Behavioural Economics
Behavioural economics is
o Presented consumers as behaving rationally, making logical decisions about their
consumption based on factors such as price and quality
o More complex in terms of our cost/benefit decisions
o Focused on the context of decisions the environment within which the consumption
choices take place.
Influences on our Economic Decisions
Psychological
Cognitive
Emotional
Cultural
Social
Summary of Key Concepts
Choice Architecture
How the way a choice is presented influences the choice made.
Uses the context of a decision to 'nudge' people towards a particular behaviour.
May include:
o The number of choices (think about set menus)
o how the attributes are described
o presence of a default
Defaults
A preselected option without an active choice.
This uses status quo bias – our inherent inertia - we prefer to with what is already there.
Loss Aversion - Volp et al.'s study (2008)
We generally dislike losses more than we like gains of a similar amount.
Volp et al.'s study (2008) - showed that weight loss based on the threat of losing money works
better than with the incentive to get money.
The endowment effect – we value an item that is already in our possession
Endowment Effect - Thaler & Sunstein's study (2009)
The endowment effect – we value an item that is already in our possession.
Thaler & Sunstein's 2009 study shows the endowment effect.
This is shown via free trials
o Amazon prime
o Spotify Premium
Priming
They alter people's behaviour outside of their conscious awareness, resulting from their first
exposure to certain sights, words, sensations, or activities.
Behaviour or feelings can be changed by using cues without being conscious it is happening. Eg.
o See healthy images – eat more healthy food,
o see images of older people – walk more slowly
Behavioural economics is
o Presented consumers as behaving rationally, making logical decisions about their
consumption based on factors such as price and quality
o More complex in terms of our cost/benefit decisions
o Focused on the context of decisions the environment within which the consumption
choices take place.
Influences on our Economic Decisions
Psychological
Cognitive
Emotional
Cultural
Social
Summary of Key Concepts
Choice Architecture
How the way a choice is presented influences the choice made.
Uses the context of a decision to 'nudge' people towards a particular behaviour.
May include:
o The number of choices (think about set menus)
o how the attributes are described
o presence of a default
Defaults
A preselected option without an active choice.
This uses status quo bias – our inherent inertia - we prefer to with what is already there.
Loss Aversion - Volp et al.'s study (2008)
We generally dislike losses more than we like gains of a similar amount.
Volp et al.'s study (2008) - showed that weight loss based on the threat of losing money works
better than with the incentive to get money.
The endowment effect – we value an item that is already in our possession
Endowment Effect - Thaler & Sunstein's study (2009)
The endowment effect – we value an item that is already in our possession.
Thaler & Sunstein's 2009 study shows the endowment effect.
This is shown via free trials
o Amazon prime
o Spotify Premium
Priming
They alter people's behaviour outside of their conscious awareness, resulting from their first
exposure to certain sights, words, sensations, or activities.
Behaviour or feelings can be changed by using cues without being conscious it is happening. Eg.
o See healthy images – eat more healthy food,
o see images of older people – walk more slowly
