Less Logic, More Health: How Behavioral Economics Can Improve Incentives by Knowledge@Wharton
Wharton’s David Asch discusses his research on health incentives.
Most U.S. employers now have incentive programs designed to nudge workers toward healthier choices. But according to Dr. David Asch, who teaches both at Wharton and at Penn’s Perelman School of Medicine, most of those programs aren’t designed properly to deal with the human element. And perhaps it shouldn’t surprise us that, given how irrational people really are, systems based on the apparent logic of classical economics sometimes miss the mark in getting us to do the right thing.
But those problems can be fixed. Asch spoke with Knowledge@Wharton about his research on behavioral economics in health care, how it could help companies develop better health incentive programs for their employees, and why the solutions are both more and less simple than you might expect. His recent paper on this topic is titled, “Behavioral Economics Holds Potential to Deliver Better Results for Patients, Insurers, and Employers.”
You can listen to the interview using the player above. An edited transcript of the conversation appears below.
Knowledge@Wharton: Can you give us a brief overview of your research?
David Asch: For many American companies and American employers, even if they’re not in the health care business, health is central to what they do, because it keeps their workforce healthy — and because frankly, health care costs have an incredible impact on their bottom line. Everybody knows that health is determined so much by individual human behavior; we now have much better ways of motivating that behavior from principles of behavioral economics — principles that, frankly, employers have been a little slow to adopt.
Knowledge@Wharton: What are some of the key takeaways from your research in terms of how employers could use these principles to design better health incentive programs?
Asch: First, let’s back up a little bit and ask: “Well, what are they doing?” I think so much of our approach to health — whether it’s from a doctor approaching health care, or an employer or an HR department thinking about wellness for their employees — is based on the principle of education. We should just “educate employees” that smoking is bad for them and that fitness is good for them, and they should be adhering to their prescriptions. It’s a very rational model, but it assumes that if our employees only knew what to do, they would do that.
As soon as you say those words, you realize how limited that approach really is. Because of course people do know that smoking is bad for them, but it’s very hard to quit. Or they start smoking in the first place. They know they should take their medications. So giving them education rarely is going to be enough to move the needle, yet so many programs that employers use are fundamentally based on that.
The next level that employers use is thinking about economic incentives: “Why don’t we give a reduction in health insurance premium or some kind of pay for performance approach to get employees to move forward?” And there is some evidence that that works. But the work that we do has been largely focused on different kinds of arrangements to help motivate either employees on the employer side, or patients in the clinical setting, to try to get people to take better care of their health — recognizing the psychological foibles and pitfalls that we all fall into.
“We see losses as more potent than gains. So let’s see how we can frame things as losses.”
Knowledge@Wharton: So if I’m an employer and I’m trying to design an effective health incentive program, what are some conclusions from your research that might be a surprise to me as I’m sitting down trying to design this plan?
Asch: A lot of the results are surprising, and they’re surprising because they’re sort of irrational. In fact, they take advantage of the fact that many of us don’t think in rational ways. Here’s an example of a recent study that we did; it was led by a colleague of mine, Mitish Patel. He, our colleague Kevin Volpp and I — we did this with a group of employees to try to get them to walk more. We did a randomized control trial, real science, thinking, how can we get employees to walk at least 7,000 steps a day?
One group was a control group. They just were given feedback about how far they walked. Some groups were paid. In this case we paid them $1.40 a day for every day in which they walked 7,000 steps. A third group got what we would call a loss framed incentive — exactly the same amount of money, $1.40 a day, which is $42 a month. What we did is we gave them $42 a month in a virtual account before it started, and we took $1.40 back for every day they didn’t walk 7,000 steps.
Now mathematically, those two incentive arms are the same, right? It’s $1.40 gained if you walk, or the failure to lose $1.40 if you walk. The same thing. It turns out those who got the gain incentive – those who were promised $1.40 for walking — didn’t walk any more than the control group. The group that got the same $1.40 framed as a loss incentive walked 50% more than the control group. It’s irrational. It doesn’t make any sense. It’s the truth. Real data shows that. And it’s consistent with theories of behavioral economics, but inconsistent with how a lot of employers or doctors think about the best way to take care of their patients.
Knowledge@Wharton: What are some of the underlying forces at work here? If I’m doing any sort of incentive program or employee health program, how can I think about this using behavioral economics to design something that will actually get the result that I want, which is healthier employees? What are some of these irrational ways of thinking that would help me out? What is the best way to make people do the things that we all know we should do, but that we don’t necessarily actually do?
Asch: I think you just phrased it perfectly: How do we get people to do the things we all know we should do, but don’t do them anyway? As soon as you say that, you realize what strategies you have to use, because they’re not going to be the rational ones. Because you just gave a very rational argument: Of course I should do this. And the rational view is, well, then I’d do it. But of course, that’s not what really happens. So you have to move beyond the typical education-based solutions. I’m not against education; I’m a professor. I’m in the business of education. But it can be a bit of a decoy when something more effective might be in reach.
I think the answer to your question, the more direct answer to your question is to think, “What are the pitfalls we normally fall into?” One of them is what I just mentioned — we see losses as more potent than gains. So let’s see how we can frame things as losses. Another pitfall is that objects right