Behavioral economics provides means to understand world issues
Behavioral economics is being widely used by companies, organizations, and even governments because of how it revolutionizes the way we make decisions, changes the way organizations operate, and influences how policies are implemented. People with knowledge of behavioral economics are thus highly sought after by companies searching for smartly designed behavioral interventions.
At Carnegie Mellon University, behavioral economists use this unique blend of economics and psychology to solve pressing issues from rising health care costs and workplace discrimination to climate change and “fake news.”
“At Carnegie Mellon, we’re looking at problems that matter to the world and trying to understand the issues and why they happen, but also how to change them,” said Linda Babcock, the James M. Walton Professor of Economics and head of the Department of Social and Decision Sciences in the Dietrich College of Humanities and Social Sciences.
This innovative branch of knowledge began at Carnegie Mellon with the late Herbert Simon, a Nobel laureate in economics, and current faculty member George Loewenstein, a co-founder of the field.
“One thing that is unusual about the research happening in our department is that it tends to be a really nice mix of both basic and applied research,” said Loewenstein, the Herbert A. Simon University Professor of Economics and Psychology, in a university press release. “For example, we have projects on topics like health insurance, take-up of government benefits and how to increase savings. But we also have a lot of basic research dealing with issues like how and why people avoid information and topics like curiosity, boredom, and discrimination.”
The fusion of economics and psychology addresses how problems can not only be solved through cost-effective methods but also how they can be solved with the greatest societal impact. Some projects which Carnegie Mellon University behavioral economists have designed include simplified health insurance plans to save people time and money, methods to teach women how to negotiate, and creating interactive tools for teenagers to prevent sexually transmitted infections and reduce unwanted pregnancies.
“Our brand of behavioral economics is much more mixed — about 50 percent economics and 50 percent psychology — than anywhere else. And it’s not just that we have economists and psychologists. The economists know a lot of psychology and the psychologists know a lot of economics,” Babcock said.
Saurabh Bhargava, assistant professor of economics and social and decision sciences, is a prime example of behavioral economics at work. He partnered with the Internal Revenue Service to redesign tax credit communication strategies that could help nearly millions of disadvantaged Americans claim billions in benefits.
“Ultimately this agenda suggests that the way we structure, frame and even market policies really does make a difference. That basic insight has the potential to radically improve outcomes, especially those at the greatest social and economic risk,” Bhargava said.
Carnegie Mellon University is credited as the leading institution in behavioral economics. It is the only academic institution to offer an undergraduate degree in behavioral economics, policy, and organizations and a Ph.D. in behavioral economics, jointly with the Tepper School of Business.
“The explosion of interest by government, nonprofit and industry organizations to use behavioral science has created a demand for trained behavioral economists,” Babcock said. “We are excited to offer both undergraduate and graduate students the opportunities to learn from us and partner on our research projects with government agencies, companies and nonprofits.”We are excited to offer both undergraduate and graduate students the opportunities to learn from us and partner on our research projects with government agencies, companies and nonprofits."