Nudging in the City of London - Taking behavioural economics to the Square Mile

Stephen Young gave a talk this month at an event hosted by Investec Wealth and Investment for Independent Financial Advisors (IFAs). For many commentators, and those present in the splendid surroundings of The Ned, formerly the Midland Bank HQ, autumn 2018 is significant as the 10th anniversary of the Global Financial Crisis. But 2018 is also the tenth anniversary of the publication of Nudge, the breakthrough book that propelled behavioural economics to global recognition by policy makers and regulators. All the more ironic, considering that Richard Thaler has recently commented that it was a struggle to find a trade publisher for Nudge, which he co-authored with Cass Sunstein. 

Despite its relatively recent prominence, the talk on ‘The Rise and Rise of Behavioural Economics’ (edited version of slides here) started with the surprisingly long evolution of behavioural economics - beginning in the 18th century and came bang up to date with Daniel Kahneman and Richard Thaler - although both have won the Nobel Prize for economics, only one, Thaler, who won in 2017, is actually an economist.

The talk covered the big ideas of the main thinkers before looking at how these ideas are now being used to understand consumers’ financial decision making, showing that complexity, biases and cognitive errors can lead to flawed decisions. The result of financial decision-making being biased and error-prone is that governments and regulators are more likely to intervene in choice behaviour, to increase the likelihood that consumers will make better decisions.

The conclusions showed how regulators, including the UK’s Financial Conduct Authority, are increasingly using insights from behavioural economics to understand what leads people into flawed decisions, and how to avoid them. The result is financial regulation that more accurately reflects how people actually behave rather than the sometimes unrealistic assumptions of standard economics.

Behavioural economics has become mainstreamed, and is informing policy-making and regulation in the UK and around the world. It’s already affecting the UK financial services sector – expect to see more of it.

As an aside, Stephen enjoyed meeting, and being introduced by the BBC’s Nick Robinson, who went on to share his perspective on the politics of Brexit. No surprises....it’s complicated! So pleasing to find out that Nick is a fan of behavioural economics.

Behavioural economics goes mainstream with Richard Thaler’s Nobel Prize

The Nobel prize for Economics (technically, the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel) has previously been awarded to academics working in the field of decision-making, psychology and economics (Herbert Simon in 1978 and Daniel Kahneman in 2002). But the announcement last week that the 2017 prize would go to Richard Thaler, was the first which explicitly mentioned the award being for “contributions to behavioural economics."

The citation defines behavioural economics as “a research field in which insights from psychological research are applied to economic decision-making. A behavioural perspective incorporates more realistic analysis of how people think and behave when making economic decisions, providing new opportunities for designing measures and institutions that increase societal benefit.”

Thaler’s research was praised for incorporating psychological assumptions into analyses of economic decision-making, his work showing how the limitations of an individual’s knowledge in the decision-making process, as well as the consequences of social preferences and a lack of self-control, can affect people’s decisions as well as market outcomes.  The Royal Swedish Academy of Sciences described Thaler as a pioneer of behavioural economics, saying that it had progressed in recent years from a fringe and somewhat controversial field of research into “a mainstream component of the economics profession.”

Behavioural economics and me

Ten years ago media images showed queues of anxious depositors in British high streets as the crisis at Northern Rock, the first run on a British bank for around a century, became the clearest sign that all was not well in the financial system. A year later, the collapse of Lehman Brothers signalled the full blown emergence of the Global Financial Crisis. These momentous financial events coincided with my new job as an economics lecturer at Brighton Business School, University of Brighton. Economics 101, which I was teaching to first year undergraduates, was hard-pressed to explain the most momentous economic events in living memory. Which was why I turned to other schools of thought, including behavioural economics, launching what turned out to be a series of popular modules on the subject.

Rethinking economics and behavioural economics

Fast forward a few years, and I was invited by the folks at Rethinking Economics to contribute a chapter on Behavioural Economics to a forthcoming reader, aimed at providing an accessible introduction to different approaches to economics and highlight the diversity of economic thought.  The book, which has just been published, introduces new and diverse ideas into undergraduate economics and places the mainstream of economic thought side by side with more heterodox schools. 

According to the publishers, Rethinking Economics: An Introduction to Pluralist Economics is “a great entry-level economics textbook for lecturers looking to introduce students to a broader range of economic ideas, and is  accessible for people outside academia who are interested in economics and economic theory. Can’t say fairer than that.

The Table of Contents from the Reader is a roll-call of alternative economics:

·       Post-Keynesian Economics

·       Marxist Economics

·       Austrian Economics

·       Institutional Economics,

·       Feminist Economics

·       Complexity Economics

·       Co-operative Economics

·       Ecological Economics

·       And my chapter on Behavioural Economics

According to Richard Thaler’s Nobel Prize citation, behavioural economics has become “a mainstream component of the economics profession.” It’s going to be interesting to see if the rest of the “economics profession” agrees!

Nudging in The Smoke: Notes, Quotes and Thoughts on the London Behavioural Insights Conference BX2015

For two days this week Behavioural Exchange, the International Behavioural Insights Conference made London the global epicentre of behavioural economics as applied to policy and practice. Or, if you prefer, behavioural science. Or behavioural insight. Or, as Daniel Kahneman memorably (and acerbically put it) when video-linked for a transatlantic interview with Richard Thaler, “applied social psychology.” 

Behaviour Workshops followed the footsteps and soaked up two days of great talks and discussion sessions from some of the greatest names in behavioural economics (and applied social psychology!), with keynote sessions from Thaler and a virtual Kahneman (video linked from New York), as well as Robert Cialdini, Steven Pinker, Dan Ariely, Max Bazerman and Eldar Shafir. Plus a range of parallel sessions featuring experts from fields such as digital behaviours, savings, education, crime, work, obesity, climate change and international development. 

It’s impossible to summarise two such stimulating days - there's a lot of mental processing still going on. In fact, there were so many great quotes that we will be drip-feeding these into the blog over the next few postings.

As a taster, following are a few of the great quotes from Richard Thaler’s conference appearance, starting with his “Two Nudge Mantras”, notably:

1 If you want to nudge people to do something, make it easy.

2 We can’t do evidence-based policy without evidence.”

Another, memorable quote, which he always puts in his book signings,

“Nudge for good.”

And here are a few more,

“It’s good to have policy where, 'if you do nothing, good things happen.'”

“If you get great results, always replicate. If it looks too good to be true, it probably is.”

“So far, nudge units have used a small amount of psychology and virtually no economics.”

“People question the ethics when nudges are used in the public sector, but not when they are used in the private sector...firms and government should operate to the same standards of behaviour.”

“We didn’t invent nudging, it has been around forever. Private companies do it. And we can’t control what people do with it.”

Plenty to engage System 2 and reflect upon there. Speaking of which, here are some initial reflections on the conference.

Most Shocking Admission

A brilliant session on Revealing Preferences, with Dan Ariely on trust and Google’s Chief Economist Hal Varian on the rich data from search, was introduced by the Head of the UK Government Economic Service, Sir Dave Ramsden. After noting how behavioural economics was being incorporated into government economic policy making, he admitted that, in his personal life, he had been using the same bank for the last thirty plus years, ditto his car insurance, until last year. If the government’s chief economist is such a victim of intertia bias and reluctance to switch, it doesn’t portend well for the much-vaunted power of competition and consumer choice to drive market outcomes (a concept dear to HM Treasury)..

Most Terrifying Conference Workshop (Ever!)

One of the parallel sessions, ‘You Are The Doctor’ investigated the how and why of medical errors – crucial, because these occur in around 10% of UK acute hospital admissions, of which up to 75% are caused by cognitive errors and behavioural biases. Workshop delegates played the role of doctor in an emergency room at the end of a long shift. Using video with actors in key roles, and with a prompt card to remind us of the cognitive and behavioural biases that lurk below our decision making, we had to make quick judgements with life-or-death consequences for the patient. Responses were collected (thankfully, anonymously) and aggregated, using electronic keypads. It’s a fair bet that pulse rates, anxiety and blood pressure levels in the conference room were a lot higher by the end of the workshop. Spoiler alert: we killed the patient. Cognitive biases can kill!

The Corridors of Power

BIT CEO David Halpern noted that behavioural economics and the impact of the Behavioural Insight Team had gone “from the seminar table to the Cabinet table.” This was attested by the presence of the head of the UK Civil Service, Cabinet Secretary Sir Jeremy Heywood, and Matthew Hancock MP, Cabinet Office Minister, Paymaster General (and co-author with Nadhim Zahwai MP of a book on the economic crash, ‘Masters of Nothing,’ which looks at the human behaviour that caused the crash).

Lost In Translation: There Is No French word for Nudge

Look up Nudge in the Collins online dictionary, and here’s what you get: 1. donner un (petit) coup de coude à - to nudge each other se donner des coups de coude. Noun : 1 (= push) coup m de coude - to give sb a nudge donner un (petit) coup de coude à qn. 2 (= gentle persuasion) coup m de pouce - to give sb a nudge in the right direction pousser doucement qn dans la bonne direction.  Or when, I asked a French delegate, I learned that the nearest is apparently “incitation.” Despite this, the French government does have a nudge unit. Only it's known as the Mission pour “Methodes d’ecoute et d’innovation.” No doubt that helps to keep the Academie Francaise on side.

My, How You’ve Grown

There were 800-900 of us in the Westminster Plaza for the Behavioural Exchange 2015, from around 20 countries. According to BIT CEO David Halpern, this is more than double the number of attendees at last year’s gathering in Sydney. It would have been hard to imagine this even five years ago, when mention of the words “behavioural economics” would normally generate a blank look.

Most Brilliant Conference Organisation

The BBC’s Home Editor, Mark Easton, who hosted Day 2, commented that it had been the best-organised conference he had ever attended. From a delegate’s perspective, that was also true.

Penultimate Nudge  

From the gent’s toilets at the event. (Now there’s a tricky photo assignment).

Find Out More

Everything will be posted online next week on storify    

And Finally, A Behaviour Workshops Nudge                   

To find out more about our workshops, based on behavioural economics, behavioural science, behavioural insight, applied social psychology and/or social marketing, please drop us an email: behaviourworkshops@gmail.com. We offer workshops that can be tailored to meet the needs of most organisations. Follow us on Twitter @BehaviourW 

Nudging the way to better food choices: Brighton and Hove in 2024?

The latest Annual Report of the Director of Public Health NHS Brighton & Hove City Council, which has just been published, has taken an innovative approach to its subject by projecting the story 10 years into the future. The report describes the population demographics, morbidity and mortality, lifestyle, behaviour, education, social and healthcare systems, housing and major project completions as they could be in Brighton and Hove in 2024. Whilst it may be conjectural, the report is based on evidence from the Office of National Statistics population estimates, published literature on developments in health and social care and extrapolation of data from past trends to 10 years hence.

The author of the report is Dr Tom Scanlon, Director of Public Health, Brighton & Hove City Council, with sections written by members of the public health team. The report looks at demographic trends and lifestyles, including an epidemic of obesity – plus education, housing, mental health, transport, and the economy: all factors which will affect public health.

The section of the report on obesity reflects Public Health England’s recommendations on food availability in schools, colleges, leisure centres and other places where children gather and notes that “in 2018 the last vending machine was finally removed from the city’s education establishments, and a year later from the city’s sports venues and leisure centres.” On page 24, the following appears,

“The Healthy Partners Award scheme, now in its seventh year means that over 300 of Brighton & Hove’s cafes and restaurants now routinely offer ‘Me Size’ plates – proportionately sized and priced to help families make healthy choices. The city’s annual ‘Nudge’ competition regularly rewards schools, leisure centres, cafes, bars and restaurants for innovative design, lay-out and incentives to promote healthy eating.”

Cass Sunstein and Richard Thaler (authors of ‘Nudge’) - Brighton and Hove salutes you!