Explaining irrational decision-making has been an ongoing challenge for social scientists.
At 3 p.m. Saturday in the Hall of Philosophy, Douglas Hough will take to the podium to share basic concepts of the interdisciplinary field of behavioral economics.
Social science is an academic discipline comprised of several discrete fields of study. In combining economics with psychology, Hough attempts to demonstrate that the integration of two or more disciplinary silos can serve as a powerful means of generating better explanations.
The title for Hough’s talk is that of his new book — Irrationality in Health Care: What Behavioral Economics Reveals About What We Do and Why. While it befits the rigor and relevance of the Chautauqua Women’s Club’s Contemporary Issues Forum speaker series, anyone under the impression that behavioral economics is dry or boring will have reason to think again.
“The health care industry is so strange,” Hough said. “It doesn’t follow the tenets of other industries. It’s not like automobiles or software. Applying standard economic techniques won’t help. We economists have been spending our time banging our heads against the wall doing the same thing over and over again. That’s the definition of insanity.”
Unlike mainstream neoclassical economics, the emerging field of behavioral economics does not assume that people are rational. According to Hough, it is based on the more realistic premise that imperfect people make imperfect decisions.
“Behavioral economics is really helpful in understanding why we’ve ended up where we are,” Hough said. “In addition, it gives insights into how we can get out of the mess we’re in.”
Among the behavioral concepts that Hough may cover on Saturday are the endowment effect, loss aversion and hyperbolic discounting.
He said that a remarkable number of laboratory and field studies have shown that “once we have something, we’re going to keep it no matter what.”
This behavior — ascribing more value to something simply because we own it — is called the “endowment effect” as well as “status quo bias.” It occurs even when people are unsatisfied with their status quo.
Hough said that the endowment effect explains why, when President Barack Obama went around the country in support of the Patient Protection and Affordable Care Act of 2010, he promised Americans that they could keep their health care plans if they liked them.
It also partly explains why Americans who formerly had complained about their plans wanted to keep them.
“Now people have to give up their plan and they really don’t want to change,” Hough said. “Making changes in health care is hard. Standard economic theory has no way of explaining this. Behavioral theory says, ‘duh!’ ”
Loss aversion is a concept of behavioral economics that focuses on the flip side of keeping one’s endowment — relinquishing it.
“People hate to lose,” Hough said. “But behavioral economists say that people really hate to lose.”
He said that people value a loss of something at twice their estimate of what it was worth to them before the loss occurred.
The concept of “hyperbolic discounting” is fun, at least to Hough. It’s also one that sounds to him like common sense.
“People prefer the present to the future,” he said. “That’s why there’s an interest rate. But people really prefer the present to the future. They’ll decide to consume something now versus in the future, and when the future comes, they will reject their initial decision. Behavioral economics shows this. Standard economics thinks that, in the future, you get more. But people think the future is way down the road.”
Mechanisms are being developed to improve people’s decisions using these three concepts, Hough said. Commitment devices are examples.
“They are based on people wanting to do something, and realizing there are hardwired biases built in to their behavior,” he said.
Hough said he has been working on commitment devices for medication adherence. Commitment devices, as defined by journalist Stephen J. Dubner, refer to “a means with which to lock yourself into a course of action that you might not otherwise choose but that produces a desired result.” Hough’s primary research interests focus on identifying the optimal size and structure of a physician practice, and applying behavioral economics to contemporary health care issues.
During his senior year in high school, Hough took an economics course that combined his two favorite fields — mathematics and American civilization. After graduating from MIT, he earned a Master of Science and Ph.D. in economics from the University of Wisconsin. He said he stumbled into health and behavioral economics.
For 12 years, Hough served as associate professor at Johns Hopkins University’s Carey Business School, where he gradually began applying behavioral psychology to economics. In 2013, he was also appointed associate scientist and associate director of the Master of Health Administration program at JHU’s Bloomberg School of Public Health.
Hough said he wants Chautauquans to better understand their own behavior as health care consumers and patients — why they behave as they do and how they can change behaviors that are not as effective as they should be.
He also wants Chautauquans to think about how the concepts of behavioral economics can be used to help frame a new and improved system for individual health insurance.
Although he had previously written and co-authored several books, Hough said that Irrationality in Healthcare was revelatory for him.
“In some senses it’s a culmination and in others a first step in really trying to understand why patients and health care professionals do what they do,” Hough said.