DAVID LEONHARDT
ESSAY


WASHINGTON - The United States deficit in the current fiscal year could end up approaching $1 trillion, which is roughly equal to the combined budgets of the military and Medicare. Given the depth of the current crisis, running a big deficit makes perfect sense. But the government also needs to have long-term plans to reduce it. And the sort of deficit the United States is now facing will require some pretty creative plans.

Fortunately, there is a group of economists who are almost ideally suited to help Barack Obama with this task. They’re called behavioral economists.

Behavioral economics sprang up about three decades ago as a radical critique of the standard assumption that human beings behaved in economically rational ways. The behaviorialists, as they’re known, pointed out that this assumption was ridiculous.

People who say they want to lose weight pay $100 a month to belong to a gym they rarely visit. Borrowers get fooled into taking out a loan with an appealing introductory rate. Patients fail to follow even a basic regimen of prescribed drugs - a failure that can leave them with serious medical complications and Medicare with big hospital bills.

Thanks to insights like these, behavioral economics has entered the mainstream. In this year’s campaign, Mr.Obama signaled an interest in the field by surrounding himself with advisers who were quite sympathetic to it.

Some economists are now talking about whether Mr.Obama should add a new kind of adviser to his team, one specifically charged with translating the lessons of the behavioral revolution into real-world policies. This person would work with Medicare officials to improve drug compliance. He or she would think about how mortgage regulations should be rewritten, how health insurance choices should be presented and how carbon emissions might be cut.

“The issues we struggle with today are inherently behavioral as never before,” Sendhil Mullainathan, a behavioral economist at Harvard University, said.“It’s impossible to think of the current mortgage crisis without thinking seriously about underlying consumer psychology. And it’s impossible to think of future regulatory fixes without thinking seriously about that issue.”

Behavioral economics is the study of everyday life as it actually happens, not as some textbook says it should. It offers economic policy makers a new set of options - a more subtle, psychological set - beyond tax rates, interest rates and other traditional tools.

And it can already claim one big policy success. In 2006, Congress passed a pension bill with a clause that came straight out of research on savings by Richard Thaler, a behavioral pioneer, and others. (Mr.Thaler and Cass Sunstein recently wrote“Nudge,”a book advocating behavioral policies, and both were informal advisers to the Obama campaign.)

The savings research had found that many more people saved money in a retirement investment plan if they didn’t have to take active steps to join the plan. In one study, only 45 percent of a company’s new employees participated in the plan when doing so required them to take some kind of action, like filling out a form. Eighty-six percent participated when doing so was the default option.

The new pension law gave companies a small incentive to make employees opt out of a plan, rather than opt in. The law doesn’t restrict employees’ choices in any way. It simply encourages a more sensible default. Peter Orszag, Mr.Obama’s nominee for budget director, has called the law “a tangible example of how economic research can be rapidly translated into concrete policy changes that should improve people’s lives.”

Mr.Orszag’s interest in behavioral work, together with the reach of the budget office, makes it the obvious place for a behavioral maven to be based. An outside committee of experts may also make sense. Mr.Obama’s aides have learned that they have a better chance of persuading him of an argument when they tell him that they’ve spoken with the top experts in a given field.

The group would have plenty of work.

A behaviorally savvy Social Security Administration, for example, could help people make better choices about when to start receiving checks. (Many now do so at age 62, the earliest possible date, which is generally a mistake.) Banking regulators could devise a standard, default mortgage that didn’t involve an introductory rate or other gimmicks.

The promise of behavioral economics is that it can help create a better government, one that wastes less money and does more to improve people’s lives.

“Everybody is preoccupied, as they should be, with preventing the next Great Depression,” as Mr.Thaler, an economist at the University of Chicago, says.“But it will be important for the administration to have people tasked with thinking long term - like, once it’s not O.K. to spend $100 billion on a whim, how do you get our budget under control?”