Behavioural Economics Applied
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My donations are bigger than yours Donating money to good causes seems like a universally desirable activity. Although many agree, few carry through on their intentions. They forget, other things come up, or they just never get around to it. United Way explored other ways to help people move from desire to donation. Instead of preaching solely about the benefits of donation, the worthiness of the causes, or the added perk of tax deductions, the United Way aims for people’s raw competitive nature.
Once heretical, behavioral economics is now mainstream. Money managers employ its insights about the limits of rationality in understanding investor behavior and exploiting stock-pricing anomalies. Policy makers use behavioral principles to boost participation in retirement-savings plans.
Standard neoclassical economic analysis assumes that humans are rational and behave in a way to maximise their individual self-interest. While this ‘rational man’ assumption yields a powerful tool for analysis, it has many shortfalls that can lead to unrealistic economic analysis and policy-making. This Briefing distils many concepts from behavioural economics and psychology down to seven key principles, which highlight the main shortfalls in the neoclassical model of human behaviour.
The bursting of the housing bubble and the associated credit crunch has so far wiped out about $3 trillion of wealth—nobody knows the exact amount—caused havoc in the financial markets, and prompted hundreds of thousands of homeowners to default on their monthly mortgage payments. Some experts predict that by the end of 2009, the number of homes entering foreclosure could reach two million. Not surprisingly, the question of what to do about the housing crisis has emerged as a divisive policy issue in the 2008 presidential election, with each of the three leading candidates representing a distinct economic ideology. John McCain, for all his protestations that economics is not his strong point, has put forward a coherent, if somewhat heartless, case for doing nothing, or very little, anyway.
Correction Appended: April 2, 2009 Two weeks before Election Day, Barack Obama's campaign was mobilizing millions of supporters; it was a bit late to start rewriting get-out-the-vote (GOTV) scripts. "BUT, BUT, BUT," deputy field director Mike Moffo wrote to Obama's GOTV operatives nationwide, "What if I told you a world-famous team of genius scientists, psychologists and economists wrote down the best techniques for GOTV scripting?!?! Would you be interested in at least taking a look? Of course you would!!" Moffo then passed along guidelines and a sample script from the Consortium of Behavioral Scientists, a secret advisory group of 29 of the nation's leading behaviorists.
Antonio Bolfo/Reportage for The New York Times Pole has a master’s degree in statistics and another in economics, and has been obsessed with the intersection of data and human behavior most of his life. His parents were teachers in North Dakota, and while other kids were going to 4-H, Pole was doing algebra and writing computer programs. “The stereotype of a math nerd is true,” he told me when I spoke with him last year.
The following is adapted from an Artefact white paper. The full version may be downloaded here . Recent advances in neuroscience and behavioral economics, cognitive psychology and anthropology are helping us better understand how our brains work and how decision-making takes place. A core finding of this work is that we are not primarily the products of our conscious thinking; we are instead the products of thinking that happens below the level of awareness. Reason, it turns out, is highly dependent on emotional value judgments and therefore is highly susceptible to bias.
Watch the video: it covers all points in the article and more by Mar 1