Behavioural Economics Series: Primer
Early economic theory was dependent on one assumption; all actors in a system will behave rationally. It stands to reason, that if this is the case, companies should be able to come up with objective economic models that calculate, very accurately, how much money their products will make. The natural extension of this theory is that governments can come up with complicated algorithms to calculate how their policies will work out and pick the ones that have the most impact. But it hasn’t quite worked out that way…….
In 2017 a UK poll asked participants which profession they trusted the most around 87% of respondents stated that they trust NHS nurses which was the most trusted profession. Economists came in second to last with only 25% of respondents trusting them. This is even more troubling for economists since we are currently in one of the longest period of economic expansion ever.
Low public trust in economics is not unfounded, one thing economists now know with certainty is that they know very little with certainty. Dani Rodrik, a leading economist and professor at Harvard once tweeted “[…..] the answer to any question in economics is, it depends.” Those who study economics will tell you, they know what it depends on, myself included. But people don’t want to debate economics, they expect black and white answers. I’m not a fan of sweeping statements, but the lack of specificity in economics leads many to be skeptical. Just looking at the performance of international financial institutions headed by economists such as the IMF raises questions about the efficacy of economic theory.
That doesn’t mean to say that economics doesn’t have its place, just because we aren’t great at predicting how economies will always behave, doesn’t mean we ignore economic theory. In recent years, BEHAVIOURAL ECONOMICS has gained popularity. From a theoretical social science, economics is transforming to becoming increasingly empirical.
Behavioural Economics tries to answer these about how economic agents REALLY BEHAVE and looks at how, AND IF individual behaviour can be aggregated to provide answers in business and policy. It attempts to empirically find out how individuals behave and aggregate those behaviours to iterate on economic theory.
How does a digital consulting firm fit in…….
As designers, strategists and researchers the experience team at appnovation creates products that are centred around humans. To make sure our products are usable and by extension PROFITABLE we need to make sure we understand the consumers as well as possible. Much to our disappointment, we do not have an algorithm that we can run and know what our users want, and so we conduct behavioural research.
Our research often means we have to be able to predict consumer behaviour. We take lessons from behavioural economics and economists to inform our designs, guide our research and eventually build our solutions.
In short, we use the principles founded in behavioural economics to solve problems our partners face. This series of blogs will look into how we aggregate our understanding of human behaviour and deep understanding of business to come up with evidence based solutions. Stay tuned for more
