What is the state of Behavioural Economics (BE) in 2017? Is it past the ‘hype cycle‘ and settling into common usage, or gradually being assigned to the dustbin of once popular ideas?
Behavioural Economics is one of those topics that regularly comes up in conversations with clients & about this blog. In fact, I’m reminded it’s one of the topics for which readers asked for more coverage in our latest readers survey. My own experience is that it is still very relevant, especially for both Customer Insight teams and B2C businesses.
So, I’m delighted to be able to share with you the best online update on the current state of BE that I have found online.
More than just an introduction, or annual update, “The Behavioural Economics Guide 2017” is a valuable selection of latest research and reference guide to resources. I heartily recommend it to all Customer Insight leaders. Published by the leading site for this subject (BehaviouralEconomics.com), it is hopefully going to continue as an annual publication that helps keep this field of study alive and relevant to businesses.
However, rather than just provide a link to download your own copy, I’m conscious this is a long read (a PDF of 161 pages). So, let me help you by summarising a few key points and giving you a tour of what you’ll find in this year’s guide.
Introduction (some latest research)
Professor Cass Sunstein, from Harvard University, provides the engaging introduction. As well as being the coauthor of “Nudge” with Richard Thaler (back in 2008 now), he is also well published in this field and one of the leading academics contributing to this guide.
Prof. Sunstein considers the different biases at work in whether we choose to make choices ourselves or delegate that responsibility to others. He introduces to alternative heuristics that can drive people to choose either option. Engagingly these are called:
- The Lockean Exclamation, based on John Locke from the TV show ‘Lost‘ (who exclaims: “Don’t tell me what I can’t do!“)
- The Madison Exclamation, based on US political theorist James Madison (who supported the public exclaiming: “You figure it out!“)
In this article, Sunstein explores when these different biases might come into play, both to out advantage and disadvantage. He also shares the results of a number of experiments in this area, as well as how present bias and loss aversion can play into such preferences in different settings.
Editorial (on state of Behavioural Economics)
Next comes an interesting article by Alain Samson, who is the editor of this guide, founder of BehaviouralEconomics.com and Chief Science Officer at Syntoniq. After a perspective from academia, it’s interesting to read this review of latest progress from a commercially grounded researcher/scientist.
Responding to the challenge that “BE is dead“, Alain debunks that claim by both citing the numerous signs of active work in this area and sharing 3 key areas where BE thinking is still evolving and identifying new applications.
Key examples he shares, where BE has continued to develop & be successfully applied are:
- Prospect Theory (including that explanation of Brexit & Trump voting successes)
- Information Avoidance (why it matters, why people do it & how feedback can help)
- Organisational Perspectives (social context of decisions & moving to evidence-based management, including advice on field trials)
- Psychology of Financial Decision Making (taking a wider view, considering investors, households, managers & markets)
One of the useful themes that comes out of this work is the potential of combining findings from BE with those of adjacent fields (like neuroscience & psychology). This makes good sense and reminded me again of the power of converging behavioural analytics & research findings for insight generation.
Applications: the state of Behavioural Economies in usage
This section of the BE Guide contains 9 useful papers on case studies of applying BE to different problems. It is always instructive to find how a neat theory actually works when tested in practice. The evidence from all the work cited is encouraging, both in terms of evidence for usefulness of BE and in terms of a growing understanding of human complexity.
The examples are:
- An overview of BE usage, by The Behaviour Architects (including examples from HelloWallet, RWE, ADR, Google’s People Analytics team and a national food retailer)
- Use of their proprietary BE model to understand Brand Loyalty and Switching, by Behavioural Science Lab (applied to banks, haircare appliances & employees)
- Identifying the flaw in Auto Enrolment pensions policy, by Decision Technology (I’ve had the pleasure of working with Henry Stott & these guys know their stuff!)
- What Data Science can learn from Psychology, by Deloitte (A well argued piece, in line with how this site has encouraged collaboration between Analytics & BE theories)
- A tool for Evidence-Based Decision Making, by FehrAdvice (How measuring Awareness & Willingness to Contribute can form a Behavioural Change Matrix,with other biases)
- The need for Behavioural Change in Banking, by ING (Understanding the reasons for irrational behaviour in saving & borrowing, highlighting the help needed from banks)
- Five reasons why Financial Institutions can’t ignore BE, again by ING (making a case of carrots & sticks, for financial firms and regulators, as we have seen with the FCA)
- Nudging in Developing Nations, by Irrational Co (interestingly different challenges, shown through case study of increasing organ donation in Mexico)
- Choice Architecture in Retail Finance, by London Economics (demonstrating through both price framing testing with the OFT and add-ons in GI market with the FCA)
All worth reading. I hope the above explanations help identify which is most relevant for you.
Behavioural Science Concepts – a Glossary
The next section of this guide is also very welcome. Over the years, with each new BE bestseller, I’ve become frustrated that each author seemed to introduce a different nomenclature. Reaching a consistent language to talk about these theories or even single simple list of biases to consider was proving a thankless task.
It was welcome when the FCA published their list of 10 biases they identified.
But, thinking has developed since that first Occasional Paper and this Guide includes a useful list of 93 terms to understand. From Affect Hueristic to Zero Price effect, if you understand each own these, you’ll certainly be able to hold your own at a dinner party conversation on the subject.
The state of Behavioural Economics CPD – all the resources you need
Following my efforts to encourage CPD amongst Customer Insight leaders and to share CPD resources on Data Visualisation. This Guide does a great job of providing the references needed to continue your BE education. The next 3 sections provide lists of:
- Postgraduate programmes in BE & Decision Science (long list of global courses, especially focused on UK & USA, I recommend the course at Warwick with Prof Nick Chater)
- Popular BE books (the most comprehensive list I have seen, usefully sorted by publication date, average rating & author; interesting this is no longer dominated by ‘Fast & Slow‘)
- Scholarly journals with BE content (usefully listed with fields of Economics, Finance, Psychology, Marketing/Management & Multi-Disciplinary journals)
This brilliant free resource closes with profiles on all the contributing authors. Great examples of expertise available in this field. My own experience is working with Dec Tech, whom I’ve found to have the right balance of academic knowledge & commercial experience/pragmatism. Anyway, I hope the examples in this guide help you choose a suitable agency/adviser, if you plan to start your own BE experimentation.
Your time to choose – will you download a copy?
I hope that introduction proved useful and encourages you to download a copy for yourself. Plus, I hope this blog post helps you navigate to the parts of the guide that will be most relevant for you.
Here is that link again, with a PDF preview:
Do let me know if this was useful and any other examples of BE usage you know about. I’m sure this will continue to be a popular topic for our blog.