Sendhil Mullainathan
Professor, Economics
Harvard University, United States

Sendhil Mullainathan is a Professor in the Department of Economics at Harvard University. Professor Mullainathan has been actively engaged in the areas of development economics, behavioral economics, and corporate finance. His research interests include executive compensation, the economic role of social networking, racial discrimination in the American marketplace, and choice heuristics and decision-making processes in consumer markets. His empirical methodology and theoretical inquiries integrate concepts across disciplinary boundaries, revealing new perspectives from which to consider traditional economic questions. He is a Research Associate at the National Bureau of Economic Research, and a Member of the Russell Sage Foundation Behavioral Economics Roundtable. In addition, he is a Founding Member of Poverty Action Lab, and a Board Member of the Bureau of Research in Economic Analysis of Development. Previously, he was a Professor of Economics at the Massachusetts Institute of Technology. His articles have been published in the American Economic Review, the Journal of the European Economic Association, the Journal of Political Economy, the Quarterly Journal of Economics, the RAND Journal of Economics, and the World Bank Economic Review. Recently his work received coverage in The New York Times, Forbes Magazine, Business Week, The Economist, and by CNN, MSNBC, and NPR.

Wise Choices: The Interaction of Individual and Institutional Wisdom
While central to economics, the assumption of optimal choice contradicts a large body of behavioral research. Our work in behavioral economics integrates insights from psychology and cognitive science into economics while preserving economic insights about competitive interactions. To date, we have been examining choices in the domain of Medicare drug plans, retirement planning, and mortgages. Often, we think of wisdom as a quality that belongs to an individual. Yet our current research program implicitly assumes that wise choices flow from the interaction of the individual and the institutional context and emphasizes the creation of wise institutions (not wise individuals) in order to promote wise choices. For example, we might propose policies that affect the informational environment in order to spur wiser choices on the part of individuals and more socially valuable innovations on the part of competitive firms. This award allows us to expand our current work by placing it within the context of scholarly work on wisdom. We observe that many definitions of wisdom present wisdom not only as a feature of the mind, but also as the manifest ability to act in a wise manner or (for our purposes) to choose well.

We continue to work on three projects studying the effects of the information environment provided by institutions on the financial decision-making of individuals:

Financial Decisions for Retirement
It was previously found that the consumption frame significantly increases the attractiveness of annuities to survey respondents. A field experiment is underway to test the strength of this framing effect on the actual financial products purchased by customers. That is, the effect of framing the decision to purchase an annuity as a retirement planning vehicle in monthly consumption, rather than in long-range investment terms. The field experiment began implementation in December 2008, with the initial data collection beginning in January 2009. Our corporate partner has reported anecdotal evidence from sales agents, who claim the consumption talk path has fundamentally changed the way they interact with customers. Unfortunately, this method has run into a smaller than expected sampling frame as the downturn in the economy has dramatically lowered the number of interactions between potential customers and agents. We are considering steps to take, including expanding the experiment to include agents in more states to boost sample size.

Medicare Prescription Drug Insurance
This project tests the effect of direct provision of simple personalized cost information by a trusted institutional source on individuals selecting a Medicare prescription drug plan. Our research has found that this information leads to novel plan choices and a significant reduction in experienced drug costs. We are continuing to analyze and understand the implications of our results for both insurance companies and the federal government.

Massachusetts Health Insurance
We have continued planning for a new project studying the interaction between institutional structures and individuals choices, focused on the health insurance market in Massachusetts. This new project will test the behavioral factors involved in health insurance enrollment decisions in a different context, where Massachusetts has created a requirement to enroll in insurance plans (with concrete financial penalties) as well as provided some assistance to consumers in selecting plans. We anticipate designing and implementing a field experiment to examine behavioral factors involved in the insurance plan selection process, particularly concerning those who are uninsured and need to purchase a plan individually. We anticipate having a more fully articulated experiment by fall 2009.

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