Jason Furman (former chair of the U.S. Council of Economic Advisers) discusses tackling big problems with behavioral science. He says behavioral studies can help address four major issues in the economy.
Tackling Big Problems With Behavioral Science
He isn’t joking when he says they are major. They really are. 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 behavioral science can be put to work addressing major problems. It is more a call for more work.
Psychology And Us
He notes the psychological burden of poverty, as addressed, for example, by Sendhil Mullainathan and Eldar Shafir.
Furman notes that the decline in male labour participation isn’t well understood. (He outlines that is not female partners working instead. For example, his data does not just highlight men choosing to take less traditional work while their partner works.)
He talks about the importance of psychology in ending recessions. He does a good job of clarifying why behavioral 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. Still, 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). Cheap is good.
Understanding The Limitations Of Approaches
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. There is a problem of action. Collectively we might like to see something done. Yet, individually we might have selfish reasons to take the actions we do. Here legislation can help solve collective actions problems. Understanding behavior allows us to set up policies that are effective. We can then use legislation whenever necessary but no more than necessary. Why force when you don’t have to? It will only annoy people unnecessarily.
I thought his comments on benefit to cost ratios were especially interesting. Behavioral interventions can often have very high benefits to costs. Think of this as something akin to high ROI. This makes them often the first things to try. This is especially true when compared to compelling people which can be expensive and limits liberty. Behavioral insights aren’t magical. They can’t solve all the world’s problems, but they do have the potential to improve what we do relatively cheaply. Why not?
For more on behavioral science and policy see here, here, and here.
Read: Jason Furman (2016) Applying Behavioral Sciences in the Service of Four Major Economic Problems, Behavioral Science and Policy, 2(2) pages 1-9
