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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Northern Ireland election results: a shift beneath the status quo

The power of the largest parties has been maintained, while newer parties running on nicher subjects with no connection to Northern Ireland’s traditional religious divide are rapidly rising.

After a long day of counting and tinkering with the region’s complex PR vote transfer sytem, Northern Irish election results are slowly starting to trickle in. Overall, the status quo of the largest parties has been maintained with Sinn Fein and the Democratic Unionist Party returning as the largest nationalist and unionist party respectively. However, beyond the immediate scope of the biggest parties, interesting changes are taking place. The two smaller nationalist and unionist parties appear to be losing support, while newer parties running on nicher subjects with no connection to Northern Ireland’s traditional religious divide are rapidly rising.

The most significant win of the night so far has been Gerry Carroll from People Before Profit who topped polls in the Republican heartland of West Belfast. Traditionally a Sinn Fein safe constituency and a former seat of party leader Gerry Adams, Carroll has won hearts at a local level after years of community work and anti-austerity activism. A second People Before Profit candidate Eamon McCann also holds a strong chance of winning a seat in Foyle. The hard-left party’s passionate defence of public services and anti-austerity politics have held sway with working class families in the Republican constituencies which both feature high unemployment levels and which are increasingly finding Republicanism’s focus on the constitutional question limiting in strained economic times.

The Green party is another smaller party which is slowly edging further into the mainstream. As one of the only pro-choice parties at Stormont which advocates for abortion to be legalised on a level with Great Britain’s 1967 Abortion Act, the party has found itself thrust into the spotlight in recent months following the prosecution of a number of women on abortion related offences.

The mixed-religion, cross-community Alliance party has experienced mixed results. Although it looks set to increase its result overall, one of the best known faces of the party, party leader David Ford, faces the real possibility of losing his seat in South Antrim following a poor performance as Justice Minister. Naomi Long, who sensationally beat First Minister Peter Robinson to take his East Belfast seat at the 2011 Westminster election before losing it again to a pan-unionist candidate, has been elected as Stormont MLA for the same constituency. Following her competent performance as MP and efforts to reach out to both Protestant and Catholic voters, she has been seen by many as a rising star in the party and could now represent a more appealing leader to Ford.

As these smaller parties slowly gain a foothold in Northern Ireland’s long-established and stagnant political landscape, it appears to be the smaller two nationalist and unionist parties which are losing out to them. The moderate nationalist party the SDLP risks losing previously safe seats such as well-known former minister Alex Attwood’s West Belfast seat. The party’s traditional, conservative values such as upholding the abortion ban and failing to embrace the campaign for same-sex marriage has alienated younger voters who instead may be drawn to Alliance, the Greens or People Before Profit. Local commentators have speculate that the party may fail to get enough support to qualify for a minister at the executive table.

The UUP are in a similar position on the unionist side of the spectrum. While popular with older voters, they lack the charismatic force of the DUP and progressive policies of the newer parties. Over the course of the last parliament, the party has aired the possibility of forming an official opposition rather than propping up the mandatory power-sharing coalition set out by the peace process. A few months ago, legislation will finally past to allow such an opposition to form. The UUP would not commit to saying whether they are planning on being the first party to take up that position. However, lacklustre election results may increase the appeal. As the SDLP suffers similar circumstances, they might well also see themselves attracted to the role and form a Stormont’s first official opposition together as a way of regaining relevance and esteem in a system where smaller parties are increasingly jostling for space.