Behavioral economics is critical to understanding non-rational behavior. How can plans apply these concepts to reduce medical costs?

Earlier this month Richard H. Thaler was awarded the Nobel Prize in Economic Sciences for his contributions to behavioral economics. Thaler’s research has been a seminal step towards understanding the impact of non-rational decision making that produces a theoretically worse outcome for the individual decision maker. In layman’s terms: people frequently make decisions that are not in their own best interest – economic or otherwise. 

“This type of thinking – understanding humans as non-rational decision makers – is critical in addressing healthcare both from the viewpoint of economics and designing for better outcomes.”

The insights of non-rational behavior as viewed through an economic lens has been significant for other research and development in the areas of psychology and consumer behavior. There is broad application to many fields that anticipate good behavior based on self-interest but see individuals struggle to meet expected compliance, behavior change, choice or self-care objectives. This applies to wellness, self-care and behavioral compliance with care plans across a range of areas (from Physical Therapy to Pharmaceutical Prescriptions to Discharge Plans to Utilization Choices).

Translating Thaler’s work to healthcare

Thaler’s research moved economics beyond pure logic and into the realm of irrational action and attempts to understand why we are irrational actors.  This is critically important as his work has shed an important light on individual examples of non-rational behaviors, as well as broader trends that can be identified (or shaped) with society more broadly.  In the healthcare field, his work, and the work of other psychologists and consumer behavior researchers is contributing to change in the design paradigm for how we think and act on healthcare initiatives at the individual level (care plan, utilization) and for large health populations (wellness, disease management). This type of thinking – understanding humans as non-rational decision makers –  is critical in addressing healthcare both from the viewpoint of economics (can digital therapies be more effective than drugs in some cases?), and designing for better outcomes (what message is most effective to achieve a positive health/social outcome?).

How NextHealth uses nudges to change behavior and improve outcomes

NextHealth is translating many behavior design concepts to healthcare in areas initially advanced by Thaler, and later his peers in related fields of consumer behavior and psychology. Examples of behavioral nudges used by NextHealth clients include:

  1. Selection of frames (e.g., gain frame or loss frame for potential plan benefits; social frame emphasizing the choices of relevant others)
  2. Use of key words (e.g., free benefits)
  3. Appeals to mental accounting
  4. Active choices that encourage recipients of nudge messages to make decisions while they have relevant message information in front of them

Below is an example from an outbound call script using a selection of these behavioral nudges:

“This free program is designed to help you get answers and advice about <your/your child’s>health and where to get medical help quickly and safely with just a phone call, and can be used immediately.”

Read More: NextHealth helps client reduces avoidable ER visits by 25% by implementing nudges and targeted outreach.

Additionally, NextHealth is increasing its impact by elevating the rigor around two areas abutting program design; identification of impactable target populations and validation of program efficacy.

Extending Behavioral Economics with better targeting

Certain factors in healthcare invoke significant challenges for designing programs that impact behavior. Critical aspects of behavior design assume the ability to trigger consumer action based on a consumer context or opportunity; however, the timing and acuity of many health issues can be unpredictable, which conflicts with the best state- of-the-art intervention approaches.

“NextHealth uses machine learning based on health data to find signals that indicate a particular group is a highly impactable target and economically viable to address.”

Not all consumers behave irrationally, and some people are unaware of, or have dissonance to messages and information that creates the appearance of irrational behavior.  Therefore, the ability to identify populations that would significantly benefit from a program designed to change their behavior is critical. NextHealth uses machine learning based on health data to find signals that indicate a particular group is a highly impactable target and economically viable to address.

Thaler’s research sustains the notion that people can be induced to better decisions by re-framing a process, outcome or action to off-set what otherwise might be interpreted as irrational cognition. Refining targets using machine learning enhances our ability to profile population segments and dial-in more specific behavior design elements. The specificity of the consumer targets also ensures that we can define the correct cohort to generate a Random Clinical Trial in concert with any behavior design to validate the impact of the program.

Understanding who to address, how to frame and shape decision-making, and optimizing validated results are necessary to drive and impact behavior design for healthcare.

Although Thaler is an economist, and much of his work is focused on behavioral economics, his key findings serve to open many fields to the idea that we are not always making rational decisions. In healthcare this extends to the food we eat, the activities we choose or the choice to discontinue medication compliance as well as many other short and long-term life-impacting decisions.  

Today there is an open field of opportunity to contribute advancements in ethical behavior design that can shape economics, health and society in positive ways. We can thank Richard Thaler and researchers in the field of consumer behavior for enlightening us and moving us toward more sophisticated design strategies that take into account both rational and non-rational characteristics as we address health decision making going forward.

Targeting impactable members is critical to changing behavior and reducing medical costs. See how easy it can be.