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Behavioral Economics: Lessons from Retirement Research for Health Care and Beyond 1 (August 7, 2008)

handle is hein.congrec/cbo1023 and id is 1 raw text is: Behavioral Economics: Lessons from Retirement Research for Health Care and Beyond A Presentation by CBO Director Peter Orszag to the Retirement Research Consortium August 7, 2008 It's a great pleasure for me to be with you at the Retirement Research Conference. In my remarks today, I'd like to build on some of the terrific work by researchers in the area of savings and retirement (a good part of which was done by the people in this room), drawing on insights from behavioral economics. I'll describe some of the les- sons that come from that work and then aim to convince you that much more work awaits in the critical arena of health economics. Decisions About Saving and Behavioral Economics With the help of research in behavioral economics, we have, in recent years, made major strides in understanding how people make decisions about saving and retire- ment. Research now demonstrates what many people who aren't economists always knew: that when it comes to complex choices such as whether to save and when to retire, people's decisions are often influenced by social norms and the presentation of their options-in addition to the substance of the options themselves. Behavioral economics has suggested ways to change how such choices are presented in order to help improve decisionmaking without necessarily constraining choice. Those sugges- tions-particularly regarding the automatic enrollment of workers in employer-pro- vided savings plans-are beginning to see widespread adoption. This trend represents a tangible example of how economic research can be rapidly translated into concrete policy changes that should improve people's lives. The Utility of Defaults Let me start by describing a few key insights from behavioral economics on defaults and their implications for policy on saving and retirement. Inertia, it turns out, is a powerful force in decisionmaking, so people tend to stick with a default, even when they can, at very low cost, pick another option. A number of studies have compared participation rates in employer-sponsored retire- ment plans when enrollment is automatic and when employees must act to become

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