Note: Most terms in italics are defined elsewhere in the Glossary.
Action bias: A cognitive bias in which people favor action over inaction, even if it is not in their best interest. An example is a patient insisting that a physician order a test even when it is not medically justified.
Anchoring: A behavioral phenomenon in which, for reasons unrelated to the problem at hand, certain numbers are cognitively salient, which affects one’s beliefs or decisions, typically in an inappropriate matter. Because these anchors are unrelated to the benefits and costs of the decisions in hand, their salience leads to mistakes. An example from the text provides an illustration: when subjects were asked to write down the last two digits of their Social Security numbers first, those with high numbers bid far higher for bottles of wine, textbooks, or computer trackballs (Ariely et al., 2006).
Bounded rationality: A theory, originally developed by Herbert Simon, which posits that people’s decisions do not conform to the traditional economic theory of utility maximization because they are subject to cognitive limits in their ability to process available information, and because choice environments are not structured in a way that facilitates tractable decision-making. People instead use heuristics to pare down available information, and satisfice rather than maximize.
Choice architecture: The choice architect frames a choice and chooses and summarizes information that is ultimately presented to consumers to help them make particular decisions—taking into account people’s cognitive biases and recognizing that they exhibit bounded rationality. In one example, a choice architect might winnow down the amount of information and highlight it in a way to facilitate comparisons of alternative choices.
Cognitive biases: Systematic deviations from what traditional economic theory defines as rational behavior. These biases can result in people’s behavior being inconsistent with the predictions of the traditional theory.
Behavioral economics posits that recognition of these biases has important implications regarding which types of public policies should be considered. The cognitive biases that appear to play the greatest roles in health behaviors, and which therefore receive the most attention in this book, are present bias and status quo bias.
Confirmation bias: A cognitive bias where people put more stock in information that is concordant with their pre-existing beliefs or behaviors.
In doing so, they are likely to discount contrary evidence and continue with their current behavior, resulting in status quo bias.
Defaults: An alternative that is assigned to a person who does not actively make a choice. Choice architects may set a default that they believe is in people’s best interests, taking advantage of status quo bias—the idea being that most people will go along with the default that is assigned. In most cases, people are allowed to opt out of the default. One classic example is the (legally enforceable) assumption that people are willing to serve as organ donors in case of a fatal accident, unless they explicitly state otherwise.
Dual-process theory: A psychological heuristic positing that people process information in two different ways. Although there are several different versions of dual-process theory, one version, put forward by Daniel Kahneman, characterizes one type of mental process as being instinctual or automatic (System 1) and the other as being more deliberative (System 2). The assumption that people use classical maximization techniques (e.g., sifting through information related to every alternative) does not hold for System 1 decisions. Rather, they rely on what they already know or do and, at best, use heuristics.
Framing: A frame is a cognitive apparatus, or cognitive context, that helps
people make sense of new information. Any decision problem, including a choice, is framed by both the information and the other choices that surround it. This surrounding information can influence a choice by making one option look better by comparison to other choices or more attractive because of associations with particular kinds of information.
Behavioral economics experiments have shown, for example, that students are more likely to take fruit and vegetables when they come at the beginning of the lunch line than the end.
Heuristics: A simple model of how the world works or an approximate rule of thumb for decision-making. Rather than considering all options and information about them, people often use heuristics. This is particularly true for System 1 thinking (see dual-process theory, above). There is considerable debate as to whether the use of heuristics leads to better or worse decision-making. On the one hand, mental shortcuts can accentuate reliance on cognitive biases (e.g., status quo bias, present bias).
Alternatively, given people’s limited mental capacity and time, the use of heuristics may be necessary in making good decisions.
Homo economicus: Literally, “rational economic man.” According to traditional economic theory, people have perfect information, which they use to maximize their utility, defined by fixed and immutable preferences.
Homo economicus is free of the cognitive biases that the field of behavioral economics studies.
Libertarian paternalism: A theory of public policy proposed by Richard Thaler and Cass Sunstein that seeks to balance social welfare and individual liberty. Because of the many challenges facing consumers (e.g., complex information, cognitive biases), they might make poor decisions. Libertarian paternalism suggests that people continue to enjoy all available choices, but that they be guided toward those that, in the view of the policymaker, are most in that person’s (or society’s) interest.
The policymaker can be from the private sector (e.g., the employee benefits manager of a company’s pension plan) or the public sector.
Loss aversion: When much greater disutility is associated with a loss than the utility associated with a similarly sized gain. This can result in status quo bias because people are overly concerned they will lose something by making a change—overshadowing the potential good that will be derived from it.
Nudge: A term used by Richard Thaler and Cass Sunstein, from their book of
the same name. They suggest that policymakers “nudge” people toward better decisions. Based on their theory of libertarian paternalism, people would retain all choice options but should be nudged toward those that are in their (or society’s) best interest. A common form of nudging is to assign people the default choice that the policymakers view to be in their best interest, requiring them to actively opt out if they want a different option. Nudging and libertarian paternalism are controversial, in part because people could be nudged toward things that the policymaker wants rather than those things that are in the consumer’s best interest.
Optimism bias: Unwarranted belief that one will fare better than the underlying odds, or better than others will do, which can in turn cloud effective decision-making. An example is a drunk driver who believes that his chance of making a mistake while driving is significantly lower than the actual probabilities, or than the chances of others.
Present bias: An undue preference for the present, brought about largely by the salience of events that are close at hand compared to those far in the future. With regard to health behaviors, present bias can result in overweighting the utility of pleasures such as eating fatty foods or using narcotics, while underweighting the consequences of obesity and addiction because they are manifested later.
Prospect theory: A theory, originally developed by Daniel Kahneman and Amos Tversky, which offers predictions about behavior that differ from those derived from the traditional economic theory of utility maximization. Among other things, the theory suggests that people make decisions not based on their perception of the absolute advantages and disadvantages of competing alternatives, but rather on their perception of how such competing alternatives change their well-being, relative to a reference point, which is usually the status quo. Moreover, it suggests that people put much more stock in losses than in gains (loss aversion) and overweight the probability of rare events occurring (and underweight common ones).
Recall bias: The tendency to remember past events or habits not only incorrectly, but with a tendency in a particular direction. Much health information is based on self-assessments from surveys. Asking people, for example, how much they smoked or ate fatty foods in the past often leads to underestimates of the actual behavior because people’s recollections are biased toward remembering when they behaved well.
Salience: Any thought that is, in a given situation, more readily available to the brain than it would otherwise be is said to be salient. For example, if you ask someone to say “silk” five times and then ask them what a cow drinks, they may say “milk” because the sound “-ilk” is salient. In the context of behavioral economics, certain benefits or costs may be especially apparent, or salient, to the decision maker. These tend to be those that are current or immediately in the future. Things that are more salient tend often to be given much greater weight, resulting in present bias. Salience can be enhanced by priming.
Satisficing: The traditional economic theory of choice is that consumers always seek to maximize their utility, which would require considering all alternatives available. Satisficing in contrast, involves examining options in order of their salience, and choosing the first option that is good enough. Once a good-enough option has been identified then further, typically less salient, options are not explored.
Status quo bias: People’s tendency to favor what they already have. Such a tendency could be consistent with traditional economic theory: there is less uncertainty because a person knows more about the things already possessed, and there may be costs in terms of time or effort in making a change. The bias, then, refers to people being overly wedded to what they already have or chose in the past, such that they miss opportunities that would make them better off.