Psychology and the economy

• The Nudge Unit in action:

  Drawing attention to those who fail to pay Vehicle Excise Duty:

  • BIT implemented a trial that included adding pictures of the offending vehicle in the letter send to non-payers of Vehicle Excise Duty that lead to an increase of the payment rates from 40% to 49%.
• The Nudge Unit:

  • The Behavioural Insights Team (Nudge Unit) is an organisation set up to apply behavioural economics to try and improve government policy and to save the UK government money.
• The Framing Effect - People's decisions differ depending on whether a choice is presented as a gain or a loss.
• How can availability heuristic be used to improve the economy?

  • A company makes a logo/slogan and shows it to you over and over again until the company comes to your mind easily.
  • You may not have a particular preference for the brand but the marketing people count on your familiarity with the name alone to sell the product.
• It is believed psychology can contribute to the public good and a better economy.
• Economy = The economy concerns the production, distribution and consumption of goods and services.
• Research has led to a new area of research called behavioural economics which has an effect on the way people think about thinking.

  Main idea to Kahneman's Research:

  • We are all rational thinkers

  Due to this the way we think can be manipulated for the better good of the economy.
• Availability Heuristic = A type of cognitive bias that allows us to make quick, sometimes inaccurate judgements. It relies on information that comes to mind or is available to you.
• Availability Heuristic = Predicting the likelihood of an even based on information you have available to you.
• Tvetsky and Kahneman Research 1973