Yielding to temptation

An introduction to behavioural economics.

One human weakness that we are all familiar with is that we are forever making plans for the future that involve some kind of self-improvement, but later on we renege on these plans and yield to temptation, taking an "easy way out". For example, we plan on going for a run this evening, but then decide to lay back on the couch and watch TV instead; we may go to bed planning to rise at 6am, but when the alarm rings we rapidly hit the snooze button and end up oversleeping. On a more long-term basis, we plan to make regular savings for retirement, but then decide we should spend our money on new furniture for the living room, a new set of golf clubs, and so it goes on. In general we make plans to achieve a larger benefit later, but then change our minds and settle for a smaller benefit sooner.

For a long time, economists have abstracted from such complexities of human decision making. The standard model of economic rationality suggests that we should only change our minds if and when appropriate new information is received. But often the change of mind is not caused by new information. Why humans tend to behave in this way is still a subject of controversy. However, rather than continuing to regard them as an anomaly, economists have begun treating these variations in our behaviour more seriously. Under the label of behavioural economics, new approaches to the study of decision making have been emerging which are catching the imagination of politicians.

Saving for retirement for example is a serious problem for many. Much evidence from the UK and US suggests that a large proportion of people do not save sufficiently for retirement. Various measures that have become known as ‘nudge’ policies are being suggested to address this as an issue of public policy. Unlike traditional regulation by government, nudge policies do not seek to compel us to behave in certain ways, but change what is called the ‘choice architecture’ of the situation, providing incentives for us to act in certain ways. A common nudge policy is to change the default option in a choice situation. Thus, if employers’ pension plans require employees to opt in, there will be a tendency for many to go with the default of remaining outside the scheme. Evidence from the US suggests that the simple measure of reversing this option can substantially increase the number of employees contributing to retirement plans. Furthermore, options can be framed in a way to encourage greater contributions than employees might otherwise make. For example, if people are given 3 options in terms of size of contribution, say £100, £120, and £140 per month, many will choose the middle option. Simply changing the options to £160, £180, and £200 per month automatically increases people’s willingness to contribute, as once again people tend to go for the middle option.

The UK government has taken some of these findings of behavioural economists on board. The 2011 Pensions Act has established default enrollment options which will be implemented in the UK economy over the next six years. A Behavioural Insights Team attached to the Cabinet Office is exploring further applications of nudge policies in other areas such as eating habits or organ donation. However, their effectiveness remains controversial. Many doctors doubt that nudge policies are sufficient to encourage people to change their dietary or smoking habits, and believe that more radical intervention is necessary. Wider debates have focused on the merit and scope of the underlying 'benevolent paternalism' and its implied call for the large scale engineering of choice architectures across the economy. But this does not detract from the fact that the behavioural turn in economics is proving to have a lasting impact on public policy and is rapidly reshaping the economics curriculum taught at universities today.

Nick Wilkinson and Matthias Klaes are the authors of An Introduction to Behavioral Economics, 2nd ed, (Palgrave Macmillan) which will be published in April. A companion blog to the book can be found at http://economicbehavior.wordpress.com/

Decisions, decisions, Getty images.

Nick Wilkinson and Matthias Klaes are the authors of An Introduction to Behavioral Economics, 2nd ed, (Palgrave Macmillan) which will be published in April. A companion blog to the book can be found at http://economicbehavior.wordpress.com/.

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Emily Thornberry heckled by Labour MPs as tensions over Trident erupt

Shadow defence secretary's performance at PLP meeting described as "risible" and "cringeworthy". 

"There's no point trying to shout me down" shadow defence secretary Emily Thornberry declared midway through tonight's Parliamentary Labour Party meeting. Even by recent standards, the 70-minute gathering was remarkably fractious (with PLP chair John Cryer at one point threatening to halt it). Addressing MPs and peers for the first time since replacing Maria Eagle, Thornberry's performance did nothing to reassure Trident supporters. 

The Islington South MP, who voted against renewal in 2007, said that the defence review would be "wide-ranging" and did not take a position on the nuclear question (though she emphasised it was right to "question" renewal). She vowed to listen to colleagues as well as taking "expert advice" and promised to soon visit the Barrow construction site. But MPs' anger was remorseless. Former shadow defence minister Kevan Jones was one of the first to emerge from Committee Room 14. "Waffly and incoherent, cringeworthy" was his verdict. Another Labour MP told me: "Risible. Appalling. She compared Trident to patrolling the skies with spitfires ... It was embarrassing." A party source said afterwards that Thornberry's "spitfire" remark was merely an observation on changing technology. 

"She was talking originally in that whole section about drones. She'd been talking to some people about drones and it was apparent that it was absolutely possible, with improving technology, that large submarines could easily be tracked, detected and attacked by drones. She said it is a question of keeping your eye on new technology ... We don't have the spitfires of the 21st century but we do have some quite old planes, Tornadoes, but they've been updated with modern technology and modern weaponry." 

Former first sea lord and security minister Alan West complained, however, that she had failed to understand how nuclear submarines worked. "Physics, basic physics!" he cried as he left. Asked how the meeting went, Neil Kinnock, who as leader reversed Labour's unilateralist position in 1989, simply let out a belly laugh. Thornberry herself stoically insisted that it went "alright". But a shadow minister told me: "Emily just evidently hadn't put in the work required to be able to credibly address the PLP - totally humiliated. Not by the noise of the hecklers but by the silence of any defenders, no one speaking up for her." 

Labour has long awaited the Europe split currently unfolding among the Tories. But its divide on Trident is far worse. The majority of its MPs are opposed to unilateral disarmament and just seven of the shadow cabinet's 31 members share Jeremy Corbyn's position. While Labour MPs will be given a free vote when the Commons votes on Trident renewal later this year (a fait accompli), the real battle is to determine the party's manifesto stance. 

Thornberry will tomorrow address the shadow cabinet and, for the first time this year, Corbyn will attend the next PLP meeting on 22 February. Both will have to contend with a divide which appears unbridgeable. 

George Eaton is political editor of the New Statesman.