Joshua R. Schwartzstein - Faculty & Research - Harvard Business School
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Joshua R. Schwartzstein

Assistant Professor of Business Administration

Negotiation, Organizations & Markets

Joshua Schwartzstein is an assistant professor of business administration in the Negotiation, Organizations & Markets Unit. Before joining HBS, he was an assistant professor of economics at Dartmouth College.

Professor Schwartzstein’s primary research area is behavioral economics. He focuses on incorporating more psychologically realistic assumptions into economic models, and on applying these models to shed light on market outcomes and optimal public policy. In recent work, he has studied how the recognition that people make mistakes in medical-care decisions affects the analysis of health insurance policies, how relative thinking influences consumer choice, and how selective attention impacts the way people learn to use technologies. His research has appeared in the Quarterly Journal of Economics, the Journal of the European Economic Association, the Annual Review of Economics, and the Journal of Law and Economics. It has also been referenced in The New York Times, Science, and Health Affairs.

Professor Schwartzstein holds a PhD in economics from Harvard University and a BA in behavioral economics, economics, and mathematics from Cornell University.

Journal Articles
  1. Frictions or Mental Gaps: What's Behind the Information We (Don't) Use and When Do We Care?

    Benjamin Handel and Joshua Schwartzstein

    Consumers suffer significant losses from not acting on available information. These losses stem from frictions such as search costs, switching costs, and rational inattention, as well as what we call mental gaps resulting from wrong priors/worldviews, or relevant features of a problem not being top of mind. Most research studying such losses does not empirically distinguish between these mechanisms. Instead, we show that most highly cited papers in this area presume one mechanism underlies consumer choices and assume away other potential explanations or collapse many mechanisms altogether. We discuss the empirical difficulties that arise in distinguishing between different mechanisms as well as some promising approaches for making progress in doing so. We also assess when it is more or less important for researchers to distinguish between these mechanisms. Approaches that seek to identify true value from demand, without specifying mechanisms behind this wedge, are most useful when researchers are interested in evaluating allocation policies that strongly steer consumers towards better options with regulation, traditional policy instruments, and defaults. On the other hand, understanding the precise mechanisms underlying consumer losses is essential to predicting the impact of mechanism policies aimed primarily at reducing specific frictions or mental gaps without otherwise steering consumers. We make the case that papers engaging with these questions empirically should be clear about whether their analyses distinguish between mechanisms behind poorly informed choices and what that implies for the questions they can answer. We present examples from several empirical contexts to highlight these distinctions.

    Keywords: Information; Consumer Behavior;

    Citation:

    Handel, Benjamin, and Joshua Schwartzstein. "Frictions or Mental Gaps: What's Behind the Information We (Don't) Use and When Do We Care?" Journal of Economic Perspectives 32, no. 1 (Winter 2018): 155–178.  View Details
  2. Beyond Beta-Delta: The Emerging Economics of Personal Plans

    John Beshears, Katherine L. Milkman and Joshua Schwartzstein

    People make personal plans regarding whether, when, where, and how to undertake certain actions. We discuss three questions related to personal plans. First, what are the effects of plans on behavior? Second, when are plans formed? Third, how do plans deviate from optimality? For each of these questions, we (a) offer a brief overview of research that sheds light on the issue and (b) identify gaps in current knowledge. We emphasize connections to the growing theoretical literature that gives personal plans a substantive role, but we conclude that more research is needed, especially on the latter two questions we cover.

    Keywords: Behavior; Planning;

    Citation:

    Beshears, John, Katherine L. Milkman, and Joshua Schwartzstein. "Beyond Beta-Delta: The Emerging Economics of Personal Plans." American Economic Review: Papers and Proceedings 106, no. 5 (May 2016): 430–434.  View Details
  3. Behavioral Hazard in Health Insurance

    Katherine Baicker, Sendhil Mullainathan and Joshua Schwartzstein

    A fundamental implication of standard moral hazard models is overuse of low-value medical care because copays are lower than costs. In these models, the demand curve alone can be used to make welfare statements, a fact relied on by much empirical work. There is ample evidence, though, that people misuse care for a different reason: mistakes or "behavioral hazard." Much high-value care is underused even when patient costs are low, and some useless care is bought even when patients face the full cost. In the presence of behavioral hazard, welfare calculations using only the demand curve can be off by orders of magnitude or even be the wrong sign. We derive optimal copay formulas that incorporate both moral and behavioral hazard, providing a theoretical foundation for value-based insurance design and a way to interpret behavioral "nudges." Once behavioral hazard is taken into account, health insurance can do more than just provide financial protection—it can also improve health care efficiency.

    Keywords: Insurance; Consumer Behavior; Health Care and Treatment; Insurance Industry;

    Citation:

    Baicker, Katherine, Sendhil Mullainathan, and Joshua Schwartzstein. "Behavioral Hazard in Health Insurance." Quarterly Journal of Economics 130, no. 4 (November 2015): 1623–1667. (Online Appendix.)  View Details
  4. Learning Through Noticing: Theory and Evidence from a Field Experiment

    Rema Hanna, Sendhil Mullainathan and Joshua Schwartzstein

    We consider a model of technological learning under which people "learn through noticing": they choose which input dimensions to attend to and subsequently learn about from available data. Using this model, we show how people with a great deal of experience may persistently be off the production frontier because they fail to notice important features of the data they possess. We also develop predictions on when these learning failures are likely to occur, as well as on the types of interventions that can help people learn. We test the model's predictions in a field experiment with seaweed farmers. The survey data reveal that these farmers do not attend to pod size, a particular input dimension. Experimental trials suggest that farmers are particularly far from optimizing this dimension. Furthermore, consistent with the model, we find that simply having access to the experimental data does not induce learning. Instead, behavioral changes occur only after the farmers are presented with summaries that highlight previously unattended-to relationships in the data.

    Keywords: Perception; Behavior; Learning;

    Citation:

    Hanna, Rema, Sendhil Mullainathan, and Joshua Schwartzstein. "Learning Through Noticing: Theory and Evidence from a Field Experiment." Quarterly Journal of Economics 129, no. 3 (August 2014): 1311–1353. (Online Appendix.)  View Details
  5. An Activity-Generating Theory of Regulation

    Joshua Schwartzstein and Andrei Shleifer

    We propose an activity-generating theory of regulation. When courts make errors, tort litigation becomes unpredictable and as such imposes risk on firms, thereby discouraging entry, innovation, and other socially desirable activity. When social returns to activity are higher than private returns, it may pay the society to generate some information ex ante about how risky firms are and to impose safety standards based on that information. In some situations, compliance with such standards should entirely preempt tort liability; in others, it should merely reduce penalties. By reducing litigation risk, this type of regulation can raise welfare.

    Keywords: Courts and Trials;

    Citation:

    Schwartzstein, Joshua, and Andrei Shleifer. "An Activity-Generating Theory of Regulation." Journal of Law & Economics 56, no. 1 (February 2013): 1–38. (Lead Article.)  View Details
  6. A Reduced-Form Approach to Behavioral Public Finance

    Sendhil Mullainathan, Joshua Schwartzstein and William Congdon

    Research in behavioral public finance has blossomed in recent years, producing diverse empirical and theoretical insights. This article develops a single framework with which to understand these advances. Rather than drawing out the consequences of specific psychological assumptions, the framework takes a reduced-form approach to behavioral modeling. It emphasizes the difference between decision and experienced utility that underlies most behavioral models. We use this framework to examine the behavioral implications for canonical public finance problems involving the provision of social insurance, commodity taxation, and correcting externalities. We show how deeper principles undergird much work in this area and that many insights are not specific to a single psychological assumption.

    Keywords: Public Sector; Behavioral Finance;

    Citation:

    Mullainathan, Sendhil, Joshua Schwartzstein, and William Congdon. "A Reduced-Form Approach to Behavioral Public Finance." Annual Review of Economics 4 (2012): 511–540.  View Details
  7. Coarse Thinking and Persuasion

    Sendhil Mullainathan, Joshua Schwartzstein and Andrei Shleifer

    We present a model of uninformative persuasion in which individuals "think coarsely": they group situations into categories and apply the same model of inference to all situations within a category. Coarse thinking exhibits two features that persuaders take advantage of: (i) transference, whereby individuals transfer the informational content of a given message from situations in a category where it is useful to those where it is not, and (ii) framing, whereby objectively useless information influences individuals' choice of category. The model sheds light on uninformative advertising and product branding, as well as on some otherwise anomalous evidence on mutual fund advertising.

    Keywords: Cognition and Thinking; Brands and Branding;

    Citation:

    Mullainathan, Sendhil, Joshua Schwartzstein, and Andrei Shleifer. "Coarse Thinking and Persuasion." Quarterly Journal of Economics 123, no. 2 (May 2008): 577–619.  View Details
Working Papers
  1. A Model of Relative Thinking

    Benjamin Bushong, Matthew Rabin and Joshua Schwartzstein

    Fixed differences loom smaller when compared to large differences. We propose a model of relative thinking where a person weighs a given change along a consumption dimension by less when it is compared to bigger changes along that dimension. In deterministic settings, the model predicts context effects such as the attraction effect, but predicts meaningful bounds on such effects driven by the intrinsic utility for the choices. In risky environments, a person is less likely to exert effort in a money-earning activity if he had expected to earn higher returns or if there is greater income uncertainty. In intertemporal consumption, relative thinking induces a tendency to overspend and for a person to act more impatient if infrequently allotted large amounts to consume than if frequently allotted a small amount to consume, or especially the greater the uncertainty in future consumption utility.

    Keywords: Behavior; Cognition and Thinking;

    Citation:

    Bushong, Benjamin, Matthew Rabin, and Joshua Schwartzstein. "A Model of Relative Thinking." Working Paper, July 2017.  View Details
Cases and Teaching Materials
  1. Happy UAE

    Joshua Schwartzstein

    This case centers around the United Arab Emirates’ (UAE) national goal of raising the happiness of its residents and visitors through ambitious government initiatives. They combined this bold national goal with an accountability structure (incentive plan) built on Key Performance Indicators (KPIs), as more typically done at a company level. A key case protagonist is Ohood Al Roumi: the UAE and the world’s first dedicated Minister of State for Happiness and Wellbeing. She was assigned to this role by Sheikh Mohammed, the Prime Minister and Vice President of the UAE and Ruler of Dubai. Al Roumi attempted to drive national progress towards happiness in UAE society through several means: measuring happiness in the community and happiness with government services; aligning and coordinating government entities towards promoting happiness and positivity at work; and promoting happiness as a lifestyle more generally. The case details the UAE’s progress through February 2018. The class discussion gives students a chance to reflect on the role of government in promoting happiness and wellbeing and how a government could go about encouraging happiness. The UAE in effect implemented a complex incentive scheme with the aim of coordinating attempts to increase happiness and wellbeing. The connection between the UAE’s efforts and incentive schemes emerges in the course of the class discussion, which enables students to reflect on concrete managerial implications of the analysis.

    Keywords: happiness; UAE; wellbeing; wellness; Government initiatives;

    Citation:

    Schwartzstein, Joshua. "Happy UAE." Harvard Business School Teaching Note 918-042, April 2018.  View Details
  2. Managing Diversity and Inclusion at Yelp

    Michael Luca, Joshua Schwartzstein and Gauri Subramani

    This case explores the industry-wide lack of employee diversity in the technology sector and Yelp’s decision to take a leadership position in identifying strategies to increase diversity. The goal of the case is to provide an opportunity for students to develop a framework for understanding the factors that might lead to a less diverse workforce and for evaluating approaches to increase diversity. The case opens in 2014, when Yelp hired Rachel Williams into a newly created position—the Head of Diversity and Inclusion. Rachel was tasked with developing strategies to ensure that Yelp was attracting and retaining a diverse, productive workforce and creating a welcoming environment for all employees. The case puts students in Rachel’s footsteps upon being hired and tasks them to propose a set of changes for Yelp to make in order to increase the diversity of the workforce.

    Keywords: Diversity; Employees; Leading Change; Strategy; Organizational Culture; Technology Industry;

    Citation:

    Luca, Michael, Joshua Schwartzstein, and Gauri Subramani. "Managing Diversity and Inclusion at Yelp." Harvard Business School Case 918-009, August 2017.  View Details