Economics is about understanding consumer behaviour. But we often need a deeper understanding of behaviour and how to change it. This is the role of behavioural economics.

Blending economics with behavioural science provides a sophisticated toolkit with which to study customer decisions. Behavioural science helps us explore what drives customer behaviour: the subconscious, the emotions and the power of context.  Economics helps identify and prioritise the behaviours to target. That is, what are the behaviours that reduce costs or drive revenue?  And what is the best way to change those behaviours?

Many organisations, including governments, charities and other public and private sector bodies have been looking to behavioural economics to change behaviours of consumers or constituents. A behavioural insights approach can offer powerful insights into ways to embed better long-term and short-term action among communities. Governments particularly have been interested in using behavioural economics to encourage the adoption of desired policies. Sometimes called ‘nudges’, these range from encouraging payment of taxes to increasing levels of organ donation. Simple ‘nudges’ are effective and cheap.

Governments are also considering behavioural insights for assistance in more complex areas. For example, how to encourage particular decisions to be made in the face of a disaster. Behavioural economics allows us to go beyond the surface to recognise the many influences at play in decision-making in such a scenario. This might include:

  • constraints on our ability to choose the best course of actions, such as cognitive limits or lack of time to process information
  • the context and circumstance we are in – in the real world we often need to make decisions quickly and may have limited information; this can often work well but may lead to decisions based on behavioural biases
  • reliance on the status quo and failing to adapt to new circumstances where the effort and/or costs of change are high or perceived to be high.

Frontier Economics works with clients to design the right approach and methodology, with appropriate testing, to achieve outcomes using behavioural economics.

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