Tuesday, 27 October 2009

Behavioural Economics from The IPA...

Principle 1. People will work harder to avoid losing something than they will to gain it. This is because they have a tendency to ascribe a disproportionately higher value to an item they already have in their possession compared to one they're being offered, even with reference to what they may have originally paid for it"

You can discover the implications of 'Loss Aversion' and the other 6 Behavioural Economic Principles at http://www.ipa.co.uk/Content/Behavioural-Economics-Red-Hot-or-Red-Herring-report.

As Rory Southerland says,

“It’s just the sort of breath of fresh air we need to stimulate our intellectual juices and rise above conversations about time sheets and schedule. It gets us back to the core of what we do and why we do it.”

Quite. What do you think?
Posted by Adrian at 14:34
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3 comments:

Nick Myers said...

My initial reaction is red hot! There was a good write up on this in last week's Campaign.

27 October 2009 14:51
Gary Shannon said...

Is this a breath of fresh air or a rehash of a phrase which is centuries old: "A bird in the hand is worth two in the bush"?

Next stop, economists describe how the grass is always greener on the other side

27 October 2009 14:55
Jamie said...

I agree with Nick this area of study is fascinating.

Behavioural Economics is perhaps one of the only models of economics that can be readily applied to business these days (TCE, principle – agent and supply and demand aside) because it is not stuck in old school theory about humans being perfectly calculating profit maximsing ‘agents’ or whatever the neo-classical argument was in the first place.

And in as far as Sutherlands comments go anything that can give as little fresh air to discuss and debate is a massive bonus.

If anyone wants a look at a fairly seminal paper in the development of behavioural economic the following is the one that springs to mind from uni. I think that this Herbert Simon chap was quite a big deal in this field and this paper really outlines the principles that underpin this area of economics:

A behavioural model of rational choice (1955) HA Simon – The quarterly journal of economics (find it on Jstor.org)


J

27 October 2009 15:07

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