Op-Ed: Applications of Behavioral Economics in Pharmaceutical Policy

Written by Siddharth Desai

Pharmaceutical policy was formed under the guise of fundamental economic concepts, which presume the rationality of all involved parties. However, according to behavioral economics, a style of economic analysis that utilizes psychological insights into human behavior to explain economic decision-making, consumers frequently exhibit predictable patterns of irrational behavior (Oxford Dictionary). Policymakers should therefore design pharmaceutical regulations that are more effective and equitable by recognizing and incorporating these behavioral dynamics into the law. Here, we examine how behavioral economics may be used to improve pharmaceutical policy in two areas: drug pricing and regulation.

Long regarded as the most contentious aspect of pharmaceutical policy, prescription drug prices have been continuously rising in many industrialized nations worldwide, placing a strain on the finances of many people and driving up healthcare costs (Cubanski & Newman, 2022). Conventional economic theory would assume that consumers are price-sensitive, or that they switch to less expensive medications if they are offered. However, behavioral economics research has revealed that psychological tendencies, including confirmation bias, risk aversion, and loss aversion, frequently have an impact on patients’ decisions (Avitzour et al.). For instance, even if the evidence does not support their perception, patients may be more inclined to select a more expensive drug if they believe it to be safer or more effective, an example of confirmation bias. Risk or loss aversion can be seen through a patient’s unwillingness to take on or change treatment options for a myriad of reasons, such as a fear of the risk associated with the new medication. Patients may also be hesitant to switch to a new, less expensive drug out of concern that they will lose the benefits of their present treatment.

Policymakers can utilize a number of measures to address these behavioral variables. Encouraging physicians to use cues in order to guide patients toward affordable medications is one strategy, through training doctors through continuing medical education programs or through political means by requiring insurance companies to more ethically market their products. In a perfect world, insurance companies or pharmacies would design their marketing strategies to promote less expensive options or provide rewards for selecting them. However, it is not to their monetary benefit to do so, and they therefore prioritize profits over the maintenance of these moral standards. A more realistic strategy is to enforce more transparent medicine prices, including the actual costs associated with research and development, manufacturing, and marketing of the product. This can make it easier for patients to comprehend why some medications cost more than others and deter pharmaceutical firms from participating in price gouging, price fixing, or other unethical business practices (Miyatsu).

Using behavioral cues to enhance regulatory decision-making is another method of improving pharmaceutical regulation. A number of studies have found that traditional clinical trial design assumes that patients will make rational decisions about participating in trials and that trial results will be interpreted objectively (Avitzour et al.). For instance, it is assumed that patients would choose to participate despite some risks since the potential benefits of a cure surpass those possible risks. However, behavioral economics has shown that patients often make decisions based on factors such as fear, trust, and the desire to help others. In addition, clinical trial results can be influenced by factors such as publication bias or conflicts of interest among researchers, where journals will not publish certain results from clinical trials if they do not have positive implications, since it reduces the number of readers the journal receives. 

In order to more objectively weigh the risks and advantages of novel treatments, regulators could, for instance, use clinical guidelines to help them assess the benefits and risks of new drugs more objectively. This can be done by training staff in behavioral psychology to identify and correct cognitive biases, which has been found to reduce the effect of biases (Miyatsu). In order to improve transparency and lessen the influence of market manipulation, officials can look to leverage the public disclosure of regulatory decisions and data, so pharmaceutical companies are pressured into maintaining ethical standards (Avitzour et al.).

A different approach is to deal with the social and psychological aspects of market manipulation and industry influence in the regulation of pharmaceuticals. As an illustration, authorities can impose stronger conflict-of-interest guidelines for regulatory decision-makers and boost public input and regulatory decision-making scrutiny. Yet another strategy is to deal with the psychological aspects of drug pricing and reimbursement choices. For instance, by placing restrictions on drug industry advertising or giving patients more unbiased information about prescription costs and efficacy, legislators could work to lessen the impact of marketing and advertising on patients’ decisions. According to a study from the University of Pennsylvania, a 10% increase in medication marketing results in a 5% increase in drug revenue, of which 70% is made up of increased new initiation and 30% is made up of increased adherence for current users (Alpert).

Pharmaceutical policy can potentially shape the day-to-day lives of hundreds of millions of individuals across the country. Its antiquated basis for pricing and regulation is rooted in traditional microeconomic policies that assume the rationality of consumers, rather than incorporating psychological tendencies. On the other hand, behavioral economics allows us to see how our intrinsic perceptions and biases affect our decisions as patients. Drug pricing and regulation are two major segments where behavioral economics have been successfully applied to create a more efficient and equitable pharmaceutical market, but can have far more applications in the industry and should continue to be applied in the future.

Works Cited

Alpert, Abby. “Cause and Effect: Do Prescription Drug Ads Really Work?” Knowledge at Wharton, 4 Jan. 2017, https://knowledge.wharton.upenn.edu/article/prescription-drug-ads.

Avitzour, David et al. “Nudging in the clinic: the ethical implications of differences in doctors’ and patients’ point of view.” Journal of medical ethics vol. 45,3 (2019): 183-189. doi:10.1136/medethics-2018-104978

Cubanski, Juliette, and Tricia Neuman. “Prices Increased Faster than Inflation for Half of All Drugs Covered by Medicare in 2020.” KFF, 24 Feb. 2022, https://www.kff.org/medicare/issue-brief/prices-increased-faster-than-inflation-for-half-of-all-drugs-covered-by-medicare-in-2020/.

Miyatsu, Rose. “Understanding Your Biases.” Psychological & Brain Sciences, 9 Apr. 2019, https://psych.wustl.edu/news/understanding-your-biases.Vandenplas, Yannick, et al. “Applications of Behavioral Economics to Pharmaceutical Policymaking: A Scoping Review with Implications for Best-Value Biological Medicines.” Applied Health Economics and Health Policy, vol. 20, no. 6, 2022, pp. 803–817., https://doi.org/10.1007/s40258-022-00751-y.