The document provides an introduction to key concepts in behavioural economics. It discusses how behavioural economics studies human psychology and decisions that sometimes diverge from rational self-interest. It outlines several cognitive biases and phenomena like loss aversion, status quo bias, herd behavior, framing effects, and anchoring. The document also contrasts the traditional economic assumptions of homo economicus with a more psychologically accurate perspective of real human behavior.
Updated revision presentation on aspects of behavioural economics and topical issues where behavioural nudges are being used to change the choices of consumers and businesses.
Prisoner's Dilemma is a paradox in decision analysis in which two individuals acting in their own best interest pursue a course of action that does not result in the ideal outcome. The typical prisoner's dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant. As a result of following a purely logical thought process to help oneself, both participants find themselves in a worse state than if they had cooperated with each other in the decision-making process.
In this session, we will be looking at The Prisoner's Dilemma and how it affects our decision making, group and team dynamics, business decisions. We'll look at real world case studies and nature with a goal of understanding this dilemma better.
Topic: Behavioural Economics
Key Takeaways:
How to hone in on human behaviour to market your product
Shaping communications to psychological decision-making tendencies
Improve ROI by becoming more effective at influencing choices to engage, act and buy
Updated revision presentation on aspects of behavioural economics and topical issues where behavioural nudges are being used to change the choices of consumers and businesses.
Prisoner's Dilemma is a paradox in decision analysis in which two individuals acting in their own best interest pursue a course of action that does not result in the ideal outcome. The typical prisoner's dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant. As a result of following a purely logical thought process to help oneself, both participants find themselves in a worse state than if they had cooperated with each other in the decision-making process.
In this session, we will be looking at The Prisoner's Dilemma and how it affects our decision making, group and team dynamics, business decisions. We'll look at real world case studies and nature with a goal of understanding this dilemma better.
Topic: Behavioural Economics
Key Takeaways:
How to hone in on human behaviour to market your product
Shaping communications to psychological decision-making tendencies
Improve ROI by becoming more effective at influencing choices to engage, act and buy
Full Brain Marketing: What is a Brand? 11.4.10EXHIB-IT!
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Marketing exists solely for the purpose of influencing and changing human behavior – that’s what we all hope to achieve! In this presentation, Alex Hunt will focus on the application of Behavioral Economics to the marketing model, articulating a path to behavioral change that helps create famous brands and communications campaigns with greater commercial success. With particular focus on System 1/System 2 thinking and drawing on examples from the corporate advertising world, he will demonstrate that customers are not the rational agent the classical model of marketing has presumed them to be and, instead, are most heavily influenced by personal emotion and social copying in their decision-making. These are the factors we must tap into and experiences to offer if we are to be successful marketers in the twenty-first century.
Alex has over a decade of marketing experience and a track record helping clients develop famous brands and communications. He is currently responsible for leading BrainJuicer – a global research and innovation consultancy – in the US, overseeing offices in Chicago, Los Angeles and New York, and was one of the pioneers of BrainJuicer’s FeelMore50™ – a ranking of the most effective, emotional US advertising.
Before joining BrainJuicer in January ’09, Alex began his career at Millward Brown, working across a range of large CPG, media, financial and retail clients in both the UK and New York. His areas of expertize lie in early stage insight and idea generation and articulation, concept and communications testing, and brand equity assessment. Alex is a regular speaker at marketing and market research industry events including the ARF, Jay Chiat Planning Festival, TMRE and IIEX.
The 10 Top Tips to Help Every Modern Marketer Build a 5-Star ConceptSystem1 Group
People make decisions about new things in exactly the same way they make any decision – quickly, intuitively, and emotionally.
So why make your concepts long, discursive and full of rational benefits?
Force of habit, mainly. But get your concepts right, and your concept testing becomes a whole lot more accurate and useful. Mark Johnson, our Europe MD, has put together a booklet with our best tips on how – and here it is!
FocusU Book Review: Contagious by Jonah Berger FocusU Engage
The phenomenon of things going viral is a recent one, thanks largely to social media. Is there a way to decipher this trend?
While there is no clear formula yet, the book Contagious by Jonah Berger, gives some great insights into how to engineer this, through a whole bunch of engaging stories and examples.
Do pick up this book!
Stanford CS 007-2 (2018): Personal Finance for Engineers / CompensationAdam Nash
These are the slides from the 2nd session of the Stanford University class, CS 007 "Personal Finance for Engineers". This seminar covers the topic of Behavioral Finance.
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These are the slides from the 2nd session of the Stanford University class, CS 007 "Personal Finance for Engineers". This seminar covers the topic of Behavioral Finance.
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This is a revision presentation on aspects of the privatisation of the Royal Mail - an important milestone in the history of privatisation in the UK economy.
This is an updated version of a slideshow revision presentation on the way in which different charts are presented in economics exams and some tips for handling the data in your answers.
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Europe’s largest construction project
Crossrail will increase London's rail capacity by 10%
Crossrail route will run >100km from Reading and Heathrow in the west to Shenfield and Abbey Wood in the east.
40 Crossrail stations including 10 new stations
Crossrail will bring an extra 1.5 million people to within 45 minutes of central London
Total funding available to deliver Crossrail is £14.8bn
Costs outside the £14.8 billion funding package include the estimated £1 billion cost of buying trains, the majority of which will be funded directly by Transport for London
Economics of Crossrail (Microeconomics)Eton College
Europe’s largest construction project
Crossrail will increase London's rail capacity by 10%
Crossrail route will run >100km from Reading and Heathrow in the west to Shenfield and Abbey Wood in the east.
40 Crossrail stations including 10 new stations
Crossrail will bring an extra 1.5 million people to within 45 minutes of central London
Total funding available to deliver Crossrail is £14.8bn
Costs outside the £14.8 billion funding package include the estimated £1 billion cost of buying trains, the majority of which will be funded directly by Transport for London
2. Some behavioural concepts
• Altruism • Bounded rationality
• Anchoring • Endowment effect
• Status Quo Bias • Familiarity bias
• Expert Bias • Money illusion
• Rules of Thumb • Herd behaviour
• Framing problem
• Sunk cost fallacy
• Default behaviour
• Hyperbolic discounting
• The Winners' Curse
• Social capital
• Libertarian paternalism
• Neuro-economics
3. Behavioural economics
• Behavioural economics studies things like what people
think "fairness" means, how much they are driven by
greed, how they respond to cheats and so on.
• Traditionally, economists have assumed people to be
coolly rational calculators of their own self-interest. Over
the past few years, however, evidence from psychology
and brain scans has persuaded many economists that
reason does not always hold sway.
• Acknowledged Source: New Scientist, March 2009
4. Some warm up exercises
• A town is served by two hospitals. In the larger hospital,
about 45 babies are born each day, and 15 in the
smaller hospital. You know that roughly 50% of babies
born are boys, though may be higher or lower on a
particular day. Over one year each hospital recorded the
days on which more than 60% of babies born were boys.
• Which hospital recorded more such days?
– LARGE or
– SMALLER
5. Balls
• A baseball and bat together cost $11. The bat costs $10
more than the ball. How much does the ball cost?
• Write down your answer.
6. Balls
• A baseball and bat together cost $11. The bat costs $10
more than the ball. How much does the ball cost?
• Write down your answer.
• Half of Harvard students said $1, which is the intuitive
answer but wrong!
• Correct answer is 50 cents: $10.50-$.50 = $10.00
• People tend to use “intuitive thinking” or rules of thumb
when answering these questions!
7. Personality Disorder?
• Geoff is shy and withdrawn, invariably helpful, but with
little interest in people. He is meek and tidy, and has a
need for order and structure, and a passion for detail.
• Geoff is most likely to be?
• 1. A Sheep Farmer
• 2. A Salesman
• 3. An Airline Pilot
• 4. A Librarian
• 5. A Novelist
8. Personality Disorder?
• Geoff is shy and withdrawn, invariably helpful, but with
little interest in people. He is meek and tidy, and has a
need for order and structure, and a passion for detail.
• Geoff is most likely to be?
• 1. A Sheep Farmer
• 2. A Salesman
• 3. An Airline pilot
• 4. A Librarian
• 5. A Novelist
9. Names for Children
• Mary‟s Father has 5 daughters.
• The first four are called:
• Sante
• Senti
• Sinto
• Sontu
• What do you think the fifth one is called?
10. Names for Children
• Mary‟s Father has 5 daughters.
• The first four are called:
• Sante
• Senti
• Sinto
• Sontu
• What do you think the fifth one is called?
• Mary
11. Daytime
• If today is Friday, what is the day that follows the day
that comes after the day that precedes the day before
yesterday?
12. Daytime
• If today is Friday, what is the day that follows the day
that comes after the day that precedes the day before
yesterday?
• Thursday
13. Hotel Economics
• You are the caretaker of a new hotel
• The owner has asked you to buy numbers to fix to the
doors of the rooms
• There are 100 rooms in the hotel numbered 1-100
• How many number 9s do you need for the doors?
14. Hotel Economics
• You are the caretaker of a new hotel
• The owner has asked you to buy numbers to fix to the
doors of the rooms
• There are 100 rooms in the hotel numbered 1-100
• How many number 9s do you need for the doors?
• 20
15. Hotel Economics
• You are the caretaker or a new hotel
• The owner has asked you to buy numbers to fix to the
doors of the rooms
• There are 100 rooms in the hotel numbered 1-100
• How many number 9s do you need for the doors?
• 20
• 9,19,29,39,49,59,69,79,89,99
• 90,91,92,93,94,95,96,97,98
17. What is behavioural economics?
• Economics meets psychology
• Explores alternatives to perfect rationality
• Seeks to provide micro-foundations for our choices
18. Self-raised economists
• “The first company to manufacture a
bread-making machine offered one
model, priced at $275. Virtually no
one bought it.”
19. • “The first company to manufacture a
bread-making machine offered one
model, priced at $275. Virtually no
one bought it.”
• “The company then added another,
larger model, priced at $400.
Overnight, the sales of the $275
model took off.”
• Source: Dan Ariely
21. Econs v Humans
• ECONS • HUMANS
• Super-smart
• Rational
• Well defined preferences
• Self-interested / selfish
• Utility maximizers
22. Econs v Humans
• ECONS • HUMANS
• Super-smart • Flawed
• Rational • Biases in behaviour
• Well defined preferences • Social animals
• Self-interested / selfish • Not driven purely by the need
to maximise their welfare
• Utility maximizers
23. We will look at
• Known biases in behaviour
• Default behaviours
• Importance of social norms
• Significance of emotion and affected states when making
choices
24. Some behavioural (cognitive) biases
• Loss aversion and the endowment effect
• Fear of change / status quo bias
• Herd behaviour
• Framing effects
• Availability heuristic
• Anchoring effects
• The zero price bias
• Confirmation bias
25. Loss aversion
• There are emotional and perceptual asymmetries
between losses and gains.
– A loss is more painful than a commensurate gain is
pleasurable: losing a £10 note can be more irritating
than finding one is joyful
– People will go out of their way to avoid losses, while
at the same they would not bother to go out of their
way to gain something
• This is linked to the endowment effect
– People try to keep something that they consider is
„theirs‟, even when it is quite arbitrarily given
26. Fear of change
• People are often uncomfortable with uncertainty and
therefore fear change
• We tend to prefer things the way they‟ve always been,
and invest additional amounts in past strategies which
we have pursued
• Examples?
27. Social (herd) behaviour
• Social learning
– We often look to others to
see how to behave e.g. in
crises
• Expert bias
– We are open to influence
from people in authority or
people we like e.g.
Milgram pain experiment
28. A Young Monk asks.....
Can I Can I
smoke pray
while I’m when I’m
praying? smoking?
29. Ask a new question to change
behaviour
How can you get people to use the stairs rather than the escalator?
31. Framing and anchoring
• How a decision is framed
affects your choices
• Most people are poor when
it comes to
– Assigning probabilities
– Dealing with a little
added complexity when
making decisions
– Too many choices may
cause paralysis by
analysis, reducing sales
32. Framing: Home Insulation
• House insulation
reduces electricity bills
by £200 per year. Two
advertising campaigns:
• Campaign A: “If you
insulate, you will save
£200 per year”
• Campaign B: “if you do
not insulate, you will
lose £200 per year”
• Which campaign will be
more effective?
33. Availability heuristic
• Which has more?
– Words that begin with the letter "R" or "K"
– Words that have the letter "R" or "K" in the third
position
34. Availability heuristic
• Which has more?
– Words that begin with the letter "R" or "K"
– Words that have the letter "R" or "K" in the third
position
• Answer
– Words that have the letter "R" or "K" in the third
position are more common.
– There are three times as many words that have
the letter "K" in the third position
36. Hyperbolic discounting
• Which would you rather have?
• 50% off a new £20 shirt if you
pay in cash
• 1.3% off a new £750 sofa
• £10 off the price of a £80 air
ticket if you book online
37. The zero price bias
• People would rather receive a free $10 gift
certificate (a $10 gain) than pay $7 for a
$20 one ($13 gain).
38. Price anchoring (1)
• Imagine that you are on a
beach on a sweltering day
and that a friend offers to
go back to your hotel to
buy a bottle of your
favourite beer - one for you
and one for your friend.
How much would you be
willing to pay?
• Your answer is
___________
39. Price anchoring (2)
• Imagine that you are on a beach
on a sweltering day and that a
friend offers to go to the nearest
supermarket to buy a bottle of
your favourite beer - one for you
and one for your friend. How
much would you be willing to
pay?
• Your answer is ___________
40. Default behaviour
• Default
– Sometimes known as status-quo bias
– Which aspects of your life are default?
– Default settings can become sticky
• Computers and screensavers / sleep mode
• TV schedules – watching one programme after
another
• Choices made in the supermarket
41. Some behavioural economics issues
• Why people spend more when they swipe a credit card?
• Why do so many people fail to save for the future?
• How can we get people to reduce their own carbon
footprint?
• Why do students find it hard to complete assignments on
time?
• Does our emotional state affect our spending decisions?
• Should we move in the UK to a system of presumed
consent for organ donations?
42. Bounded behaviour
• Bounded behaviour
– People have limited time and capacity to weigh all relevant
benefits and costs of a decision.
– Added complexity can distort choice
• Bounded will-power
– We tend to have more self-control “in the future” than now
• Bounded self-interest
– We are often keen to engage in co-operative behaviour for
the common interest and the common good