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  • Daira Povez-Gamboa

Behavioural Economics 101

You've probably heard the term: "Behavioural Economics" (likely because we've been talking about it all month). Some might know a little about it or can infer what it means. In simple terms, Behavioural Economics can be defined as the study of judgement and choice that intersects psychology and economics: it is about decision making! It relates to the processes of individuals making decisions, so we can easily connect it to our everyday life!

One example can be found in Basketball. The "hot-hand" is when basketball players make several shots in a row and feel they can't miss subsequent attempts. The principle implied is the "Hot-Hand Fallacy", but according to Behavioural Economics, the "hot-hand" does not exist. Success in shooting shots is more about randomness, luck and skill; however, our perception and judgement can be confused by false signals.

Another example we can all relate to (not just basketball fans or players) is taking an exam. Suppose a student fears that they will fail their exam in the morning and instead of studying, they decide to go out and party. In partying the night before the exam, the student has engaged in self-defeating behaviour and increased the likelihood of poor exam performance. However, in the event of failure, the student can attribute their failure to fatigue rather than lack of ability, thus externalising their failure. Furthermore, should the student receive positive feedback about his exam, his achievement is enhanced because he succeeded, despite the handicap.

The principle involved here is "Self-Handicapping", a cognitive strategy to prevent damage to our self-esteem, and we all do it without realising. This relation to Behavioural Economics explains how sometimes we create obstacles for ourselves to manage future expectations of our success or failure!

Some resources to learn more about Behavioural Economics

  • 5 Examples of Behavioural Economics in Your Everyday Life by The Chicago School of Professional Psychology.

  • The documentary film "Freakonomics" which explores human behaviour using economic case studies; for example, researchers paying 9th graders to get better grades!

  • "(Dis)Honesty: The Truth About Lies" is a 90 min documentary that analyses the truth about why, when, and how we lie. (An exciting topic, covered by Dan Ariely, one of the founding fathers of Behavioural Economics!).

  • In the article "An intern's Deep Dive into Behavioral Economics", we learn about Stephanie Cook's interest in Behavioural Economics. The book "Predictably irrational" by Professor Dan Ariely was fundamental in her learning of how humans make decisions without rationalising their outcomes: for example, how we react to the promise of free products or services (e.g waiting in irrationally long queues to get some free food). Stephanie also highlighted how being an intern in Los Angeles Behavioural Economics Lab (LABEL), and her research helped her realise her interest in the "why" of decision-making and a new desire to understand the "what".

Don't miss the opportunity to learn more about this field and understand a bit more about Behavioural Economics!

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