Behavioral Economics and Public Policy: A Pragmatic Perspective
Raj Chetty
American Economic Review (Papers & Proceedings) / NBER · 2015
Abstract
Chetty's Ely Lecture argues that behavioral economics should be judged pragmatically by whether it improves policy, identifying three concrete contributions: new policy tools, better predictions of existing policies' effects, and new welfare implications.
Methodology
A framework paper illustrated with large-scale administrative-data evidence, most prominently on retirement saving and tax policy, contrasting behavioral and neoclassical predictions.
Findings
Automatic contributions and defaults raise saving far more than price subsidies (which mostly reallocate assets among the already-attentive), demonstrating that behavioral tools can outperform standard price-based instruments and change how welfare should be measured.
Applied nudge
When attention is scarce, quantity-based tools (defaults, automatic enrollment) can beat price-based incentives—use them where most users are passive rather than optimizing.
Citation
Chetty, R. (2015). Behavioral economics and public policy: A pragmatic perspective. American Economic Review, 105(5), 1-33.
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