Behavioural Economics, Policy and Business

On the 28th May, the Geary Institute will hold a major event on “Behavioural Economics, Policy and Business” in Dublin City Centre.

The currently confirmed panelists include Liam Delaney and Colm Harmon of the UCD Geary Institute, Peter Lunn of the ESRI and author of the well-known behavioural economics book Basic Instincts, and Gerard O’Neill, Director of Amarach Research. The event begins at 2pm and ends at 4pm, and will be followed by coffee. The venue is the Institute of Bankers building on North Wall Quay.

The session will begin with a short introduction to the field of behavioural economics. This short introduction will provide a working definition of behavioural economics; a short history of the field; an overview of the major global centres and projects in the area; a description of the most widely cited applications of behavioural economics ideas to real-world problems; and a brief overview of potential applications in the Irish business and policy context.

A wide ranging panel discussion will follow, addressing such questions as:

– What aspects of behavioural economics should particularly interest business people? For example, how is behavioural economics relevant to product development, advertising and marketing? What are the potential regulatory changes emerging from this literature?

– Why should policymakers care about behavioural economics? What is the relevance of behavioural economics to such questions as how we should design taxation and regulation? Is there any role for government to protect citizens from themselves in areas such as financial services?

– What has this new literature to say about economic renewal in Ireland including its relevance to major strategic initiatives such as the Smart Economy and the Strategy for Science Technology and Innovation?

We welcome suggestions for other questions to pose during the panel discussion. There will also be ample opportunity for audience participation.

In order to help us plan the event and print registration details, we would be very grateful if people could RSVP to Emma.Barron@ucd.ie at their earliest possible convenience if they intend attending the event.

17 replies on “Behavioural Economics, Policy and Business”

@ Liam Delaney,

– What aspects of behavioural economics should particularly interest business people? For example, how is behavioural economics relevant to product development, advertising and marketing? What are the potential regulatory changes emerging from this literature?

I was just watching an old 1970s movie starring Richard Harris on TG4 this evening. Something called the ‘Return of a man called Horse’, or something like that. Basically, a sequel to the classic movie. Parts of it actually looked like ‘Dances with Wolves’ in the way it was filmed. But considering your question above, it reminded me of one scene in the movie where ‘a man called horse’ led a delegation of ‘Yellow Hand’ Sioux tribe to meet the Lakota tribe, to discuss a possible joint venture in which they could attack the local fort together. However, the negotiations broke down on the point of ownership of land. In which the Lakoka chief decided no man is able to own the rocks, the trees etc. But ‘a man called horse’, who had grown up as a lord in Great Britain assured the chief that it was in fact possible to own the land, and enslave the people on it. It was the lack of capability of some of the Sioux tribes to imagine what ownership of land meant, which prevented them from joining together and figuring out a strategy.

Given this emphasis on behavioural economics in recent times, there are quite similar roadblocks in our way to getting broader joined up thinking. Surely it seems at this stage, parts of the system are in disagreement with other parts of the system, because of failures to understand some fundamental points to do with behaviour. I don’t know how one gets around this problem. I surely don’t. Robert Shiller in one of his Yale university talks, mentions a meeting he had with the OCC. It was set up during the time of Lincoln to regulate national banks only. But it doesn’t have anything to do with multi-national banks, state banks or things like credit unions. Shiller described how each little part of the jigsaw puzzle to do with regulation of financial matters in the United States had its own unique focus and mandate, and there were many turf wars where jurisdiction was unclear etc. We are style a bit like those Indian tribes in terms of economics I fear at this stage in 2010. BOH.

@ Brian O’Hanlon

Just to be a bit provocative.

Economists are finally beginning to realize that the word of psychology is colliding more and more with the the world of psychology. In fact, some of the daft economic theories are no longer explainable by mathematical equations and formulae therefore they need psychology as never before. The herd are heading over the cliff with the systems they have designed for themselves. They have long forgotten that money is primarily a medium of exchange and a store of wealth.

It is very hard for money to fulfill either of these two functions if people keep printing more and more of it every time they decide they deserve to live beyond their means.

Sounds like an interesting seminar and thanks to Liam for posting this.

@ Robert,

Well I did enjoy the idea from an MIT computer scientist professor I heard a number of years ago – that when parents offer an allowance to their children, that the spending power embodied in that money changes up and down on a scale depending on whether they spend it on books, or on ice cream and fizzy drinks. This notion that you could control money such that a definition was built into it, defined by the lender of the money.

I was reminded of this example again a number of years later during the Celtic Tiger, when a friend of mine borrowed money twice to buy himself a car. But on both occasions, used the money to gamble on the stock market. Besides this whole debate raging at the moment about lack of regulation and so forth – one can take a much more panoramic view, and realise that a new ‘smart-er’ money would have an ability to dictate behaviour of the bearer of such money. I mean, think of all of the borrowers during the Celtic Tiger who were offered loans to buy development land and never did obtain title. As Brian Lucey once commented in the Irish Times, all the purchased with the borrowed money was the option to develop buildings on the land. Which of course, never was exercised after the crash came.

I was chatting with someone yesterday about the fact that many once-off bungalow are still being started in the middle of the countryside around Ireland, as we speak. Despite the fact that so many estates and so on lie empty in the towns and villages. Wouldn’t it make sense to have some derivative of money in Ireland in 2010, where if the bearer of the money, had their money ‘multiplied’ by a factor of ‘2’ if they purchased a vacant home in our towns and villages, instead of building in the countryside? Of course, then we get back into the area of government intervention in the property market, which Brian Cowen has identified in 2010, as a big mistake. BOH.

On my tautology above, of course that should have read “economists are finally beginning to realize that the world of psychology is colliding more and more with the world of economics.

A couple of questions for the conference:

Given that the State is nothing more than a predatory gang, what psychological tools would the good professor suggest so as to ensure its actions are rational?

And would this more rational State not be even more efficient in its efforts to crush the individual?

As a follow up: What justification does the professor offer for the sacrifice of individual freedom to the interest of a paternalistic and irrational State?

Also;

The mathematical justification for Paternalism has failed. Now we turn to the psychological device.

The tenured intelligentsia will only know it is beaten when no one listens to their blather any longer.

The end is nigh of all this nonsense in any case.

@mokabaybob

In terms of the effect of behavioural economics on politics, there is a debate raging around the world about whether a form of government that promoted more rational behaviour while moving away from using compulsions might be desirable. The jargon used is “libertarian paternalism”. It is worth reading some of this to try to sharpen some of your points. An ungated version of one of the key papers is below. Happy to discuss some of the points but have no real interest in engaging in answering loaded questions without any real thought put into them.

http://www.bos.frb.org/economic/conf/conf48/papers/thaler.pdf

@Mokabaybob

Ah here, this is a waste of time. Nothing I can really answer to your points. If you think we are all spouting blather then I am sure you have many other options for your time on this sunny weekend.

@ Liam Delaney,

I noticed this course on game theory on Yale’s website recently, and I linked some pals of mine to it. They were always into Robert Alexrod and that kind of stuff. If I am not mistaken, Stephen Kinsella does some of those ‘one dollar auctions’ and other such games with his class. Martin Gardner, mathematical games kind of territory. Although, I think Peter M. Senge and Jay W. Forrester are two references, which should not be left out of the list. That is in terms of human beings learning to recognise systemic issues and how to analyse or break down those kinds of problems. I often think that movies about hoists in particular must work with some principles of systems thinking. People who possess those kinds of skills unfortunately, are often marginalised. BOH.

http://oyc.yale.edu/economics/game-theory/

@ LD,

I always get a laugh when I read Danah Boyd’s papers about online communities and such. Do a search for ‘howard rheingold cooperation lecture’ some time too. There are webcasts to view at his cooperation website which build on an awful lot the same references on your Geary Institute reading list. I started reading Boyd’s work for a bit after I had got a taste for studying online communities from reading Rheingold initially. Boyd used to group blog with Clay Shirky, David Weinberger and others a while back and I was a regular reader of their many.corante blog site. As an aside, there are some great blog entries by Shirky over there about High definition TV versus broadband, and what is really going one behind the scenes viz the digital commons etc. Shirky’s long now foundation lecture (available at the long now foundation website) takes a deep look into the issues of digital data storage and so on. I had a look at the PBS documentary on the ‘American experience’ page about ‘Earth Day’, the history of it. Stewart Brand was featured in the documentary in reference to the longer time scale perception amongst other things. I received a neat little diagram to describe the idea of ‘long now’ philosophy the other day – I’ll mail it to you. Anyhow, I’m gone way off on a tangent now. But I do know, the basis of Rheingold’s thinking on human cooperation had much to do with going back in history to when human beings first hunted game as a group. Rheingold’s attitude was, that cooperation techniques have scarsely been studied and are little understood today. No faculty in any university has managed to put that sort of study on a first footing yet. BOH.

http://www.danah.org/papers/

@Liam Delaney

I’m sorry if my last bitter remark offended. It just infuriates me to see a glib “solution” to a problem that barely exists. Behavioral Economics strikes me as another Hegelian niche in which a coterie of Socialist academics can ponse about. The never ending dialectic. Keeps it all going…. to hell!

The government already uses psychological techniques extensively to “nudge” us towards herd behaviors. People rarely see through the subterfuge. In who’s interest is this all being done?

Its put better here;

Above this race of men stands an immense and tutelary power, which takes upon itself alone to secure their gratifications and to watch over their fate. That power is absolute, minute, regular, provident, and mild… The will of man is not shattered, but softened, bent, and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to nothing better than a flock of timid and industrious animals, of which the government is the shepherd.

(Alexis de Tocqueville, Democracy in America, Volume II, Section 4, Chapter 6.)

@ BL,

What I wanted to try and achieve in so many words, was to try and present the distinct ‘tribes’ (as I see it). What they are doing today in the world of academia, which might pertain to economics and psychology. The different tribes seem to be working in parallel and assembling a great amount of accredited research. But I wonder are the parallel efforts aware of one another, to a sufficient degree? Do the researchers in one camp read the work of those in others?

– You have the study of the youth culture on the network.

– You have the older study to do with political dynamism and relationships.

– You have the technology approach, which looks at innovation in terms of money and financial products.

– You have the kind of approach from Robert Shiller and so on.

The main trouble, as I see it in advancing research in the area of economics and psychology, is to form a group of researchers capable enough to integrate all of the above, and figure out how best to present it all as some coherent body of knowledge. Not easy. I can see emergence in Ireland of people interested in some, but not all of the various strands. BOH.

The world will always be full of people wanting to influence others, whether that be in political terms, economic, business, social, parental. It seems to me that it has always been that way. And some are more influential, or more persuasive or more powerful than others in doing this. Behavioural economics has become one of the latest buzz terms for something that people have always known about without realising that its “proper” name is Behavioural Economics. It is becoming more and more a new focus for business so that it can become more targeted in its advertising and communications, especially now with all the IT applications becoming available and the increased collection of data about people as a result of their IT usage. I’m literally just reading a book called “NUDGE” about it at present where its focus is on “nudging” people to behave in particular ways, on the role of a new (??) concept called “liberal paternalism”, improving decision-making,how we should manage “choice architecture”, etc. The authors are Thaler and Sunstein, pub. by Penguin

I suggest Jacques Ellul’s “The Technological Society” as an addition to the reading list. The effect of technology on men’s behaviour and organisation is one of the key focus points of the book.

Ed said,

Behavioural economics has become one of the latest buzz terms for something that people have always known about without realising that its “proper” name is Behavioural Economics.

Laughing out loud. Nice comment.

I agree with the point about ‘nudging’ of people also, and the sheer amount of data collectable in today’s world. I recently heard Stephen Kinsella refer to Larry Lessig. Lessig in his ‘Code’ book, took a careful look at how the architecture of the internet was custom made to control and influence people in all kinds of subtle but real ways. His book is a classic already.

I watched the PBS American Experience documentary about Herman Melville, author of Moby Dick the other day. Moby Dick as a book relates in some way to my comment above about human cooperation. Whale hunting was the extreme extent that human beings went to in terms of coordination together to go and capture beasts that roam in nature. What came out stronly in the American Experience docummentary was the relationship between American whale hunting and the expansion of the young Americian economy. Oil was discovered in Pennsylvania in the mid 1800s, and that became the cheap source of oil lamp fuel. Apparently Merville’s fictional Whale ship, the Pequod can be read as an analogy for the conferation of states in the 1850s. Yeah, in terms of human psychology and economics, I would say Moby Dick deserves a place on the list! BOH.

http://video.pbs.org/video/1485863181

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