Behavioural economics. What is it, and what isn’t it? In a previous article I’ve already outlined the definition of a behavioural economist, as compared to a behavioural scientist, or someone who is neither. This article fueled some discussions online, which lead me to write this article. Let’s get started!
Economics vs. Science As I mentioned before, there are behavioural economists and behavioural scientists. And no, they aren’t the same. There is, and can be, a lot of overlap in what they research and how they research it, but an economist will always start from economics, and deviate in a more behavioural direction. For a behavioural scientist, economics isn’t the foundation from which to deviate, and as such methodologies, approaches and sometimes even interpretations can be different. It can make for slightly more difficult conversations between the two, as psychologists and economists have struggled for a long time talking to each other. This gap is closing, to the benefit of us all, but it’s important to realize that behavioural economics is not yet an umbrella term for several completely unified fields. There are still some disparities within, which I think is important to recognize.
Nudge THEORY Nudge Theory has a Wikipedia page, yet it doesn’t make it true. Nudge as an intervention is a concept and a tool, not a theory, as many people claim. The Nobel-prize winning concept has often been claimed to be a theory. But what exactly is it predicting, and how? I don’t know if many of my readers are fans of Karl Popper and his follower Imre Lakatos (philosophers of science), but they argued for the progress of science through falsifiable theories and proofs. So a theory needs to make clear predictions that can be falsified. Try your hand at this with nudge. You won’t manage. Why won’t you manage? Because Nudge doesn’t tell you the how and why. It’s not, if X then Y (a very simplified prediction, I do beg your pardon). The reason it can’t be used like this is because Nudge is a concept: small changes in choice architecture can lead to big effects in decision-making. But what and how is often left up to interpretation, meaning it’s difficult to falsify. Nudge itself has also given rise to other frameworks such as EAST and MINDSPACE, which again, aren’t theories. They are tools for implementing behavioural change, or at least guiding behaviour. They can be very effective, but that’s not even a prerequisite for being a theory. If you want to look at theories in behavioural economics, try diving into (cumulative) prospect theory, dual system theory (type 1 vs. type 2) and regret and disappoint theory. The former two are by Nobel prize winner Kahneman (& Tversky), the latter two are by Sugden and Loomes.
All behavioural economics is the same. Much in line with the first point made, behavioural economics is not remotely the same everywhere. It can differ per institution, per field, but also per company. This is not to slag off industry, but it’s most visible in that sector. Behavioural economics sells. It really does. The hype has come full circle, touting two Nobel Prizes and many best-selling books. Is it odd that everyone wants a piece? It’s not odd at all. Think of a different hype: blockchain. An IceTea company thought they were being funny by putting Blockchain in their stock’s name. Going from IceTea to Blockchain IceTea. What happened? The stockprice tripled. I’m not kidding, it did. This tells you several things: investors are really not that smart and the hype is real. The hype is real for behavioural economics as well. This means that some companies are promoting the usage of behavioural economics, far beyond their remit. Suddenly they have a behavioural division, are implementing behavioural research and will run behavioural-based interventions for your company, to help improve it (consultancies seem to love this). They might even have a behavioural expert, or a team of behavioural experts ready to go. Doesn’t matter that this team was called marketing consultants last week, now they are behavioural experts (at least marketing and BE are closely aligned, so that’s at least something). I’m not saying every company or behavioural practitioner is bad, there’s loads of good ones out there. But be wary of people trying to use behavioural economics for profit. They exist too. Just labeling something behavioural economics might make it sell, but that doesn’t mean it’s actual behavioural economics. Customer beware!
Well, these are three main things that I think are leading to the biggest misconceptions about and within behavioural economics. Let me know if you agree, or whether you have thought of different misconceptions!