Behavioural Economics is a rapidly expanding field and everyday new research is being developed in academia, tested and implemented by practitioners in financial organisation, development agencies, government ‘nudge’ units and more. This series (a collaboration between Etinosa Agbonlahor and Merle van den Akker) features 12 behavioural economists and behavioural scientists whose work and research is at the forefront of the field. In today's interview the answers are provided by Graham Loomes. Who is on the right in this picture, listening thoughtfully to Bob. Such a great picture I had to use it... Graham is a professor of Behavioural Science at the Warwick Business School. His research is focused on the analysis of people's preferences, particularly as they relate to decision making in the face of risk and uncertainty, with policy applications to health, safety and environmental issues. He has undertaken research for a number of government bodies in the UK and elsewhere. Currently, he is a co-investigator in the ESRC's Network for Integrated Behavioural Science and the Leverhulme Trust's 'Value' programme. He is one of the most highly cited researchers in Economics and Business based in the UK and is a Fellow of the British Academy.
Who, or what, got you into Behavioural Economics?
A colleague at Newcastle University heard a radio programme about a paper in Science by Tversky and Kahneman and thought I’d be interested – which I was – and this led to me reading the Prospect Theory paper. As I went through it, I found myself duplicating most of the patterns of choice that violated Expected Utility Theory and I remember thinking something along the lines of “Well, I’m undoubtedly rational and I’m making all these choices, so there must be a rational theory to explain them.” I wrote down a few rudimentary ideas and then asked the most rational person I knew – Bob Sugden – what he thought about them; and we went from there, changing and extending and refining things until we ended up with Regret Theory, which injected some psychological insights into a conventional framework to produce a richer account of human decision making. Bob and I also worked on Disappointment Theory to show how another kind of psychological response might influence behavior. I should say that others – especially David E Bell – were working along much the same lines at that time; so, incorporating psychological insights into ‘economic’ models of risky choice – and indeed, into other areas of economic behaviour – was an idea whose time had come.
What is the accomplishment you are proudest of as a Behavioural economist?
No one thing. I think there are maybe half a dozen respects in which I’ve helped push things along a bit. In each case, in the early stages you are excited and optimistic about your new model or new method. Later, as you try to apply it and test it, you become aware of some limitations, even some respects in which it leads to conclusions that are plainly wrong. Then you have to get it in perspective and say “it was good for its time, but things have moved on”; and you have to move on, too. The best ideas are the ones that are still to come. (I hope . . . )
If you weren’t a behavioural economist, what would you be doing?
If I hadn’t been able to hang on to a university job, I think I would have looked for a post in the civil service (Department of Health, maybe) or as a researcher/adviser in the labour movement. At that time, I might even have been tempted by a political career. With the benefit of hindsight, that would have been disastrous. Fortunately, there was a university willing to give me a job.
How do you apply behavioural economics in your personal life?
I don’t so much apply it as live it. Besides various of the ‘violations’ and ‘anomalies’ in choice under risk and uncertainty, I’m also prone to many of the other ‘fallacies’ and ‘heuristics’ in intertemporal choice and in buying goods and services. This reassures me that, despite others’ opinions to the contrary, I am, on balance, fairly normal.
With all your experience, what skills would you say are needed to be a behavioural economist? Are there any recommendations you would make?
Skills are important, but attitude is even more important, I think: curiosity about people and the heterogeneity of their behaviour and their motivations; scepticism about appeals to what is ‘natural’ or ‘self-evident’ or ‘axiomatic’; open-mindedness and a willingness to embrace well-sourced evidence, even if (or perhaps, especially if) it unsettles your pet theory.
How do you think behavioural economics will develop (in the next 10 years)?
Will? Or should? One fairly safe prediction, I think, is that ‘big data’ will feature increasingly prominently (although I fear that much of the really interesting and useful stuff will be difficult to access and then publish, due to its commercial value to the companies that own it). I should also like to see some part of our massive and ever-increasing computing power being harnessed to build richer, more complex (and thereby hopefully more realistic) models of the processes by which individuals and groups arrive at decisions and to explore (via simulations) the imprecise and probabilistic nature of people’s preferences, judgments, choices and values.
Thanks so much Graham! Want to read more? The previous interview was done with Bob Sugden, and the next one will be with Gordon Brown. Want to read interviews from practitioners rather than academics, go to Etinosa's blog here.