Implications for the Economy

• Who is Daniel Kahnman?


  • psychologist interested in looking at how people make decisions.
  • This research led to a new area of research called behavioural economics which has an effect on the way people think about thinking
• What is an availability heuristic?


  a type of cognitive bias that allows us to make quick, sometimes inaccurate judgements. It relies on information that comes to mind quickly or is most available to us
• availability heuristic examples


  • people overestimate the likelihood of dying in a plane accident, this is irrational thinking is due to how often we read about the accidents.
  • Availability heuristic- the rule that the likelihood of selecting something is related to its availability
• What's the procedure of availability heuristic research?


  • the researchers read out male and female names to participants, some of the names were famous and some were not
  • participants were asked to estimate whether there was more male or female names on the list.
  • 1st group heard 19 famous male + 20 non famous female
  • 2nd group heard 19 famous female + 20 non famous male
  • this was to counterbalance any gender effect
  • 80% of participants judgements were incorrect, influenced by famous names
• How can Availability heuristic be used to improve the economy?


  • this phenomenon is what makes the marketing process of 'branding' work
  • company makes slogan/logo and shows it over and over again
  • marketing people rely on your familiarity with the name alone to sell the product
• What's the framing effect?


  people's decisions differ depending on whether a choice is presented as a gain or a loss
• What did Tversky and Kahneman ask people to do?


  • asked participants to choose between 2 treatments used on 600 patients suffering from a deadly disease
  • 2 groups given the same facts about the success and failure of the treatment but the facts were framed differently
• What was Tversky and Kahneman study?


  Negative Framing- A would result in 400 deaths, TB would have a 33% chance no one would die

  Positive framing- A would save 200 lives, 33% chance of saving someone
• Who are the Nudge Unit?


  The Behavioural Insights Team (aka the nudge unit) is an organisation set up to apply behavioural economics to try and improve government policy and to save the UK government money.
• What do the Nudge Unit do?

  • drawing the attention of those who fail to pay Vehicle Excise Duty
  • using social norms to increase tax payments
  • Encouraging people to join the organ donor register using reciprocity