Behavioral Insights to Improve Policy-making

The large body of behavioral evidence collected in recent years has brought about a radical shift in theoretical modelling of human behavior. Inspired by these results an increasing number of governmental agencies around the world now use behavioral insights to design policies. Such insights emphasize that, rather than following rational utility-maximization, individuals’ behavior is characterized by bounded rationality, time inconsistencies, cognitive biases, adaptive or imitative heuristics, context-dependence and altruistic concerns. Individuals' well-being can be improved, and socially desirable outcomes can be achieved, by designing contexts of individual choices that take into account these biases. Crucially, this can be achieved at virtually no cost for governments, and without restricting individuals' freedom in their choice portfolio. For instance, the "Save more tomorrow" proposal, launched by Shlomo Benartzi and Richard Thaler, rests on the observation that most individuals prefer to postpone financial losses to the future. Substantial increases in saving rates towards retirement plans were obtained simply by postponing the start of such a program by one year. This arguably increased individuals’ long-term well-being. Behavioral insights in form of policy nudges have demonstrated relevance across policy fields as disparate as consumer protection, energy pricing and taxation.

The goal of the project Behavioral Insights to Improve Policy-Making is to carry out original and policy-relevant research in the areas identified above. Our research center has developed specific expertise in areas such as health, charitable giving and pro-social behavior, risky choices in individual or social context, and improving macroeconomic performance.