Neoclassical economics assumes that people have rational, fairly consistent preferences over time. Each person seeks to maximize his or her overall well-being by obtaining, understanding, and rationally acting upon available information. In contrast, behavioral economics focuses on human limitations, empirically testing the ways in which human behavior departs from the rational and objective calculation of self-interest as the basis of decision-making.27
The remainder of this paper describes numerous behavioral economics studies, but we begin here with one striking experiment. Illustrating how the most rational, highly trained decision-makers can be greatly influenced by elements other than the facts, physicians were informed about the outcomes of treating cancer patients with surgery or radiation and asked to select the preferred treatment. To one physician group, information was framed in terms of survival, as follows:
“Surgery: Of 100 people having surgery 90 live through the post-operative period, 68 are alive at the end of the first year and 34 are alive at the end of five years”
“Radiation Therapy: Of 100 people having radiation therapy all live through the treatment, 77 are alive at the end of one year and 22 are alive at the end of five years.”
In this group, 18 percent selected radiation as the better treatment. By contrast, 44 percent favored radiation in the physician group who received the identical factual information, but framed in terms of mortality rather than survival:
“Surgery: Of 100 people having surgery 10 die during surgery or the post-operative period, 32 die by the end of the first year and 66 die by the end of five years.”
“Radiation Therapy: Of 100 people having radiation therapy, none die during treatment, 23 die by the end of one year and 78 die by the end of five years.”
When the identical information was characterized in terms of how many died rather than how many lived, the likelihood that physicians would choose radiation therapy as the superior treatment more than doubled.28 This is not what neoclassical economics predicts from rational decision-makers.
The rest of this paper focuses on the behavioral economics literature as it relates to the two contexts described above involving the integration of health and human services programs. In general, behavioral economics can supplement more traditional economic theory to explain why benefit programs, public and private, often suffer from incomplete take-up. Much of this research involves retirement savings and other programs that serve middle-class consumers, where modest procedural obstacles have been shown to cause significant reductions in participation levels. These potential effects can be amplified among low-income populations that have less access to support or fallback mechanisms, such as reminder systems, inexpensive credit, or automatic savings programs, and that face difficult daily circumstances that can leave them leave them cognitively exhausted.29 Evidence from the behavioral economics literature suggests that a range of apparently minor factors in program design can have a significant impact limiting participation in programs like Medicaid and SNAP, as the next section explores in some detail.