Dietrich College’s unique approach to behavioral economics drives change
“In order to do good economics, you have to keep in mind that people are human,” said Richard Thaler, the winner of this year’s Nobel Memorial Prize in Economic Sciences according to an article in The New York Times. That sentence quite succinctly describes what lies at the heart of behavioral economics.
Behavioral economics is the interdisciplinary study of the effect of people’s emotional and psychological state on economic activity. People’s responses to events, stimuli, and other influential factors is one of the hardest things to understand and rationally predict but it often has the largest impact on economic activity. Not everyone always acts purely rationally and in their own best interests. This is where behavioral economics comes in and tries to find the ways in which people are “predictably irrational” and understanding the conflicts that arise between human beings and rationality.
Behavioral economics at Carnegie Mellon was co-founded by Herbert Simon, winner of the 1978 Nobel Memorial Prize in Economics and current faculty member George Loewenstein, a Herbert A. Simon University Professor of Economics and Psychology at Carnegie Mellon University and co-director of the Center for Behavioral Decision Research at CMU. He has also founded the field of neuroeconomics.
Although, the field of behavioral economics is relatively new, it promises a lot in terms of the large-scale impact it can have. Behavioral economists at Dietrich College of Humanities and Social Sciences at Carnegie Mellon, are doing cutting-edge research — understanding and solving some of the most difficult and most complex problems such as rising healthcare costs, workplace discrimination, information interpretation biases etc. “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. She is also the head of the Department of Social and Decision Sciences in the Dietrich College of Humanities and Social Sciences at Carnegie Mellon. She further explains in a CMU press release that, “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,” Furthermore, the department also deploys a Research truck, as shown in the aabove photo, that allows researchers to collect data that is representative of a population, by moving around different locations.
CMU Researchers Saurabh Bhargava and Loewenstein have improved healthcare plans to be more easy-to-understand, cut costs and poor decision-making. The bestselling book, Women Don’t Ask: The High Cost of Avoiding Negotiation and Positive Strategies for Change, coauthored by Babcock and Sara Laschever, a founding member of the Heinz College Negotiation Academy for Women, explains negotiation techniques to combat workplace discrimination. Another project, called Seventeen Days, promotes awareness about sexual health and teenage pregnancy, as opposed to abstinence-based sex-ed, and helps reduce the risk of venereal disease and unwanted pregnancies. This is indeed, work that matters.