A Little Nudge’ll Do Ya“To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates.” • Nudges “attract people’s attention and alter

Michael J. BarrettManaging PartnerCritical Mass Consultingwww.criticalmassconsulting.com

A Little Nudge’ll Do YaBaking Behavioral Economics into Healthcare Unbound Tools

Presented atHealthcare Unbound 2009June 22, 2009

© Critical Mass Consulting 2009

©Critical Mass Consulting 2009

The usual blatant grab for credit

©

When something’s accelerating…


… how do you slow it down?

Peter Orszag, Director of the Budget, the White House, writes:“There are four key steps (to bringing down the deficit): 1) “health information technology, because we can't improve what we

don't measure; 2) “more research into what works and what doesn't, so doctors don't

recommend treatments that don't improve health; 3) “changes in financial incentives for providers so that they are

incentivized rather than penalized for delivering high-quality care4) “prevention and wellness, so that people do the things that keep

them healthy and avoid costs associated with health risks such as smoking and obesity.”


Source: Peter Orszag, “Health costs are the real deficit threat,” WSJ, May 15, 2009

This thing slows me down! (But why?)


Radar-equipped dynamic message signs (DMS):

“Based on a statistical analysis of the data … the study found radar equipped DMS can reduce vehicle speeds by 8 to 9 mi/hr.”

Source: Research and Innovative Technology Administration, U.S. Dept. of Trans. (Dec. 1998)


Behavioral economists answer

• Developed by psychologists Daniel Kahneman and Amos Tversky in 1979; Kahneman won the Nobel Prize in Economics in 2002

• Uses insights from psychology to challenge “rational actor” economics: “We are far less rational than standard economic theory assumes.”

• “Irrational behaviors are neither random nor senseless. They are systematic and, since we repeat them again and again, predictable.”

• When people are good calculators of what will serve their interests, financial and otherwise, they are being rational

• When people act as a “bias” or “heuristic” predicts, even when doing so poorly serves their interests, they are being irrational

• Heuristic: A mental shortcut that simplifies -- but also distorts – peoples’ calculation of their interests

The President’s people are onboard


Source: R, Lizza, “The guardian of Obama’s priorities,” New Yorker, May 4, 2009

The private sector’s into it


Source: B. Pyles and J. Seibel, June 2009 Client Seminar, Boston, MA, Fisher Investments

The very model of a modern nudge


Radar-equipped dynamic message signs (DMS):

“Based on a statistical analysis of the data … the study found radar equipped DMS can reduce vehicle speeds by 8 to 9 mi/hr.”

DAILY CALORIES

CALORIES SO FAR

Biases and heuristics in play? • Reflection vs. reflex• Conformity effects• Anchoring and adjustment• Paradox of choice• Framing effects

Source: Research and Innovative Technology Administration, U.S. Dept. of Trans. (Dec. 1998)

Choice architectures: B.E. pivots from description to prescription

Why everyone’s intrigued: Biases and heuristics lead to choice architectures• “A choice architect has the responsibility for organizing the context in which

people make decisions.”• Examples in health care:

– “If you are a doctor and must describe the alternative treatments available to a patient, you are a choice architect. “

– “If you design the form new employees fill out to enroll in the company health care plan, you are a choice architect.”

• The prescription: Choice architects should use their influence to impose “structure in an environment … to induce people to make better choices.”

• Choice architects needn’t feel guilty about steering people because “there is no such thing as neutral design.”

Source: Richard Thaler and Cass Sunstein, Nudge (2008); Jeff Sommer, “When Humans Need a Nudge Toward Rationality,” NYT, Feb. 8, 2009



Libertarian paternalism and nudges

• Behold “a new movement” -- libertarian paternalism.• “The libertarian aspect of our strategies lies in the straight-forward

insistence that … people should be free to do what they like -- and opt out of undesirable arrangements if they want to.”

• “The paternalistic aspect lies in the claim that it is legitimate for choice architects to try to influence people’s behavior in order to make their lives longer, healthier, and better.”

• “A nudge ... is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options....”

• “To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates.”

• Nudges “attract people’s attention and alter their behavior in a positive way, without actually requiring anyone to do anything at all.”

Source: Nudge; Jeff Sommer, “When Humans Need a Nudge Toward Rationality,” NYT, Feb. 8, 2009

Putting biases & heuristics to workChoice architecture Nudge Bias or heuristic in play


Physical settings Removing trays from cafeterias; stair design

Paradox of choice; framing effects: Since people do a poor job of choosing when faced with too many options, reduce option overload.

Incentive systems Deposit contracts for hittingmeds compliance goals

Loss aversion: People will try hard to avoid losing a small deposit made in advance.

Options and defaults Opt-out rather than opt-in for mail-order prescriptions

Status quo bias: People won’t opt in to mail order but they’ll accept it as a default and won’t opt out.

Information reporting Data on peer body weight, tax payments, drinking, etc.

Conformity effects: People look to others for indications of how to act. Social norms can sometimes have beneficial steering effects.

Information at P.O.D. (point of decision)

Alerts, reminders, trackers, dynamic signs – about vehicle speed, drug effects, calorie intake, taking the stairs, etc.

Reflection vs. reflex, conformity effects, anchoring and adjustment, paradox of choice, framing effects:Choices made when people are presented with information differ from choices made when they’re not.

B. E. and optimism bias?

• What’s really new? Cash emerges as a potent nudge, but price signals are already mainstream economics. And conformity effects are already mainstream psychology.

• How far do the ideas go? Many nudges are informational. But reminders and alerts have their limits -- look at ePrescribing for docs.

• How good is the evidence? What’s truly evidence-based (“predictable”) and what remains just a cool hypothesis?

• How soft are the definitions? “Architects” have lots of manuveuring room: – Where’s the line between a hard nudge and a soft mandate? When

is an opt-out easy to use? When is a nudge cheap to avoid?• Who gets the freedom of choice? Informational nudges directed at buyers

often rely on informational mandates imposed on sellers. • When the irrationality of crowds meets the wisdom of crowds, what gives?



My standard disclaimer

“I have opinions of my own, strong opinions, but I don’t always agree with them.”


Michael J. BarrettCritical Mass [email protected] criticalmassconsulting.com

Thank you!

Documents

A Little Nudge’ll Do Ya“To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates.” • Nudges “attract people’s attention and alter