Behavioral Economics, Dr Paul Terry

Dec 14, 2010
Behavioral Economics:
Review concepts, supporting research, and
modifying company policies for the better

Presented by:
Paul Terry, Ph.D.
CEO, StayWell Health Management
© 2010. StayWell, NextSteps and StayWell Online are registered trademarks of The StayWell Company, LLC. All rights reserved. 1

Behavioral Economics
Thaler, R.H., & Sunstein, C.R. (2009). Nudge: improving decisions about
health, wealth, and happiness (2nd ed.). New York: Penguin Group.

http://www.danpink.com/drive
http://danariely.com/
http://www.alfiekohn.org/books/pbr.htm

Overview and General Concepts

Choice Architect
 Responsibility for organizing the context in which people make decisions
Libertarian Paternalism- “Free to Choose”
Libertarian
 Free to make choices and opt out of undesirable arrangements should
they want to do so
 Do not want to burden those to want to exercise their freedom
Paternalism
 Influencing other people’s behavior in order to make their lives longer,
healthier, and better
Nudge
 Any aspect of the choice architecture that alters people’s behavior in a
predictable way without forbidding any options or significantly changing
their economic incentives
 Not mandates (i.e., putting healthier food at eye level rather than banning
junk food)

Overview and General Concepts- cont.

Econs
 Reject paternalism- claim that human beings do a terrific job of making
choices
 Thinks and makes choices well
– Think like Albert Einstein
– Store as much memory as IBM’s Big Blue
– Exercise the willpower of Mahatma Gandhi

 Respond primarily to incentives
Humans
 Humans predictably error. Decision making is not great
 Research shows that people stick with a default option
 Humans respond to incentives, but also influenced by nudges


Modifying Company
Group Discussion Policies for the Better

Mock Company Policies:
Nudges, Pushes, or Kicks?

The following exercise will allow you to analyze company
policies using your new choice architecture perspective.

Directions:
 Everyone will score each policy on a scale of 1 to 10:
–A paternalistic nudge will score 1-3
–A well-meaning push will score 4-7
–A mean kick in the butt will score 8-10

 Discuss and Share! Once we have scored each policy, we
will evaluate each and work together to improve the policies
that fall outside of the paternalistic nudge range.

Note: The following policies are examples and used for
discussion purposes only.


Tobacco Cessation-Group Discussion

Company provides ongoing and generous resources for all
smoking employees who are ready to quit smoking. In addition
to providing a smoke free workplace to discourage smokers from
smoking and to protect our staff from second hand smoke, we
also have established smoke free grounds surrounding our
building/campus. (Research shows that more restrictive policies
result in higher quit rates and reduced heart disease.) Smokers
are asked to smoke in offsite areas.

How would you score this policy?
A paternalistic nudge will score 1-3
A well-meaning push will score 4-7
A mean kick in the butt will score 8-10


Smoking Cessation Research- 2009
Smoking is the leading preventable cause of
premature death in the United States.

Incentive Research, Smoking Cessation

Study 1: A Randomized, Controlled Trial of Financial
Incentives for Smoking Cessation
 Randomly assigned 878 employees to two groups
– Group one received information about smoking-
cessation programs
– Group two received information about smoking-
cessation programs plus financial incentives
– $100 for completion of smoking-cessation program
– $250 for cessation of smoking after six months
– $400 for abstinence for an additional six months
– Confirmed by biochemical test (saliva or urine
cotinine test)

Source: Volpp, K.G., Troxel, A.B., & Pauly, M.V. A Randomized, Controlled Trial of Financial
Incentives for Smoking Cessation. New England Journal of Medicine, 2009; 360(7):699-709.


Results and Findings
 Financial incentives can have major impact on smoking-cessation
 Smoking-cessation rates among employees who were given both
information about cessation programs and financial incentives to quit
smoking were significantly higher than those that were given program
information but no financial incentives
 Incentive group participants had higher rates of enrollment in a
smoking-cessation program
– 15.4% vs. 5.4%

 Incentive group had higher rates of smoking-cessation program
completion
– 10.8% vs. 2.5%

 Incentive group had significantly higher rates of smoking cessation
than did the information-only group.
– 6 months (20.9% vs. 11.8%)
– 9 or 12 months (14.7% vs. 5%)
– 15 or 18 months (9.4% vs. 3.6%)

Source: Volpp, K.G., Troxel, A.B., & Pauly, M.V. A Randomized, Controlled Trial of Financial
Incentives for Smoking Cessation. New England Journal of Medicine, 2009; 360(7):699-709.

Weight Loss Research- 2008
Obesity falls just behind smoking as a preventable
cause of premature death.

Exercise-Group Discussion

Physical activity is strongly encouraged for all company
employees, regardless of department or pay type. Managers
are required to provide their verbal approval of exercise during
the work day at staff meetings, or via team email messages. For
salaried employees, exercise time is at their own discretion,
provided it does not interfere with their work function and/or
priority commitments such as meetings and projects, not to
exceed 1 hour per day. For hourly employees, the combination
of two 15 minute breaks, and the gift of another 15 minutes,
allows for a total of 45 minutes of physical activity in the workday
without sacrificing paid time.



Incentive Research, Weight Loss

Study 2: Financial Incentive-Based Approaches for Weight
Loss, a Randomized Trial
 57 healthy participants aged 30-70 years with a BMI of 30-40
were randomized to 3 weight loss plans:
– Group one- Monthly weigh-ins
– Group two- A lottery incentive program
– Group three- Deposit contract that allowed for
participant matching, with a weight loss goal of 1 lb per
week for 16 weeks.
 Outcome measurement- Weight loss after 16 weeks

Source: Volpp, K.G., John, L.K., & Troxel, A.B. Financial Incentive Based Approaches for Weight
Loss: A Randomized Trial. Journal of the American Medical Association, 2008; 300(22):2631-2637

Results and Findings
 The use of economic incentives produced significant weight loss
during the 16 weeks of intervention.
 The longer-term use of incentives should be evaluated
 Incentive groups lost significantly more weight than the control
group
 Compared with the control group
– Lottery group lost an average of 13.1 pounds
– Deposit contract lost an average of 14.0 pounds

 Half those in both incentive groups met the 16-lb target weight loss
(47.4%), whereas 10.5% met the goal in the control group
 Net weight loss at the end of 7 months follow-up was larger in the
incentive group (not statistically significant)
– Control- 4.4 pounds
– Lottery- 9.2 pounds
– Deposit Contract- 6.2 pounds

 Incentive participants weighed significantly less at 7 months
whereas the controls did not
Source: Volpp, K.G., John, L.K., & Troxel, A.B. Financial Incentive Based Approaches for Weight
Loss: A Randomized Trial. Journal of the American Medical Association, 2008; 300(22):2631-2637

Nutrition-Group Discussion

Soda, high fat, and high sugar products with little to no
Nutritional Value (NV), as determined by a panel of dietitians
and nutrition experts, offered in the lunch room will be sold at
twice the value that it currently retails for. However, food
products offering unquestionable NV (e.g. water along with low
fat, low sugar, high fiber, and protein) will be sold at a wholesale
price.
Additionally, high NV foods at company events will be offered for
free, while low NV foods will need to be purchased at some
value (TBD).



Impact on Population-
Best Practices
Level Engagement & Risk
Research Reduction

StayWell Best Practices Research

Study Methods
 Study sample included 22 companies from the StayWell
book of business
– 767,640 eligible employees, spouses, and retirees
 52% of companies were first year clients
 Rated on 9 best practice components identified by literature
and industry experts using standard reports, internal
documents and structured interviews with staff
 Calculated total weighted score and split companies into two
groups: standard practice vs. best practice
 Compared engagement rates, prevalence of best practices
and health risk impact

Source: Terry PE, Seaverson EL, Grossmeier J, Anderson DR.
J Occup Environ Med, 2008;50:633-641


StayWell Best Practices Research

Best Practice Elements
 Comprehensive program design
 Integrated incentives
 Integrated, comprehensive communication plan
 Strong senior management support
 Dedicated onsite staff
 Multiple program modalities (telephone, mail, online)
 Population-based awareness building activities
 Biometric health screenings
 Vendor integration


Best Practices Research
Engagement Rates

100%
85% 84% 85%
80%
68% 67%

60%
47% 48%

40% 34%

20%

0%
Health Coaching Coaching Coaching
Assessment Eligibility Participation Completion
Participation

Standard Practice Best Practice

Source: Terry et al, 2008


Use of Best Practices

% Implementing Practice



Population-Level Health Risk Change

3.50
3.46
3.45
Number of Health Risks

-2.0%
3.43 3.39
3.40

3.35 -4.7%

3.30

3.25 3.27

1-year
3.20
Baseline Health Assessment Follow-up Health Assessment




Intervention-Level Health Risk Change

4.25
4.09
Number of Health Risks

4.00 -6.5%

3.83

3.75
3.63

-7.0%
3.50
3.37

1-year
3.25
Baseline Health Assessment Follow-up Health Assessment




401 K- Group Discussion
All eligible company employees are automatically enrolled in the
company 401k program after 6 months of employment. Based
on their age, and the risk profile they complete during benefit
enrollment, their money is invested in the appropriate
portfolio. Each employee must elect the percentage of their
salary as part of the benefit enrollment forms; they cannot leave
it blank. There is a calculation tool that allows employees to
determine how much money they want to elect, and the
company recommends that they elect the minimum required to
receive the company match. Employees are also encouraged to
sign up for a 15 minute appointment with the HR
department/manager in order to help determine their
contribution amount.


Engagement Research

Study 3: Impact of Financial Incentives on Health
Assessment (HA) Participation
 Companies offering incentives for HA participation
 Examined employee HA participation only
 Excluded companies requiring spouses to participate in HA
or requiring participation in multiple programs (e.g., HA and
activity) to get incentive
 Final sample: 36 StayWell customers

Source: Anderson DR, Grossmeier J, Seaverson ELD, Snyder, D. The Role of Financial Incentives in Driving Employee
Engagement in Health Management. ACSM’s Health & Fitness Journal, 2008;12(4):18-22.

Impact of Incentives on HA Participation
100%

90%

80%
HA Participation Rate

70%

60%

50%

40%

30%

20%

10%

0%
$0 $100 $200 $300 $400 $500 $600
Estimated Incentive Value
Source: Anderson et al, 2008


Impact of Incentive Type on HA Participation

100%

80%

60%

40%

20%

0%
$0 $100 $200 $300 $400 $500 $600
Estimated Incentive Value

Non-Financial Cash Benefits-Integrated

Source: Anderson et al, 2008


Engagement Research

Study 4: Impact of Communications & Culture on HA
Participation
 Structured interviews with Account Managers
 Communications during program year
– Delivery modalities
– Types of communications
– Perception of quality

 Worksite culture
– Factors related to cultural support for employee health
– Perception of cultural support


Culture Score Definition

Management Support
 Executive & mid-level management support
Infrastructural Support
 Demonstrated efforts around health policy, promotion of
nutrition and/or physical activity, flexible schedule for
wellness activities, company mission statement
Wellness Team
 Member of management actively participates in team
Integrated Program
 Data exchanged between vendors or warm-transfer of
participants to additional services
Onsite Staff
 Dedicated onsite staff, including all vendors


HA Participation by Communication &
Culture
100%
Weaker Strong

80%
69%

65%

60%
53%
51% 51%
44%
41% 41%
40% 37%
33% 33%
27%

20%

0%
Comm. Culture Comm. Culture Comm. Culture
Non-Cash Cash Benefits-Integrated
Incentives Incentives Incentives
(n=4) (n=16) (n=16)
Source: Seaverson ELD, Grossmeier J, Miller, TM, Anderson DR. The role of incentive design, communication strategy and
worksite culture on health assessment participation (in press).

Conclusions

 Financial incentives can have major impact on HA
participation
 Healthy culture and effective communications are essential
to realize potential value of incentives
 Integration of incentives into health plan design most
effective
 Need more research on independent and combined impact
of these and other best practices on program engagement
and outcomes


Volunteerism Policy- Group Discussion

Employees are expected to volunteer one week per
year. Supervisors are evaluated on the level of volunteerism in
their departments and are rated per their efforts in corporate
citizenship. Supervisors will remind staff if they are short on
their expected number of volunteer service hours.



Green Policies- Group Discussion
All company employees will receive a reusable dining set containing a
plate, silverware, and water bottle for use at work.
Interested employees can receive and sign an environmental
contract/covenant stating:
 They agree to use these materials the majority of the time for their
everyday work eating needs (not including company events)
 Will recycle appropriately
 And agree to rethink the need of single use products around the office
The individuals that sign the covenant can then earn a credit from
company to make a $20 donation at the end of the year to an
environmental/nature group of their choice (default choice- TBD)


Behavioral Economics, Dr Paul Terry

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