Duke behavioral economist Dan Ariely recently hosted virtual office hours, taking questions on topics including bonuses and motivation, health care, the psychology of gift giving, and more.  View the recorded office hours session here:

By Kevin Schulman, M.D.

The policy goals for health care reform are so clear it should be easy: 1) improve access to health care services — defined as access to insurance; 2) improve the quality of health care services — through health IT; and 3) reduce the cost of health care — through competition or structural changes in the system, such as reform of the small group market. From a policy standpoint, we can debate the intricacies of these various issues and use data or theory to support our arguments.

What is happening now in Washington is not health policy, but health politics. Politicians are searching for policies that would gain the most political support (or looking to offer promises to specific members to make the rest of the program more palatable to them). Negotiations are not with the public over the broad agenda, but with specific political interest groups that constitute the Washington lobby core. This is the legislative process of the US at its most transparent. The populist rhetoric has been lost in the tricky business of legislation, lobbying, and politics.

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The following post was written by Kevin Schulman, M.D., Director of Duke’s Health Sector Management Program:

Imagine a country of 1.3 billion people with 100 cities of 1,000,000 or more, a per capita GDP of almost $6,000 (PPP) growing at almost double-digit rates, and an economy ranked in the world’s top 5 and you’ll have a pretty accurate image of China today. While the economic miracle has worked in most areas of the Chinese economy, healthcare has struggled in the transition from communism to capitalism.

The Chinese government has just outlined a new health reform plan. This plan includes the acknowledgement by the government of two new rights for the population: the right to basic medical services and the right to basic medical security. This effort includes an expansion of the basic health plan to rural populations (to 150 RMB per capita in 2011, approximately $22US), construction of 5,000 new grassroots hospitals, 3,000 new regional hospitals, training of 10,000 new doctors for rural areas, reform of public hospitals, and new rules for private hospitals in China. This is clearly a very ambitious agenda, the details of which will be released in 21 specific documents over the coming months. Reform will also address incentives in the public hospital system which currently spurs utilization of imaging, long lengths of stay, and prescription dispensing as a means of generating income.

China is clearly under-spending in the health sector. Currently, healthcare is around 4% of GDP of which only 50% is public spending. If China moves toward the levels of healthcare spending of Japan or the EU, there will be a huge increase in health spending in the Chinese market. Adopting Western IP laws will also force changes in the pharmaceutical industry – which currently is a generic market rather than a research-based product market – and possibly the medical supply market as well. Increases in spending could also drive demand for private health insurance within China. Read the rest of this entry »

For at least 50 years, television advertisements have been ordered randomly within commercial breaks. But given the spread of digital video recorders (DVR) that allow users to blip-blip past the ads in fast-forward, it’s time to change this business model to maximize ads’ effectiveness, according to a new study.

The research, by Kenneth C. Wilbur of Duke University’s Fuqua School of Business and David Kempe of the University of Southern California’s Viterbi School of Engineering, was presented by Wilbur on June 23 at the Advertising Research Foundation Audience Measurement 4.0 conference in New York City.

“Think of two very different ads: the iconic Coca-Cola polar bears commercial, and a commercial for ‘natural male enhancement,’” said Wilbur. “The Coke ad will keep the audience glued to its screen, but the other ad will annoy some viewers, causing them to fast-forward or switch the channel. If the Coke ad is placed first during the commercial break, it still delivers most of the audience to the second ad. But if the Coke ad is placed second, it gets a significantly smaller audience.”

To account for these types of ad sequencing issues, the researchers have developed the Audience Value Maximization model. This new algorithm shows how to optimally select, order, and price ads based on a mathematical formula that considers advertisers’ willingness to pay and viewers’ propensity to switch channels during commercial breaks.
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The following post was written by Kevin Schulman, M.D., Director of Duke’s Health Sector Management Program:

As Director of Fuqua’s HSM Program, I hereby nominate the physicians and hospital managers of McAllen, Texas, for a special joint Nobel Prize in Medicine and Economics for their brilliant experiment demonstrating, beyond a shadow of a doubt, that PHYSICIANS DO RESPOND TO ECONOMIC INCENTIVES. In recognition of this work, all physicians and hospitals in McAllen should receive a bonus payment equal to their 2009 Medicare billings, and then should be permanently excluded from the program (the public system responds to few incentives beyond those of special interests, but when you’re the subject of a must-read report at the White House, you’re out of luck).

So if you’re one of the few people who has yet to find time to read Atul Gawande’s piece in the New Yorker (and it is must-read material). Here are the major highlights:

For over 40 years, Jack Wennberg and his group at Dartmouth (now including Elliott Fisher and Jonathan Skinner) have shown there is significant variation in medical practice — more variation in “discretionary” services like imaging vs. essential services like appendectomy. This group has also created a database called the Dartmouth Atlas of Medical Practice, which reports variations in medical care according to hospital referral regions in the United States. From this database, a region that was identified as one of the highest utilizing sites was McAllen, Texas. Gawandi of the New Yorker visited to try to gain a better understanding the case and uncover reasons for the high utilization.

Less developed in Gawande’s article is the idea that the Medicare program has known about this practice for years. Annually $1 billion dollars is spent on a national program of Quality Improvement Organizations. These spends are allocated for the review of medical practices within the Medicare program. State Medicare medical directors, contracted health plan managers, and Office of the Inspector General at HHS are all involved in the review. All seemed powerless to take action in the case. (In terms of the public-private plan debate, it seems the private plans in the market had the same incentives and observed the same results in McAllen, so private plans aren’t the automatic fix to this practice pattern issue).

So what are the implications of this study? Read the rest of this entry »

The revised and expanded edition of Dan Ariely’s Predictably Irrational is out now, featuring Dan’s thoughts of the current financial crisis from a behavioral economics perspective.  The new version also features correspondence between Dan and readers who wrote to him seeking advice on topics related to the book.

Dan also shared his views on the financial crisis, money, and morality on the PBS program NewsHour.  Watch the segment here.

An analysis of social networks and minute-by-minute customer transactions during a run on an Indian bank has found that bank runs can spread through a community like a contagion.

Duke University finance professor Manju Puri and co-author Rajkamal Iyer of the University of Amsterdam assembled a unique data set on the bank run and then employed epidemiological techniques to determine connections between bank depositors, using Google Earth to map the locations of their home addresses.

Following the failure of a larger, neighboring bank, the customers of a bank that was fundamentally sound were withdrawing funds out of fear that they might not be able to access them in the future.

“Using these tools, we were able to track the ‘transmission’ of running from one customer to another, just as you would see with the spread of a disease,” said Puri, the J.B. Fuqua Professor of Finance at Duke’s Fuqua School of Business. “We found that an individual customer’s decision to run or not was highly correlated with whether or not their neighbors had already run from the bank. We found clusters of customers running who all lived in the same building or on the same street. If one person ran, many did, but in other places no one ran at all.”
See video.

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Entrepreneurs in high-technology industries often have significant prior industry experience. A new Duke University study published in the Strategic Management Journal reveals that this experience is critical to entrepreneurs’ success. Surprisingly, however, it is mainly the non-technical knowledge that founders gain from their experiences with prior firms that affects increased achievement at their new firms,rather than direct technical spillovers from the former parent to a new venture.

Aaron K. Chatterji, assistant professor of strategy at Duke’s Fuqua School of Business used financial and patenting data sources to assess the impact of industry experience on entrepreneurial performance and innovation in medical device start-ups.
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Professor Rick Larrick is following the cash for clunkers debate on his MPGIllusion.com blog.  Check out his recent posts to understand why replacing cars and making small MPG improvements aren’t always the greenest things to do.

Just seeing a salad on the menu seems to push some consumers to make a less healthy meal choice, according a Duke University researcher.

It’s an effect called “vicarious goal fulfillment,” in which a person can feel a goal has been met if they have taken some small action, like considering the salad without ordering it, said Gavan Fitzsimons, professor of marketing and psychology at Duke’s Fuqua School of Business, who led the research.

In a lab experiment, participants possessing high levels of self-control related to food choices (as assessed by a pre-test) avoided french fries, the least healthy item on a menu, when presented with only unhealthy choices. But when a side salad was added to this menu, they became much more likely to take the fries.
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