, Belgium, France, Hungary) ranged from 85-100%, while opt-in countries (Denmark, UK, Germany, Netherlands) ranged from 4-28%. The effort to change one's status was minimal in both types — check a box on a form. The enormous gap reflects default effects: people tend to stick with whatever option is pre-selected, due to a combination of inertia (effort required to act), implicit recommendation (the default is perceived as the socially endorsed option), and loss aversion (switching from the default feels like giving something up). This is arguably the most powerful finding in behavioral economics and has been widely applied in health policy — default enrollment in health insurance plans, automatic appointment scheduling for preventive care, and default inclusion of healthy options in cafeteria layouts all exploit the same mechanism.

Question 3

A health insurer wants to increase colorectal cancer screening rates among its members aged 50-75. Using behavioral economics principles, design an intervention that would be more effective than simply mailing educational brochures about screening benefits.

Model answer: An effective behavioral intervention would combine several principles: (1) Active choice with defaults — instead of asking members to call and schedule a screening, mail a pre-scheduled appointment (opt-out default) that the member must actively cancel. This overcomes inertia and procrastination. (2) Loss framing — frame the message as 'You have a screening benefit that expires on [date]; failing to use it means losing a benefit you've already paid for' rather than 'Screening can detect cancer early.' Loss aversion makes the loss frame more motivating than the gain frame. (3) Implementation intentions — if pre-scheduling is not feasible, ask members to specify when and where they will get screened (a commitment device that bridges the intention-action gap). (4) Social norms — include a statement like 'Most members your age have completed their screening' (if true), leveraging descriptive social norms. The combination of defaults, loss framing, and implementation intentions has been shown in randomized trials to increase screening uptake by 10-20 percentage points compared to information-only interventions.

This illustrates the behavioral economics approach to health behavior: rather than assuming people fail to screen because they lack information (the rational-agent model), assume they intend to screen but face behavioral barriers — inertia, procrastination, present bias, and limited attention. Interventions that address these specific barriers (making the healthy choice the default, providing commitment devices, leveraging social norms) are consistently more effective than information campaigns.

Question 4

Why does the Grossman model's prediction that health investment increases with education hold empirically, but for reasons the model does not fully capture?

Model answer: The Grossman model predicts that more educated individuals invest more in health because education raises the productivity of health inputs — an educated person gets more health from a given investment in diet, exercise, or medical care. Empirically, the education-health gradient is one of the strongest and most robust findings in health economics. However, behavioral economics suggests additional mechanisms: more educated individuals tend to have lower discount rates (more patience), stronger self-regulation skills, better ability to process probabilistic health information, more future-oriented social networks that reinforce healthy behavior, and greater capacity to navigate complex healthcare systems. These behavioral channels operate alongside the Grossman productivity channel and may be more important quantitatively. The distinction matters for policy: if education improves health primarily through patience and self-regulation rather than information processing, then health education campaigns will be less effective than interventions that directly support behavior change.

The education-health relationship is a case where behavioral economics enriches rather than replaces the standard model. The Grossman framework provides the investment logic; behavioral economics explains why the returns on that investment vary systematically with cognitive and non-cognitive skills that correlate with education.