What is Behavioural Economics? An introduction

31 Jan 2016 | Research & Business Knowledge

In very broad terms, BE helps us understand behaviour by combining insights from economic approaches with those from psychology.

The traditional economic view of decision making assumes that people are clever, well informed and process data in a linear and mechanical way – resulting in decision making which optimises their behaviour ('rational man').   But this ignores the fact that much of our behaviour is intuitive and instinctive – people make irrational and unconsidered decisions based on 'gut feel' – resulting in emotionally driven actions.  People don’t possess perfect information and the 'cost' of gaining that information (time and effort) can seem to be too great – so people infer what they should be doing based on a series of behavioural biases and heuristics.

This is perhaps not surprising.  From a purely evolutionary point of view, endocrinal systems developed many millennia before sophisticated brains, and were very successful in ensuring survival of the species.

Behavioural economics aims to explain these apparent anomalies in our behaviour, ensuring that our assumptions have more realistic foundations based on 'real world' behaviour where context, preconceptions, previous experience, skill levels and preferences all interrelate and influence what we do.  It helps explain behaviour that simply does not fit logical, predictable patterns, but rather that the context around a person influences how they assess and make choices and how this affects behaviour.  It explains the 'get around to it' mentality – I know I should make a will/ start saving/ take out a pension but…

Suggestions for finding out more include: 

And of course we have a seminar on this very subject in the planning – we will let  you know details once things are finalised