The Price is Wrong: Economics, Behavioral Economics and Obesity

1. The Price is Wrong:Economics, Behavioral Economics and Obesity George Loewenstein

2. �Back when many of us were growing up, we tended to be able to lead lives that kept us at a pretty healthy weight. Most of us walked to and from school every day, and then we ran around all day at recess.. and for hours after school before dinner. We usually ate more sensibly. Oftentimes we had home-cooked meals with reasonable portion sizes � and, like it or not, there was always a vegetable on the plate. And fast food was a rare treat. Snacking between meals was frowned upon. I mean, we all had our share of soda, chips and desserts, but certainly not every day, and not at every meal.�

3. �But our kids today lead a very different kind of life. Those walks to and from school have been replaced by car and bus rides. Gym class and school sports have been cut, replaced by afternoons with the TV, and video games, and the Internet.�

9. �And today, snacking between meals has become more the norm rather than the exception. While kids 30 years ago ate just one snack a day, we're now trending toward three -- so our kids are taking in an additional 200 calories a day just from snacks alone. And one in five school-age kids has up to six snacks a day.�

10. And portion sizes have exploded. Food portions are two to five times bigger than they used to be. And beverage portions have grown as well.

11. BAGEL

14. It wasn't long ago that I was a working mom dashing from meetings and phone calls, ballet and soccer and whatever else. I felt like it was a miracle just to get through the day and get everybody where they were supposed to be.

16. �So the last thing I had time to do was to stand in a grocery store aisle squinting at ingredients that I couldn't pronounce to figure out whether something was healthy or not.�

17. Supporting Obama�s pessimism

18. But labels might be more effective if one doesn�t have to squint� Wisdom, Downs & Loewenstein, in progress n > 1000 subjects recruited for survey study, in exchange for free snack randomly assigned to one of 12 calorie labeling conditions

19. Menus Control (no information) Numerical Values: Calorie Info Only Calorie Info + Daily Intake Reference Calorie Info + Daily Snack Intake Reference % of Daily Calories % of Daily Snack Calories Minutes on a Treadmill

20. Menus (continued) Heuristic Cues Nutrition Grade Expected Body Size Traffic Light Rating Ascending Order No Info (Control) Calorie Info

21. Preliminary results� Significant overall result of format, F(2, 591) = 3.46, p = .03

22. Significant overall result of format, F(2, 591) = 3.46, p = .03

23. Overweight vs. Normal Weight Participants No effect in normal weight sample, F(2,382) = 0.64, p = .53 Significant effect in overweight sample, F(2,204) = 4.73, p = .01

24. What do all these causes of obesity have in common? Misaligned prices Why are prices misaligned? externalities and internalities

25. Externalities(traditional economics) defn.: costs that people impose on others but don�t internalize ? prices people pay for things doesn�t reflect �true� costs to society

26. Externalities in food price of raw ingredients, and especially highly processed raw ingredients, has come down to tiny fraction of cost of final product food industry doesn�t directly bear the huge costs to society of health consequences of unhealthy food ? the price is wrong

30. Internalities(behavioral economics) defn.: costs people impose on themselves but don�t (sufficiently) internalize ? prices people pay for things don�t reflect true costs to themselves

31. Why would people fail to internalize costs to themselves? present-biased preferences drop-in-the-bucket effects lack of knowledge

32. An additional factor: norms

35. What would it take to reverse the obesity epidemic? Economics: Alignment of pricing Tax production and sale of unhealthy foods Subsidize production and sale of healthy foods (e.g., vegetables and fruit) Mandate proportionate pricing of junk food (end supersizing) Lower the cost of exercise � e.g., invest in bike paths subsidize gym membership even public transportation By increasing government involving in individual health care, the new health care reform act may be a step in the right direction..

36. What would it take to reverse the obesity epidemic? Behavioral economics: Use people�s biases to help them � e.g., play on default/status quo bias by making healthy options the default play on present-biased preferences by giving people immediate rewards for healthy behaviors Use ideas from behavioral economics to �supercharge� economic incentives � e.g., regret lotteries deposit contracts

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38. But we can�t just beg the food industry to do the right thing; we have to realign prices so it is in people�s interest to do the right thing. If we do� the food industry will devote its creativity to selling healthy foods people, including (low income) parents, will buy healthy foods because they are cheaper people will exercise not to lose weight, but because it is cheaper, more fun and the path of least resistance norms will eventually adapt to, and reinforce, healthy behaviors