Disadvantages Of Behavioural Economics

Behavioral economics provides new insights on why people fail to respond in ways that conventional health economics and compliance theories think they would. By considering more avenues that affect decisions, behavioral economics can help understand why people would resist getting insurance despite its future utility in their lives (Asch, 2016; Auerbach et al., 2010). One of the main beliefs of behavioral economics is that assumptions on rationality and self-interest are overvalued in traditional economics studies (Auerbach et al., 2010, p. 673). In reality, rationality is a product of different limitations, including poor cognitive skills, inadequate information, and limited time to analyze and interpret information (Auerbach et al., 2010,

Samuelson and Zeckhauser (1988) studied the impact of new health insurance on Harvard employees and learned that only newly hired employees took advantage of the new health plans, while others stayed with their old insurance plans (as cited in Auerbach et al., 2010, p. 673). The latter preserved the status quo as they hated losing what they were used to. In connection, people without insurance would frame insurance premiums as a loss to their monthly income and would rather avoid deductibles as much as possible. Since people are more affected by losses than gains, a good strategy to encourage them to have insurance is to apply a penalty for being uninsured (Asch, 2016). If they will lose money, they may be stimulated to get insurance. Framing non-insurance as a loss can be an effective motivator, according to behavioral

First, loss aversion can induce enlistment in weight loss programs. An example is providing a financial incentive of $100 for active involvement in a weight-reduction program. Employees who shall not enlist will immediately lose this money. Moreover, those who will not complete the required exercises (with different options and balance strength and cardiovascular exercises) every week will lose a portion of the money. A previous study showed that this approach encouraged higher weight loss because people were averse to losses (Asch, 2016). Besides loss aversion, feedback is essential to losing weight (Thorgeirsson & Kawachi, 2013). Behavioral economics referred to studies indicating that immediate and regular feedback reinforced health-conscious attitudes and practices (Asch, 2016). Besides financial incentives, a health or fitness manager should oversee the weight loss program and provide helpful feedback, whether people lost weight or not, and provide recommendations. Combining loss aversion and feedback mechanisms can encourage people to be healthy and lose