Decisions, decisions

David Leonhardt of the New York Times wrote this week about "libertarian paternalism", which is the idea that governments and other organizations can present choices to people in such a way that they will be more likely to make the decision that is most beneficial, without restricting their freedom to do as they please. Carnegie Mellon economist George Loewenstein, one of the nation's leading behavioral economists, happens is an expert in this concept. His research examines how brain function, emotions and other psychological factors influence economic decision-making.

One problem that libertarian paternalism--or light paternalism, as Loewenstein calls it--could address is the fact that many Americans are failing to save enough money for their retirement. Many workers don't contribute enough money to their 401(k) plans to get the maximum matching funds from their employer, effectively leaving free money on the table. One possible explanation is that the default option at most companies is not to participate in a 401(K) plan, and people tend to favor the status quo. The solution, therefore, would be to make participation in a retirement plan the default option. Those who still did not want to contribute could make that choice with minimal inconvenience.

The concept is not limited to economic decisions. Loewenstein is working on an ongoing study involving stroke patients who take a drug called warfarin, which lowers the likelihood of a second stroke. The patients get an electronic drug dispenser that signals a central office when the patient opens the correct drawer, indicating that the patient has most likely taken that day's pill. Each evening a lottery number is drawn, and if the number matches a number that the patient was given, and the patient opened their drawer that day, they get a cash prize. (They are also notified if their number is drawn but they did not win because they failed to take their pill.) Early results have shown the intervention increases the rate of adherence to the treatment program.

If you are a member of the media who is interested in discussing this with Loewenstein, contact me at jpotts@andrew.cmu.edu.   

Jonathan Potts