Behavioural Economics

Behavioural economics builds on traditional economic models with insights from behavioural science, offering a framework to further understand and predict customer decisions and market outcomes. Here’s how:

• Behavioural science insights: Our behaviour and choices are affected by subconscious biases and emotional triggers. Importantly this is highly context specific. By drawing on these insights we can better identify behavioural biases and what reforms or strategies might work.
• Economic application: Economics helps identify which behaviours are pivotal to achieving optimal outcomes, either by redirecting activity, bolstering revenue or reducing costs. This helps focus energy on the things that matter.

Public and private sector clients are increasingly harnessing the power of behavioural economics to influence consumer behaviours. A behavioural insights approach can help unearth short-term and long-term actionable strategies and foster positive community outcomes.

The Magic of ‘Nudges’:

Governments are increasingly fond of using ‘nudges’. These can be simple yet profound, ranging from nudging people to pay their taxes on time to boosting organ donation rates. Not only are these nudges often highly effective, but they’re also cost-effective.

But the potential applications of behavioural economics stretch beyond these simpler strategies. It can help identify where our decisions may be flawed and identify solutions to encourage efficient and effective decision making in the face of important constraints. This might include analysing:

• Constraints and cognitive boundaries that affect our ability to choose the best course of action, such as lack of time to process information.
• Context and circumstance– 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. Consider the challenge of motivating individuals to make specific choices during a crisis.
• Behavioural biases: For example, the status quo bias. Often, people lean towards the familiar, resisting change even when change might be beneficial. This can be attributed to high perceived costs of change or simply the inertia of sticking to the known.

At Frontier Economics, we collaborate with our clients to craft an approach and methodology grounded in behavioural economics. Given the importance of context we rely on data analysis to diagnose problems or identify biases and testing, trials and other methodologies (such as games) to identify optimal interventions that achieve desired outcomes. Blending economics with behavioural science provides a sophisticated toolkit with which to study customer decisions.