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Apple Economics

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This article originally appeared in the Bentley Magazine.

Apple Economics

It’s 5:30 p.m. You walk into the grocery store, hungry, with little time and money. Are there economic principles at work that could encourage healthful eating so you choose an apple over, say, a doughnut? A Bentley professor and an alumnus consider the issues.

Dhaval Dave [DA-vay], Stanton Research Professor of Economics: If you think about obesity increasing over the last 30 years, it’s because people are making more unhealthy decisions in terms of what they eat. They are in most cases choosing the doughnut over the apple and they’re not exercising enough to make up for that. Cumulative decisions are happening over multiple years.

Ben Gardner '88, Founder and Board Member, Linkwell Health: There won’t be one simple solution. It’s going to take some individual ownership for people to acknowledge they have responsibility. I also think society can help. There’s a role for business and the government in helping people make the choice between the apple and doughnut.

What are the prevailing economic principles illustrated in people’s food choices? 

DD: Normally when you think about economics, you think about employment and income. But health economics shows that even when people are making decisions that don’t seem to be within the purview of economics, they are inherently guided by economic principles of cost and benefits.

Changing demographic trends play an integral role in the decision toward unhealthy food choices: More labor force participation by working couples means time constraints have increased and people don’t have the time to cook healthy meals at home; jobs have become more sedentary so people don’t expend as much energy as before; technology in production has favored convenience, which may not always equate to healthy choices. All of these changes, even if small on a daily or annual basis, cumulate over time and one’s life cycle.

The cost of certain foods has actually gone down, including the price-per-calorie of unhealthy food choices with high fructose corn syrup, due to subsidies to the corn industry. It’s the law of demand: When prices go down, individuals will react by demanding more of that product. From an economic standpoint, there are very valid reasons why these choices are being made.

BG: This obesity epidemic is costing the government huge amounts of money. The government’s decision to subsidize corn in the 1970s radically changed the cost-per-calorie and the convenience of foods. Companies jumped on this and are making unhealthy calories not only affordable but hyper-palatable for us.

What are the everyday realities that drive food choices?

BG: Lifestyle is huge. We work with a lot of health plans that say the big issues are cost and “food deserts” [urban neighborhoods and rural towns without ready access to fresh, healthy and affordable food]. But a lot of folks have never cooked a potato before; they wouldn’t know what to do with a piece of squash. They don’t know how to prepare it and they probably don’t prefer the taste because they’re accustomed to the high-sodium taste of fast food. Culture and lifestyle often trump access and price.

DD: That’s a great point. You can’t expect individuals to make drastic changes. You present them with this ideal plate that says half of it should be fruits and veggies, but realistically, it’s not going to happen right away. Policies and interventions that go from Point A to Point C have their work cut out for them; people aren’t going to react very well. Policies that go from Point A to Point B to Point C will have a lot more effectiveness and probability of working. As is true for the problem, incremental changes on the positive side can cumulate and have a strong health-promoting impact over time.

BG: We need to start having a realistic conversation. Too often as consumers, we’re asked to make ideal decisions in our daily lives, like eating fresh vegetables every day or running marathons. We tend to inherently seek perfection. But as we know, “perfect” is too hard and it’s not realistic, so we sometimes don’t even try. I’d much rather see modest, incremental changes in the direction of healthier food choices: Small decisions or changes in behavior are easier to make, and we are more likely to stick with them.

DD: A lot of behavioral economics suggests that most individuals don’t act as rationally as economists think they do, and you need to take into account everyday considerations. For example, most people don’t make healthy food choices because the cost of doing so is very immediate. If I let go of the doughnut and go for the apple, I’m not getting the satisfaction that I crave right now — and I’m not going see any nutritional benefit in choosing the apple until years down the line. Linkwell is making it easier by sending coupons for healthier options of foods that individuals are already eating.

Is it fair to say that most people think healthy foods cost more?

DD: If you look very basically at price-per-calorie, the apple will cost more than the doughnut. But if you adjust for nutritional content, the costs start converging. If you also take into account the cost on your health, the cost on your disability, mobility and chronic conditions — that’s a cost to the individual. When you bring those costs into it, the apple becomes really cheap. The point of economists is that people think healthy food costs more, but only because they are taking a very present-minded approach.

BG: There’s also the issue of preparing food versus convenience. You can prepare healthy foods on par with going out for fast food — if you buy intelligently. We know that convenience is king, and we’re starting to see some shifts with grocers doing some of the work for us with prepared foods; there’s an increase in options where it isn’t just the apple or the doughnut, and that’s encouraging. In today’s society, people don’t plan. Nutritionally we’re much better off if we can plan ahead before going to the supermarket; studies show if you don’t have a list and you’re hungry while shopping, you tend to make poor decisions. I don’t think price is the big hurdle in getting us to eat healthy; it goes back to lifestyle.

What interventions stand the best chance of pointing people toward a healthy food choice?

BG: I’m a strong believer that it takes a village. I’m not a big policy person, but I don’t have any problem with First Lady Michelle Obama creating standards for nutrition. It’s got to happen on multiple levels and we’re starting to see that it isn’t policy versus commercial. Business can create a healthy bottom line by developing and driving healthy alternatives. Business and U.S. households are feeling the financial pinch of the unhealthy state of our population, through higher health-care premiums and co-pays. While there’s no particular silver bullet, we’re seeing multiple constituents in society start to push on this because what’s happening isn’t sustainable.

  

There have to be environments where stakeholders can have dialogue about nutrition and wellness.

Ben Gardner '88

DD: I agree. If I had to say one thing in terms of policy or intervention or how we can manage this trend in obesity, it has to be a concerted comprehensive approach. Employers see the business case in helping employees lose weight, for example, but they aren’t the only stakeholders. The government should be involved because obesity does impose some external costs on others. Health insurance companies, physicians, individuals, and the food and beverage industry should also be part of the solution. We didn’t become obese overnight, and it’s not going to change overnight either. We should think about it in two ways: First, how can we reduce the current obesity rate among kids and adults; second, how can we prevent obesity from going up for the newer generations? It should be an approach in terms of prevention and treatment. Of course, there is a tradeoff between policy interventions and individual freedoms in terms of what to consume, and not all commonly proposed policies — for instance, taxes on soda or sugar-sweetened beverarges — will be effective. This is where economics can provide guidance on policy effectiveness versus the incidence or burden of policies on different groups.

BG: There have to be environments where stakeholders can have dialogue. I belong to an organization called Convergence, which brings together policy folks, entrepreneurs, USDA, FDA, health plans and companies to discuss the state of nutrition and wellness in America. When I started Linkwell, it was really all about showing we could make a change by being more pragmatic . . . to show we could change behaviors and improve risk for health insurers. We have data showing that people with Type 2 diabetes who receive coupons for low-glycemic foods, for example, will not only buy the healthier option but feel better about the health plan because we’re communicating them in a way they like. You can’t ask consumers to change behavior if they don’t feel valued and part of a conversation.

Dhaval, does your research point to factors that companies like Linkwell should consider in developing solutions?

DD: Data analysis is a big thing. Ben has done a lot of analysis at the marketing level, in terms of how coupons get redeemed and what the take-up rates are. That feeds into designing effective ways for people to partake in the program, as well as helping insurers see improvement in their bottom line. The fact that Linkwell coupons are targeted toward a specific demographic — say people with Type 2 diabetes — and they are sent by health insurance companies, suggests more value for the individual. Second, it’s all about present versus future. If you arm people with information before they go to the grocery store, the coupons not only slightly reduce the cost, but also give consumers the information they need to stop that comparison between the apple and the doughnut. That’s another nudge in the right direction.

What is the role of personal choice?

DD: Whether to eat the apple or the doughnut is your decision. But there is absolutely no doubt that when individuals make decisions that are bad for themselves, they are also imposing costs on others; we call these spillovers. So that’s one rationale in which there is a role for someone else to come in and change that decision for the better. As Ben mentioned, it can’t be a completely top-down approach. You have to have a concerted effort that includes the government, corporations, individuals, policymakers, the food and beverage industry, and health care providers. The case for a concerted effort is even stronger when the individual’s choice results from some informational imbalance — for instance, not being fully aware of the nutritional content or long-term costs of what they are consuming — or when they have difficulty changing unhealthy behaviors even when they want to, such as smokers who want to quit. 

BG: We all need to be open to getting help from every alternative we can. There’s also got to be some personal responsibility. There’s a shift in society happening. Twenty years ago, parents would have no shame in swinging up to the fast-food drive-through to feed their kids. Today, if we do go the fast-food route, we’re more apt to hide the fact; there’s a negative stigma. Society has a role in impacting these decisions.

What prompted each of you to focus work on food and nutritional outcomes?

DD: Most people would say that economics is just money and employment. But ultimately economics is about how people make decisions. As a health economist I’m very interested in how people make decisions that affect their health. If we understand those decisions a little better, then we can devise policies, interventions and ways to help individuals improve their health — all of which is good for society because there are strong spillovers. I’m fascinated to be able to explain how individuals react, how they respond to external stimuli and also within their own systems, how they respond to cost versus benefits broadly defined. As a society, our ability to produce depends on education, work and also health.

BG: I was in health care earlier in my career [sales and marketing] and found it fascinating to deal with people’s health and ultimately their lives. When I went to work for a marketing services company, I saw the power of consumer brands to shape our opinions and even behaviors . . . it left me asking why this same thing wasn’t happening in the health-care community. At the end of the day, Linkwell was an opportunity to bring the success and power of consumer marketing to bear on encouraging healthy decisions, not just to build a brand.

I’m optimistic. Everybody’s coming along — from the White House to the patient who has health care copays — to say “I’ve got something to gain here; I need to change this.” That’s when all of these oars on the boat are going in the same direction and we can really start to make some progress.

About the Experts

Dhaval Dave is the Stanton Research Professor of Economics and an expert in health economics. He studies the economics of obesity, mental health and tobacco control policy, and health and human capital, including as a research associate with the National Bureau of Economic Research.

CONNECT WITH DHAVAL:

faculty.bentley.edu

Ben Gardner ’88 is founder and board member of Linkwell Health. The New York-based company partners with health plans, consumer brands and retailers in offering discounts, coupons and content to help shoppers arrive at healthier food choices. 

CONNECT WITH BEN: 

linkwellhealth.com/team
 

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