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Behavioural Economics:

Some lessons and policy implications

Ren van Bavel

IPTS Behavioural Economics Seminar Series

Session 3

Seville, 26 May 2011

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Behavioural Economics: Some lessons and policy implications

Part I: Behavioural economics

What is it?

On the terminology

Whats the policy relevance?

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Behavioural Economics: Some lessons and policy implications

What is it?

Economics Psychology

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Behavioural Economics: Some lessons and policy implications

On the terminology

Why behavioural

economics and not

behavioural sciences (orsimply psychology)?

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Behavioural Economics: Some lessons and policy implications

Whats the policy relevance?

Can influence people's behaviour

Can help understand how citizens makedecisions in complex environments

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Behavioural Economics: Some lessons and policy implications

Applying it to policy

Economics A Psychology

we are

here

B C

Policy

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Behavioural Economics: Some lessons and policy implications

Part II: Some lessons

1. We consistently make estimation errors

Loss aversion

Anchoring

Mental accounts

Overestimation of small probabilities

Over-preference for immediacy

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Behavioural Economics: Some lessons and policy implications

more lessons

2. We have limited ability and energy

3. Emotions shape our actions

4. We are bound to a social context

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Behavioural Economics: Some lessons and policy implications

Part III: Policy implications

1. More and better

information is not

enough to change

behaviour Example: calories

on the menu in

NYC restaurants

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Behavioural Economics: Some lessons and policy implications

Part III: Policy implications

2. We can nudge people into behaving acertain way

Choice architecture: designing the environment

in which a decision takes place

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Behavioural Economics: Some lessons and policy implications

Some examples of choice architecture

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Behavioural Economics: Some lessons and policy implications

Nudging as a policy tool

When to nudge?

In situations where people have the greatest

difficulty making the right decision

How to nudge? Keeping the principles of good choice architecture

in mind (there are 6)

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Behavioural Economics: Some lessons and policy implications

What makes for good choice architecture?

iNcentivesUnderstand mappings

DefaultsGive feedback

Expect error

Structure complex choices

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Behavioural Economics: Some lessons and policy implications

Some examples of policy nudges

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Behavioural Economics: Some lessons and policy implications

more policy implications

3. Policy impact assessment

If peoples response to a policy affects itseffectiveness, then there is a role for behavioural

economics

Example: Retail Investment Services study

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Behavioural Economics: Some lessons and policy implications

more policy implications

4. Getting value for money in policy interventions

Example: Ensuring consumers choose a browser

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Behavioural Economics: Some lessons and policy implications

more policy implications

5. Preventing abuse by industry

Either through regulation or by nudging

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Behavioural Economics: Some lessons and policy implications

An invitation to reflection

How can behavioural

economics help solve

problems in yourpolicy area?

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References

Influence: The psychology of persuasion, by RobertCialdini.

MINDSPACE, by the Institute for Government and

the UK Cabinet Office.

Nudge: Improving decisions about health, wealth

and happiness, by Thaler and Sunstein.