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Behavioral Economics, Food Assistance, and Obesity

Agricultural and Resource Economics Review, Oct 2006 by Just, David R

While there is mixed evidence of the impact of food assistance programs on obesity, there is general agreement that the food-insecure are at higher risk of obesity and obesity-related diseases. Food assistance programs, originally designed to overcome a lack of available food, now need to confront a very different problem: how to provide for the food-insecure while encouraging healthy lifestyles. This paper examines the potential to address these competing needs using traditional economic policies (manipulating information or prices) versus policies engaging behavioral economics and psychology.

Key Words: food assistance, behavioral economics, food insecurity, obesity

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In describing the original goals behind the Food Stamp Program, Milo R. Perkins, the first administrator of the program, stated, "I got a picture of a gorge, with farm surpluses on one cliff and undernourished city folks with outstretched hands on the other. I set out to find a practical way to build a bridge across that chasm" (USDA 2005). MiIo may have gotten a substantially different picture living in our day. While the prevalence of inner city and rural hunger motivated the first generation of food assistance programs, food assistance and food insecurity have become substantially associated with obesity.

For the years 1988 through 1994, Fox and Cole (2004) report an average age-adjusted body-mass index (BMl) for food stamp participants of 29.3 (a BMI of 30 or over is considered obese) as compared to 27.4 for income-eligible non-participants, and 26.1 for those who earn too much to be eligible. This gap has shrunk in recent years, mostly due to an increase in average BMI of non-participants. Food stamp participants and other food-insecure still hover, on average, just below clinical obesity (Ver Ploeg, Mancino, and Lin 2006).

The problem we now face is how to accomplish two seemingly opposing goals: (i) provide food for those who face substantial food insecurity, and (ii) lower the obesity rate among all Americans, but particularly among the poor. By emphasizing the increase in purchasing power, current policy may be contributing to the health problems of food assistance recipients. Within this paper, I argue for the use of more subtle policies that may be able to encourage better eating habits among those on food assistance, while providing greater ability to purchase. Additionally, these policies, based on behavioral economics, avoid interventions that would drastically affect individual choice, and thus participation rates. Behavioral economics has made a significant impact on the general economics literature, improving our ability to understand and explain behavior. Still, applied economists have yet to realize the untapped potential of using behavioral tools to achieve complicated policy goals through means that may be less patronizing or offensive to the subjects of the policy (or to those who fund it). In this case, subtle changes in policy can induce individuals to purchase healthier foods and eat more reasonable portions. I hope to illustrate how psychological principles can be combined with economic incentives to address the increasingly complex challenge of providing food assistance in the developed world. The policies I suggest in this article are new avenues for exploration in agricultural economics and should be the subject of further research.

Why Behavioral Economics?

Behavioral economics combines models of rational economic choice with psychology-based models of perceptual distortions, cognitive biases, and rules of thumb. Behavioral economists have found that individuals tend to deviate from what is often termed rational behavior in highly systematic and predictable ways. For example, it is possible to cleverly construct a set of money gambles, A, B, and C, such that a majority of individuals prefer A to B, B to C, and C to A (Loomes and Sugden 1982). It appears that this happens because individuals use a particular set of decision shortcuts, or rules of thumb-often comparing only the money outcomes between gambles when the probabilities are similar, or only the probabilities when amounts are similar (Rubinstein 1988). A phenomenon such as this may be of marginal importance, unless discovered and exploited by some firm or individual (e.g., investment firms) for substantial profit. One criticism often leveled against behavioral economics is that most anomalies, much like optical illusions, happen only under rare circumstances. If anomalies are indeed rare, there is little reason to model them for most applications.

While behavioral economics has become widely accepted in general economics, few applied fields have embraced this philosophy. The most notable exception is finance. Behavioral finance has become a thriving and rich literature with many innovations and important results (see Shefrin 2000 for a review). Nonetheless, I believe behavioral anomalies may be of extreme importance in studying the economics of life's more mundane activities, e.g., eating. Financial markets are often thought to be driven by the decisions of highly paid and coldly calculating groups of individuals. If financial markets can be subject to large psychological biases, it is very likely that an individual almost unconsciously deciding how much of a bag of potato chips to consume while watching a highly anticipated football game might be subject to biases.

Food & Beverage Industry

Behavioral Economics, Food Assistance, and Obesity

Agricultural and Resource Economics Review, Oct 2006 by Just, David R

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