TY - JOUR AU - Liebman,Jeffrey AU - Zeckhauser,Richard TI - Simple Humans, Complex Insurance, Subtle Subsidies JF - National Bureau of Economic Research Working Paper Series VL - No. 14330 PY - 2008 Y2 - September 2008 UR - http://www.nber.org/papers/w14330 L1 - http://www.nber.org/papers/w14330.pdf N1 - Author contact info: Jeffrey B. Liebman John F. Kennedy School of Government Harvard University 79 JFK Street Cambridge, MA 02138 Tel: 617/495-8518 Fax: 617/496-9053 E-Mail: jeffrey_liebman@harvard.edu Richard J. Zeckhauser John F. Kennedy School of Government Harvard University 79 John F. Kennedy Street Cambridge, MA 02138 Tel: 617/495-1174 Fax: 617/384-9340 E-Mail: richard_zeckhauser@harvard.edu AB - The behavioral revolution in economics has demonstrated that human beings often have difficulty making wise choices. The most widely chronicled difficulties arise for decisions made under conditions of uncertainty, those whose consequences unfold over significant amounts of time, and decisions made in complex environments. Unfortunately, these are precisely the elements involved when individuals choose a health insurance policy, or decide whether to consume health care services. In this paper, we argue that traditional economic models of insurance are woefully insufficient for analyzing the tradeoffs inherent when giving consumers responsibility for making health care choices. We show that behavioral economics provides a stronger normative justification for many features of our existing health care policy than do the models of traditional economics. We then demonstrate that policy analyses of the wide range of subsidies that permeate the health care system change substantially when viewed from the behavioral perspective. In closing, we discuss how recent policy trends can be fruitfully assessed using a behavioral lens. ER -