Applying Insights from Behavioral Economics to Policy Design

NBER Working Paper No. 20318

Issued in July 2014

NBER Program(s):Economics of Aging, Children, Development Economics, Economics of Education, Environment and Energy Economics, Health Care, Health Economics, Law and Economics, Labor Studies, Public Economics



The premise of this article is that an understanding of psychology and other social science disciplines can inform the effectiveness of the economic tools traditionally deployed in carrying out the functions of government, which include remedying market failures, redistributing income, and collecting tax revenue. An understanding of psychology can also lead to the development of different policy tools that better motivate desired behavior change or that are more cost-effective than traditional policy tools. The article outlines a framework for thinking about the psychology of behavior change in the context of market failures. It then describes the research on the effects of a variety of interventions rooted in an understanding of psychology that have policy-relevant applications. The article concludes by discussing how an understanding of psychology can also inform the use and design of traditional policy tools for behavior change, such as financial incentives.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w20318

Published: Brigitte C. Madrian, 2014. "Applying Insights from Behavioral Economics to Policy Design," Annual Review of Economics, Annual Reviews, Annual Reviews, vol. 6(1), pages 663-688, 08. citation courtesy of

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