Obama Administration Embraces Behavioral Economics

Right there on page 37 of the President’s Fiscal Year 2010 Budget:

The President’s 2010 Budget lays the groundwork for the future establishment of a system of automatic workplace pensions, on top of and clearly outside Social Security, that is expected to dramatically increase both the number of Americans who save for retirement and the overall amount of personal savings for individuals. Research has shown that the key to saving is to make it automatic and simple. Under this proposal, employees will be automatically enrolled in workplace pension plans — and will be allowed to opt out if they choose.

This research undoubtedly includes that of David Laibson, one of the Center for Cost-Effective Consumerism’s advisors.  The underlying psychological principle is hyperbolic discounting, which causes hassles in the present (e.g., filling out paperwork to enroll in a savings plan) to loom large relative to future benefits (e.g., saving for retirement).  We’re applying this same principle in the pharmacy benefit, especially to motivate greater use of Home Delivery.

(Note: this entry originally appeared at consumerology.com)

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