Brigitte Madrian is an expert in behavioral economics. Her research focuses on household finance such as household saving and investment behavior as well as health policy concerns such as health insurance. She is the Aetna Professor of Public Policy and Corporate Management at the Harvard Kennedy School and teaches a course titled “Behavioral Economics and Public Policy”. She is also an ideas42 affiliate. She received her Ph.D. from the Massachusetts Institute of Technology, as well as a B.A. and M.A. from Brigham Young University.

 

Summaries of Recent Research Findings in Behavioral Science

Applying Insights from Behavioral Economics to Policy Design (2014)

Context:

Traditional economic analysis assumes that market actors—consumers and firms—are rational in their behavior, carefully weighing their own costs and benefits in making decisions.

Insight:

The rational actor framework does not take into account the frequent irrationality or influence of various contextual features on human decision-making. Incorporating the fuller picture of human behavior can help reveal the underpinnings of suboptimal decisions within market or incentive structures.

Implication:

An understanding of psychology and other social science disciplines can inform the effectiveness, use and design of current and future economic tools deployed in carrying out various functions of government like remedying market failures, redistributing income, and collecting tax revenue.

 

What Makes Annuitization More Appealing? (2013)

Context:

People tend to opt for lump-sum payouts of their pension plans rather than an annuitization (periodic payments over time). Lump-sum payouts are often mismanaged while annuities allow people to stretch their money further for longer periods of time

Insight:

The way the options are framed—for example, highlighting flexibility, control, or investment—significantly affected the choice of a lump-sum versus annuity payment.

Implication:

This work illuminates the decision-making process around pension plans and sheds light on how to best convey and structure options to help consumers make better informed choices.

 

What policy question can be informed by your work in consumer finance?

After our work was published a few years ago, Congress agreed that 401(k) plans could automatically enroll employees unless they opted out of participating. Prior law had said employees could not participate unless they opted into the plans. The change has led to big gains in plan participation rates. This is one example of how behavioral economics research can inform policies to change human behavior and benefit the greater good.