Behavioral Economics Studies the Decision Making by Individuals Which May

Essay

Behavioral economics studies the decision making by individuals which may or may not conform to neoclassical economic theory of individuals as rational utility maximizers. Other applications of behavioral economics apply to financial decision making. Cass Sunstein and Richard Thaler are known for their work in the use of defaults in pension plans. They show that placing employees in a voluntary savings plan and giving them the option to opt out results in higher savings rates than offering employees pension savings plans and not placing them in a default savings plan. Thus, a nudge to a more socially efficient outcome is employed. How might this nudge be applied to employee health insurance plan choice?