We make many decisions in life. We usually like to consider the choices available. In choosing, we enjoy the exercise of free will. Or do we? Behavioural economists might nudge you to consider a fresh perspective on this.
What is behavioural economics?
Behavioural economics combines psychology with the analysis of the decision-making behind an economic outcome. This may mean considering factors the influence you leading up to choosing one product to purchase over others. What are the behavioural factors that influence your choice?
Choice in every day life
When you go to make a choice, be it a purchase or just a selection of something off the pantry shelf at home, a number of things come in to play. US academic Richard Thaler is well known for his work in developing the “nudge theory”. This theory suggests people can be nudged into making different decisions (Partington, 2017). A range of interventions can be used to influence someone’s behaviour when choosing.
Thaler provides examples:
- environments influence choice eg supermarkets arrange products to attract consumer attention to certain products
- use of inertia and the power of default arrangements eg requiring people to “opt out” of something rather than “opting in”
- written reminders composed along principles of behavioural economics eg tax reminders in the UK resulted in an increase of returns and revenue for the government
- availability influences choice eg confectionery offered in workplace lunchrooms result in people consuming sweets even though it was never their intention to do so
Making choices for influence or manipulation
Behavioural economics can be applied for good or to manipulate. It can be applied government policy-making and to address societal challenges. Similarly, closer to home, an understanding of these influences can help us manage our own choices.
- If we are trying to change our eating habits, we need to manage our environment so the right sort of food is an easy choice.
- Establishing an exercise routine might mean:
- making the choice to go to the gym easier by choosing one near work, or
- arranging to workout buddy with someone you don’t want to let down.
- Greater commitment to goal achievement may be facilitated by sharing them with others who will hold you accountable.
Is behavioural economics new or just a new catch-phrase?
The concepts here aren’t new to me – and probably not to you either. Reading more about how these ideas can be applied for the greater good makes an interesting read though. Perhaps Thaler’s book “Nudge” should be on your list of must reads in 2017?
- What is behavioural economics? by Richard Partington in The Guardian, 9 October 2017.
- ‘Behavioural economics’ may sound dry – but it can change your life by David Halpern in The Guardian, 10 October 2017.
- Why COOs should think like behavioural economists by Geoff Donaker & Michael Luca in Harvard Business Review, 31 October 2017.