A behavioral approach to economic analysis

Implications of smart decision-making and heuristics for production theory and material welfare Abstract Conventional theory assumes that economic agents perform at optimal levels of efficiency by definition and this is achieved when individuals behave in a particular fashion. Moreover, neoclassical production theory masks the process by which optimal output can be achieved. I argue that economic theory should be revised to incorporate some key findings of behavioural economics, while retaining the conventional theory’s normative ideal of optimum output whilst rejecting its normative procedural ideals of how to achieve optimality in production. I argue that neoclassical procedures can be expected to yield sub-optimal levels of output and therefore should not be benchmarks for procedural rationality. I present an alternative more realistic and analytically precise specification of the production function related to the fast and frugal heuristics narrative pioneered by Gigerenzer and Leibenstein’s x-efficient theory. This approach incorporates an understanding of the appropriate procedures, psychological and organization variables, decision-making capabilities and end-goals required to achieve optimality in production and, thereby, grow the wealth of nations, thereby enhancing the material wellbeing of the population at large. This also provides us with the tools to better identify economic inefficiency and the conditions that contribute to it.

Heuristics as tales from the field: the problem of scope Abstract The scope of a heuristic decision making rule is a product of its fit to the context, the extension to which a heuristic can be applied successfully. To achieve effective outcomes, decision makers may use a few heuristics with large scopes or many with narrow scopes. Through a directed review of the literature combined with ethnographic research, this paper contributes to the debate on the problem of scope in three types of heuristics, namely, multipliers, thresholds, and calends. The scope of heuristic rules can be explored from different aspects, including the field in which a heuristic rule is applied and specific parameters that are used in a heuristic decision making process. The three types of heuristic rules we analyze were encountered in our ethnographic research, that was based on phenomenological interviews and observations. For these heuristics we discuss their scopes in through to the following organizing structures: (1) the exploration of the adaptive tool-box, (2) the role of ethnographic methodologies, and (3) the categorization of heuristics.

Architecture of the mind and libertarian paternalism: is the reversibility of system 1 nudges likely to happen? Abstract The libertarian attribute of Thaler and Sunstein’s nudge theory (Nudge: improving decisions about health, wealth, and happiness. Yale University Press, New Haven, 2008) is one of the most important features for its candidature as a new model for public policy-making. It relies on the reversibility of choices made under the influence of nudging. Since the mind is articulated into two systems, the choice taken by System 1 is always reversible because it can be overridden by the deliberative and corrective role of System 2. This article does not aim to criticise the whole theory of nudge and neither to assess its practical efficacy as a policy-making tool. Rather it intends to show that there are doubts that the specific claim of reversibility is correct for a subset of nudges called “System 1 nudges” (Sunstein in The ethics of influence, Cambridge University Press, Cambridge, 2016). And that therefore, in this case, the libertarian claim seems little justified. The thrust of my argument contests the truth of the main pillar of the libertarian claim, namely the dual-process theory of mind. I will show that even the minimal version of dual reasoning, namely the Type 1 and Type 2 processes proposed by Evans and Stanovich (Perspect Psychol Sci 8(3):223–241, 2013), is weakened by psychological and neural data.

Business education: Does a focus on prosocial values increase students’ pro-social behavior? Abstract Prior research has shown a pronounced self-orientation in students of business and economics. This article examines if self-orientation can be alleviated by a focus on prosocial values in business education. In a cross-sectional design, we test the prosocial behavior and values of bachelor students at the beginning and the end of a traditional 3-year business administration program. We compare their behavior with the behavior of two different groups: students from an ethically-oriented international management school and students from a social work program of equal length. The results showed that students of business administration show less prosocial behavior in a dictator game than students in the other two groups. This difference is larger between final-year students than between first-year students. According to the results of the Schwartz Value Survey, the Inglehart Index, and a scale for preferences for distributive justice, students in the three disciplines differ substantially in prosocial values, but there is no significant difference between first and last semester students of the same discipline. We conclude that there is no transmission of self-oriented behavior through self-oriented values emended in traditional business education curricula. Instead, students seem to select academic programs according to their personal and preexisting social orientations.

Brexit behaviourally: lessons learned from the 2016 referendum Abstract Nobel Prize winner Richard Thaler was among those who expected Remain to win the EU referendum. Yet on 23 June 2016, a majority in the UK voted to Leave by a margin of 52–48%. A study of over 450 Leave voters, based on the MINDSPACE framework, looks at whether behavioural factors affected the outcome and at what lessons could be learned for any future votes. It finds that voters had low levels of knowledge which may have undermined any ‘status quo bias’; that messengers used by the Remain campaign didn’t work for this audience; that the Remain campaign’s loss-framed figure of £4300 per household per year was judged to be less than the Leave campaign’s figure of £350 m a week (it is six times larger); and that behaviourally-based arguments on immigration might have had an impact. It notes how behavioural science was used successfully to increase turnout. The implication for communicators is that a ‘Test, Learn, Adapt’ strategy could be helpful in future campaigns.

The quantum-like approach to modeling classical rationality violations: an introduction Abstract Psychological empirical research has shown that human choice behavior often violates the assumptions of classical rational choice models. In the last few decades a new research field has emerged which aims to account for the observed choice behavior by resorting to the concepts and mathematical techniques developed in the realm of quantum physics, such as the “mental state vector” defined in a Hilbert space and the interference of quantum probability. This article is a short introduction to the quantum-like approach to the description of cognitive processes. I argue that the mathematical apparatus of quantum physics can account for the observed violations of classical logic and can help develop effective models of psychological and cognitive phenomena. This is illustrated through the so-called conjunction and disjunction fallacies by providing an alternative interpretation of the results of Linda test and Hawaii test. No-fallacy configurations are made possible in the quantum-like approach by sequential modeling of mental states transitions.

Are measures of life satisfaction linked to admiration for celebrities? Abstract A pattern of research findings indicates that excessive devotion to a favorite celebrity is linked to attitudes and behaviors that are psychologically unhealthy and may predict low life satisfaction. This study examines whether four common measures of life satisfaction (i.e., curiosity, meaning in life, gratitude, and flexibility) predict admiration for celebrities in two university samples and one community sample of young adults. Our results showed significant correlations between celebrity admiration and two measures of life satisfaction (curiosity and gratitude). We also found that the predictors of life satisfaction correlate with each other in ways that are consistent with previous research in positive psychology. Our research suggests an inverse relationship between celebrity admiration and life satisfaction. In addition, the results contribute to establishing the validity of four contemporary life satisfaction measures.

Rationality in a fatalistic world: explaining revolutionary apathy in pre-Soviet peasants Abstract This paper studies the attempts (and failure) of Russian revolutionaries to mobilize the peasantry in the decade leading to the Soviet revolution of 1917. Peasants, who had been emancipated from serfdom only four decades earlier, in 1861, were still largely propertyless and poor. This would, at first glance, make them a ripe target for revolutionary activity. But peasants were largely refractory. We explain this lack of revolutionary spirit through two models. First, despite their lack of education and political awareness, the peasants were rational in their refusal to participate in revolutionary activity; they engaged in a cost–benefit calculus which pushed them away from revolt and political organization. Second, based on the Wildavsky–Thompson cultural types, Russian peasants were largely fatalist: they believed they had no influence on the world, so it was not worth attempting to change it. This paper sheds light on some aspects of the Russian revolution, but also encourages further research in history and economic sociology on the interaction between culture and incentives.

The Role of the Brand on Choice Overload Abstract Current research on choice overload has been mainly conducted with choice options not associated with specific brands. This study investigates whether the presence of brand names in the choice set affects the occurrence of choice overload. Across four studies, we find that when choosing among an overabundance of alternatives, participants express more positive feelings (i.e., higher satisfaction/confidence, lower regret and difficulty) when all the options of the choice set are associated with familiar brands, rather than unfamiliar brands or no brand at all. We also find that choice overload only appears in the absence of brand names, but disappears when all options contain brand names—either familiar or unfamiliar. Theoretical and practical implications are discussed.