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About behavioural economics

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Behavioural economics is a field of economic analysis that applies psychological insights to human behaviour to explain and predict how people make decisions.

BETA’s 9Q guide to Randomised Controlled Trials (RCTs)

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These 9 guiding questions outline our approach to developing behavioural interventions for RCTs. It pulls together behavioural and RCT expertise from around the world, in an easy to use guide for those looking to develop behavioural interventions for RCTs in government.

Harnessing the power of defaults

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Setting effective defaults is a powerful behavioural insights tool for policy-makers. Find out what makes an effective and ethical default in this guide.

Best laid plans

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Helping people make plans can lead to improved outcomes for individuals. Read this guide to learn about why plans are important, when they can be used and what makes them work.

Behavioural Insights for Public Policy (BX guide)

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Behavioural Insights is already shaping public policy across the country and improving the lives of Australians. We have created a collection of stories about the work of BI units across the federal and state systems.

Richer veins for behavioural insights

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The use of behavioural insights in public policy has traditionally focused on small, low cost ‘nudges’ to improve communications, increase compliance and enhance the way services are delivered. But BETA has begun to look beyond to identify a smaller set of  'richer veins' where BI can offer high financial and social impact. These areas includes consumer choice, financial decision-making and personal wellbeing.

Academic 101: key readings

Are you a book worm? Do you want to get stuck into the academic behavioural economics literature? Here are some suggestions to get you started.

Reading list

Title Author Year
A Course in Behavioral Economics (2nd ed.)  Erik Anger 2016
Advances in Behavioural Economics Colin F Camerer, George Loewenstein, Matthew Robin (Eds.) 2004
Alchemy: the surprising power of ideas that don't make sense Rory Sutherland 2019
Algorithms to Live By: The Computer Science of Human Decisions Brian Christian and Tom Griffiths 2016
Animal spirits: how human psychology drives the economy, and why it matters for global capitalism Robert Shiller and George A Akerlof 2009
Applying Behavioural Insights: Improving information sharing in the family violence system NSW BIU 2017
Behavioural Economics and Policy Design: Examples from Singapore Donald Low (Ed.) 2012
Behavioral foundations of public policy, The Eldar Shafir 2012
Behavioral Game Theory Colin F Camerer  2010
Behavioural Insights and Public Policy: Lessons from around the world OECD 2017
Behavioural Public Policy Adam Oliver 2014
Blindspot: Hidden Biases of Good People Mahzarin R. Banaji and Anthony G. Greenwald 2013
The Brain That Changes Itself: Stories of Personal Triumph from the Frontiers of Brain Science Norman Doidge 2010
Breakdown of Will George Ainslie 2006
Causal Inference for Statistics, Social, and Biomedical Sciences: An Introduction Guido W Imbens and Donald B Rubin 2014
Choices, Values, and Frames Daniel Kahneman and Amos Tversky 2000
Choosing Not to Choose: Understanding the Value of Choice Cass R Sunstein 2015
Conformity Cass R Sunstein 2019
Decisive: how to make better choices in life and work Dan Heath and Chip Heath 2013
Designing for Behavior Change: Applying psychology and behavioral economics Stephen Wendel 2014
Dollars and Sense: How We Misthink Money and How to Spend Smarter Dan Ariely 2017
The Drunkard's walk: how randomness rules our lives Leonard Mlodinow 2008
Economic Development Michael P. Todaro and Stephen C. Smith 2011
The Economic psychology of tax behaviour Erich Kirchler 2007
The Ethics of influence: government in the age of behavioral science Cass R Sunstein 2016
The Elements of Style William Strunk Jr and E B White 1918
Essential Mathematics for Economic Analysis Knut Sydsæter and Peter Hammond 2008
Failing in the Field: What We Can Learn When Field Research Goes Wrong Dean Karlan and Jacob Appel 2016
Field Experiments: Design, Analysis, and Interpretation Alan Gerber and Donald P Green 2012
Foundations of behavioral economic analysis Sanjit Dhami 2017
Freakonomics: A Rogue Economist Explores the Hidden Side of Everything Steven D. Levitt and Stephen J. Dubner 2005
Herd: How to change mass behaviour by harnessing our true nature (Updated and revised) Mark Earls 2009
HBR Guide to Better Business Writing Bryan A Garner 2013
The Honest truth about dishonesty: how we lie to everyone - especially ourselves Dan Ariely 2012
Identity Economics: How our identities shape our work, wages and wellbeing George A Akerlof, Rachel E Kranton 2010
Influence: the psychology of persuasion Robert B Cialdini 2006
Introduction to Econometrics James H. Stock and Mark W. Watson 2007
Judgment under uncertainty: heuristics and biases Daniel Kahneman, Paul Slovic, and Amos Tversky 1982
Last Mile: Creating social and economics value from behavioural insights, The Dilip Soman 2015
Left Brain, Right Stuff: How Leaders Make Winning Decisions Philip Rosenzweig 2014
Made to stick: why some ideas take hold and others come unstuck Dan Heath and Chip Heath 2006
Mastering 'Metrics: The Path from Cause to Effect Joshua D Angrist and Jorn-Steffen Pischke 2014
Microeconomics: Case Studies and Applications Jeff Borland 2016
Mindset: The New Psychology of Success Carol S Dweck 2006
Misbehaving: the making of behavioral economics Richard H Thaler 2015
Naked Economics: Undressing the Dismal Science Charles Wheelan 2002
Naked Statistics: Stripping the Dread from the Data Charles Wheelan 2012
Neuroeconomics: Decision Making and the Brain Paul W Glimcher, Colin F Camerer, Russell Alan Poldrack, and Ernst Fehr 2008
Not Just For the Money: An economic theory of personal motivation Brune S Frey 1997
Nudge for Schools: Helping your students choose success Ian Mackie, Gary MacLennan 2015
Nudge: Improving decisions about health, wealth and happiness Richard H Thaler and Cass R Sunstein 2008
Nudge Theory in Action: Behavioral Design in Policy and Markets Sherzod Abdukadirov 2016
On Freedom Cass R Sunsetin 2019
The Optimism Bias: A Tour of the Irrationally Positive Brain Tali Sharot 2011
The Payoff: the hidden logic that shapes our motivation Dan Ariely 2017
The Power of Habit: Why We Do What We Do in Life and Business Charles Duhigg 2012
Predictably irrational: the hidden forces that shape our decisions Dan Ariely 2007
Pre-suasion: a revolutionary way to influence and persuade Robert B Cialdini 2016
The Psychology Book Nigel C Benson, Joannah Ginsburg, and Voula Grand 2011
Public Economics: Principles and Practice Peter Abelson 2008
Randomized controlled trials: questions, answers, and musings Alejandro R Jadad and Murray W Enkin 2007
Rebel Talent: Why it pays to break the rules at work and in life Francesca Gino  2018
Running randomized evaluations: a practical guide Rachel Glennester and Kudzai Takavarsha 2013
Scarcity: the new science of having less and how it defines our lives Sendhil Mullainathan and Eldar Shafir 2013
Sidetracked: Why our decisions get derailed, and how we can stick to the plan Francesca Gino 2013
Simpler: the future of government Cass R Sunstein 2013
The Smarter Screen: Surprising Ways to Influence and Improve Online Behavior Shlomo Benartzi 2015
The Social Cure: Identity, Health and Well-Being Jolanda Jetten, Catherine Haslam, and Alexander S Haslam 2011
Social Psychology and Economics Devid De Cremer, Marcel Zeelenberg, J Keith Murnighan 2006
Statistical Methods for Psychology David C Howell 2002
Subliminal: How Your Unconscious Mind Rules Your Behavior Leonard Mlodinow 2012
Think twice: harnessing the power of counterintuition Michael J Mauboussin 2009
Thinking, fast and slow Daniel Kahneman 2011
Understand Applied Psychology: Teach Yourself Nicky Hayes 2010
The Undoing project: a friendship that changed our minds Michael Lewis 2016
The Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home Dan Ariely 2010
Valuing life: humanizing the regulatory state Cass R Sunstein 2014
What works: gender equality by design Iris Bohnet 2016
Wiser: Getting beyond groupthink to make groups smarter Cass R Sunstein & Reid Hastie 2015
The Why Axis Uri Gneezy and John A List 2013

Seminal BI materials

Title Description
EAST principles If you want to encourage a behaviour, make it Easy, Attractive, Social and Timely (EAST). These four simple principles for applying behavioural insights are based on the Behavioural Insights Team's own work and the wider academic literature.
The Behavioural Economics Guide (2019) Resources at the end are very useful. Includes a glossary of terms, lists of useful books and Postgraduate Programs in Behavioral Economics and Behavioral Science
Tversky & Kahneman (1971) Belief in the law of small numbers Reports that people have erroneous intuitions about the laws of chance. In particular, they regard a sample randomly drawn from a population as highly representative, I.e., similar to the population in all essential characteristics. The prevalence of the belief and its unfortunate consequences for psychological research are illustrated by the responses of 84 professional psychologists to a questionnaire concerning research decisions
Gneezy & Rustichini, A fine is a price The deterrence hypothesis predicts that the introduction of a penalty that leaves everything else unchanged will reduce the occurrence of the behavior subject to the fine. We present the result of a field study in a group of day‐care centers that contradicts this prediction. Parents used to arrive late to collect their children, forcing a teacher to stay after closing time. We introduced a monetary fine for late‐coming parents. As a result, the number of late‐coming parents increased significantly. After the fine was removed no reduction occurred. We argue that penalties are usually introduced into an incomplete contract, social or private. They may change the information that agents have, and therefore the effect on behavior may be opposite of that expected. If this is true, the deterrence hypothesis loses its predictive strength, since the clause “everything else is left unchanged” might be hard to satisfy.
Daniel Kahneman; Amos Tversky, Prospect Theory: An Analysis of Decision under Risk This paper presents a critique of expected utility theory as a descriptive model of decision making under risk, and develops an alternative model, called prospect theory. Choices among risky prospects exhibit several pervasive effects that are inconsistent with the basic tenets of utility theory. In particular, people underweight outcomes that are merely probable in comparison with outcomes that are obtained with certainty. This tendency, called the certainty effect, contributes to risk aversion in choices involving sure gains and to risk seeking in choices involving sure losses. In addition, people generally discard components that are shared by all prospects under consideration. This tendency, called the isolation effect, leads to inconsistent preferences when the same choice is presented in different forms. An alternative theory of choice is developed, in which value is assigned to gains and losses rather than to final assets and in which probabilities are replaced by decision weights. The value function is normally concave for gains, commonly convex for losses, and is generally steeper for losses than for gains. Decision weights are generally lower than the corresponding probabilities, except in the range of low probabilities. Overweighting of low probabilities may contribute to the attractiveness of both insurance and gambling.
Richard Thaler, Mental Accounting and Consumer Choice A new model of consumer behavior is developed using a hybrid of cognitive psychology and microeconomics. The development of the model starts with the mental coding of combinations of gains and losses using the prospect theory value function. Then the evaluation of purchases is modeled using the new concept of "transaction utility". The household budgeting process is also incorporated to complete the characterization of mental accounting. Several implications to marketing, particularly in the area of pricing, are developed.
Thaler, Toward a positive theory of consumer choice The economic theory of the consumer is a combination of positive and normative theories. Since it is based on a rational maximizing model it describes how consumers should choose, but it is alleged to also describe how they do choose. This paper argues that in certain well-defined situations many consumers act in a manner that is inconsistent with economic theory. In these situations economic theory will make systematic errors in predicting behavior. Kanneman and Tversey's prospect theory is proposed as the basis for an alternative descriptive theory. Topics discussed are: undeweighting of opportunity costs, failure to ignore sunk costs, scarch behavior choosing not to choose and regret, and precommitment and self-control.
MINDSPACE Before the Behavioural Insights Team was created, some of its members were working at the Institute for Government, where they were commissioned by the Cabinet Office to author a report on influencing behaviour with academics from the London School of Economics and Imperial College. The report sets out nine of the most robust influences on our behaviour, which are captured in the simple mnemonic – MINDSPACE.