What Is Behavioural Economics?
We know human judgment and decision-making are prone to various biases – resulting from heuristic (rules of thumb) processing. For instance, businesses often reduce their profits by over-emphasis on smaller short-term gains to the neglect of larger longer-term ones (a form of myopic risk-aversion). Knowledge of heuristics and biases are useful also at the individual level – for example, nudging people towards clearly sensible options (e.g., investing in a pension scheme for retirement).
WHAT WE BELIEVE
We recognise there is confusion around notions of (ir)rationality – here is what we think.
Predictably Irrational. We do not adhere to neoclassical economic axioms of rationality; that is, the economicus model of the rational ‘economic agent’ who has perfect calculating ability, unlimited self-control and is unemotional. We know that people are far more interesting, complex and colourful than this depiction suggests, but this does not mean they are ‘irrational’ in any meaningful psychological sense. However, they are predictably irrational in the ways they violate neoclassical economic principles. For example, money – because it is fungible and can be used in many different ways – should be preferred to a specific gift (e.g., an employer buying a pizza for the family of one of their employees or a birthday present to a loved one) but this very clearly is not the case. Money can have counter-productive effects, by crowding-out intrinsic (meaningful) motivation.
We have a deep appreciation of how people are trying to maximise the utility of their own preferences as best they can, albeit often with less-than-perfect information/resources. We know that if we apply only a surface level analysis to their behaviour then things can seem unpredictable, even ‘irrational’ (why should an employee prefer the gift of a free family pizza to hard/cold cash, or a non-money birthday present?). The scientific truth is that people’s choice behaviours are rational by any sensible definition of the word, as they are directed at maximising the utility of whatever they consider important in their own life (e.g., the thoughtfulness of a person choosing a special birthday present or an employer recognising an employee’ s efforts in a similarly thoughtful way). We call this unpredictably rational.
We respect the preferences of individuals, recognising their underlying emotional, motivational, situational and contextual drivers. By developing a rigorous and realistic psychological model, we form a deeper understanding of the decisions and choices of real people, in real life, behaving in complex, but predictable, ways. For example, getting a free family pizza from an employer or thoughtful present from a friend entails the ‘warm glow’ of gifting, reciprocity and trust, contributing to a meaningful social context that people value. This is all very rational and predicable! This is the approach that leads to creative insight and effective solutions. We call this predictably rational.
Behavioural Fusion Provides Deep Insight – Making Sense of Behaviour
Personality – Power & Profit
Personality is what makes people different from one another – these differences matter and have important long-term consequences. They provide powerful insight and the potential for profit.
Personality is defined as the systematic and enduring ways people differ in terms of thoughts, feelings and actions. It allows prediction over time (over many decades) as well as across a diverse range of situations. And it is easily measured by questionnaire, survey, and from actual behaviour (e.g., internet use and ‘likes’ on facebook).
Using knowledge from personality psychology can add value in various ways:
- Segmenting the audience/market based on their dominant ways of thinking, feeling and (re)acting
- Defining ‘brand personality’ as reflections of differences in human personality
- Understanding the major dimensions of emotion, motivation and behaviours, and using this knowledge in persuasive communication
- Understanding the motivations of employees and which incentives work best for which people
Read More Information
We are all different – in systematic and measurable ways – and these differences are fundamental to understanding behaviours in all domains of human behaviour. They are also important for behavioural insights to achieve actionable impacts.
Our team of experts has published 100s of research papers on personality, and many books on its nature, measurement and impacts. We are also experts in the neuroscience of personality.
Professor Philip Corr (Founder of Behavioural Fusion) is the Founding Editor-in-Chief of Personality Neuroscience, published by Cambridge University Press. He is also the former President of the International Society for the Study of Individual Differences (ISSID – as is Professor Adrian Furnham of Behavioural Fusion) and the founding joint President of the British Society for the Psychology of Individual Differences (BSPID).
Take a personality test (click here) – it measures the Big-5 factors of personality
When We Want To Understand People, Personality Matters
ACADEMIC CREDIBILITY
Behavioural Fusion is a spin-out of City, University of London, which for over 125 years been providing academic excellence for business and the professions – funding was provided by the UK Government via the Higher Education Innovation Fund (HEIF).
Our academic background and diverse range of expertise means that we have a deep understanding of psychological, psychometric, behavioural, neuroscience and economic factors.
We transform academic knowledge into business solutions
BEHAVIOURAL ECONOMICS: The Basics
Philip Corr & Anke PlagnoL
Behavioral Economics: The Basics is the first book to provide a rigorous yet accessible overview of the growing field that attempts to uncover the psychological processes which mediate all the economic judgements and decisions we make. It helps us understand why behavioural economics is everywhere – used by governments to shape citizen behaviour, advertisers and marketers to sell products/services, and even politicians to sell policies: its insights are important and far-reaching.