Jason Furman (former chair of the U.S. Council of Economic Advisers) discusses how behavioural science can help address four major issues in the economy. He isn’t joking when he says they are major. The four he choose are 1) Ending Recessions, 2) Mitigating and Adapting to Climate Change, 3)
Reversing the Decline in Male Labour Force Participation, and 4) Reducing Inequality. Unlike most papers he doesn’t claim to have solutions. Instead he notes that behavioural science can be put to work addressing major problems.
He notes the psychological burden of poverty, as addressed, for example, by Sendhil Mullainathan and Eldar Shafir. He notes that the decline in male labour participation isn’t well understood. (It isn’t female partners working and men choosing to take less traditional work which is not captured in the data). He talks about the importance of psychology in ending recessions. He does a good job of clarifying why behavioural insights are useful. Of course considering the framing of actions — such as how stimulus checks are presented — isn’t everything. There needs to be a stimulus check to frame but framing the actions effectively increases the impact of a given economic tool with practically no extra cost. He explains how Larry Summers described “confidence as the cheapest form of economic stimulus” (Furman, 2016, page 4).
That said he notes limitations of certain approaches. The problem of climate change is very unlikely to be solved with better communication of information about the problems. Collectively we might like to see something done but individually we might have selfish reasons to take the actions we do. Here legislation can help solve collective actions problems. Understanding behaviour allows us to set up policies that are effective and use legislation whenever necessary but no more than necessary.
I thought his comments on benefit to cost ratios especially interesting. Behavioural interventions can often have very high benefits to costs, something akin to high ROI. They are often the first things to try, especially when compared to compelling people which can be expensive and limits liberty. Behavioural insights aren’t magical, they can’t solve all the worlds problems, but they do have potential to improve what we do.
Read: Jason Furman (2016) Applying Behavioral Sciences in the Service of Four Major Economic Problems, Behavioral Science and Policy, 2(2) pages 1-9