Can behavioural economics help us to encourage better behaviour?

Behavioural Economics is a branch of Economics that has a part of Psychology in it, as well as the fundamental Economic theories. It attempts to look at the world through the eyes of a ‘human’, rather than an ‘economist’, using psychological understanding, explaining why we often make irrational decisions. Economists assume that humans look at the world rationally, with perfect information, seeking to maximise their own utility. However, these assumptions are bounded and in reality, we don’t act rationally, repeatedly making mistakes.

Professor Richard Thaler, co-author of the book, Nudge, wanted to prove the theory that understanding human behaviour can help us influence people to make better decisions about our health. Thaler found that we can lead people to make better decisions by making those decisions easier. For example, we use several mental shortcuts or ‘rules of thumb’ to simplify the decisions that we make in everyday life. Our minds have many cognitive errors, such as present bias, which is that we value things much less when they are in the distant future, and loss aversion, where we hate losing things more than we like gaining things. However, these errors that we are making may be used in our favour to help us, for instance present bias can be used as an advantage at work through giving out small and frequent payments to encourage motivation and hard work.

Thaler and Sunstein were the authors of the book, Nudge, which was published in 2008, and not long after in 2009 Barack Obama appointed Sunstein the head of The Office of Information and Regulatory affairs, charged with using nudges to improve regulations. The UK even established a Behavioural Insights Unit (BIT) to promote nudges. In Nudge it is shown that humans are subtly guided towards beneficial behaviours without compulsion to do anything. One of the most well-known ‘Nudges’ was introduced in 1999 at the Schiphol Airport in Amsterdam, where an image of a fly was etched in the men’s urinals, leading to men aiming for the fly, thereby reducing cleaning costs and unpleasantness. Using this simple intervention alone, the result of this experiment was 80% of spillages cut. Another example was in Woolwich, South-East London, where there was an anti-social behaviour problem and during riots in 2010 several shops windows were smashed. Therefore, graffiti artists painted pictures of local baby faces onto the shutters of the shops, hoping that even the toughest heart would be melted by a baby. After this strategy, anti-social behaviours were lowered by 18%. Both these examples show us that we can be subtly persuaded into behaving in a certain way, possibly without even realising we’re doing it, and that these examples and many others similar to them may be used to encourage better behaviour.

Behavioural economics may be beneficial and useful on a small scale and personal use, as they do nudge us in the right direction, but it is unlikely for behavioural economic policies to have dramatic effects on issues such as healthcare and climate change, and the majority of them should not be used to replace fundamental policies that are already implemented.

Rose, Senior Prefect

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