EzyEconomics CPD Workshop June 2017 Behavioural Economics

1. EzyEconomics CPD Workshop June 2017 Behavioural Economics

2. Outline

3. Big Picture AQA • 4.1.2.1 – Consumer Behaviour • Rational economic decision making and economic incentives • Utility theory: total and marginal utility, and the hypothesis of diminishing marginal utility • Utility maximisation • Importance of the margin when making choices • 4.1.2.3 – Behavioural Economic Theory • Bounded rationality and bounded self-control • Biases in decision making: rules of thumb, anchoring, availability and social norms • Importance of altruism and perceptions of fairness Irrationality Homo Economicus • 4.1.2.4 – Behavioural Economics and Policy • Choice architecture and framing • Nudges • Default choices, restricted choice and mandated choice • 4.1.2.2 – Imperfect Information • Importance of information for decision making • Significance of asymmetric information Policy Information

4. Big Picture EDEXCEL • 1.2.1 – Rational Decision Making • Underlying assumptions of rational economic decision making • Utility max. and profit max. • 1.3.4 – Information Gaps • Symmetric and asymmetric information • How imperfect information may lead to a misallocation of resources Homo Economicus Information • 1.2.10 – Alternate Views of Consumer Behaviour • The reasons why consumers may not behave rationally: • Consideration of the influence of other people’s behaviour • Importance of habitual behaviour • Consumer weakness at computation Irrationality Policy

5. Big Picture 3 Homo Economicus i i 1 i i 4 i i 2 i i i 5

6. Big Picture 3 Homo Economicus i 1 i i 4 2 i i 5

7. Big Picture 3 Homo Economicus i 1 i i 4 2 i i 5

8. Big Picture 3 Homo Economicus i i 1 i i 4 i i 2 i i i 5

9. Big Picture 3 Homo Economicus i i 1 i i 4 i i 2 i i i 5

10. Big Picture 1 Homo Economicus i i 3 i i 5 i i 2 i i i 4

11. Big Picture 1 Homo Economicus Improve Information 3 5 • Quantity • Quality/Clarity • Accessibility 2 4

12. Big Picture Homo Economicus Improve Information Understand human decision making • Quantity • Quality/Clarity • Accessibility • Counter-bias • De-bias

13. 4Ps Framework Yale School of Management: Zoe Chance, Margarita Gorlin, Ravi Dhar

14. 4Ps Framework Yale School of Management: Zoe Chance, Margarita Gorlin, Ravi Dhar

15. 4Ps Framework Yale School of Management: Zoe Chance, Margarita Gorlin, Ravi Dhar

16. 4Ps Framework Yale School of Management: Zoe Chance, Margarita Gorlin, Ravi Dhar Vs

17. 4Ps Framework Yale School of Management: Zoe Chance, Margarita Gorlin, Ravi Dhar

18. 4Ps Framework Yale School of Management: Zoe Chance, Margarita Gorlin, Ravi Dhar

19. 4Ps Framework Yale School of Management: Zoe Chance, Margarita Gorlin, Ravi Dhar

20. 4Ps Framework

21. Google Staff Health

22. Google Staff Health Accessibility Stocking water bottles at eye level and moving fizzy drinks to the bottom of the fridge, behind frosted glass, increased water consumption by 47 %.

23. Google Staff Health Accessibility A study of a breakroom found that users of the beverage station near the snacks were 50 % more likely to eat a snack with their drink.

24. Google Staff Health Vividness/Comparisons Traffic-light system for food choices helps to grab attention and simplify information provision.

25. Google Staff Health Moments of Truth Vegetable of the Day initiative with colourful photos and trivia facts at the moment of truth – meal selection

26. Google Staff Health Quantity Loose M&Ms were originally self-served from large containers. Replaced with small individual packages. Smaller drinks cups and take-out boxes.

27. Google Staff Health Habits Study with google employees. Control group; group given info on link between blood glucose and weight gain; group given info and tools to measure blood glucose and weight and data sheets to record. 27% more progress on their diet goals. Reported healthy choices became automatics

28. Google Staff Health

29. 4Ps Framework

30. UK Pensions Saving Savings Rate Life Expectancy Source: OECD

31. UK Pensions Saving 1991 Average of 11 years of life beyond 65. 2011 Average of 16 years of life beyond 65. 2011 45 % increase in retirement time Source: OECD

32. UK Pensions Saving Three Pillars of Pension Provision Public Pillar Occupational Pillar Voluntary Pillar Pay As You Go Ripe for Influence Minor Sector

33. UK Pensions Saving Defaults Auto-enrolment for workplace pensions one of the most significant impacts of B.E. within a market.

34. UK Pensions Saving Auto-enrollment roll-out - 2012 Source: ONS

35. UK Pensions Saving Level of Auto-Enrollment Savings Too Low Too High UK Process Initial: 1 % / 1 % 2019: 4 % / 3 % / 1 % “Government has thought about this for me” Loss aversion stimulates opt-outs Significant Increases

36. UK Pensions Saving Save More Tomorrow – Auto-Escalation

37. UK Pensions Saving Assortment Complexity of savings instruments puts off potential savers. Simplify options available, focusing on long-term beta trackers.

38. UK Pensions Saving

39. UK Pensions Saving Vividness Making it clear what the implications of savings or a lack of means for quality of life by exemplifying focuses the mind.

40. UK Pensions Saving Comparisons “People like me” – explains how much others in a similar situation are saving.

41. UK Pensions Saving Moments of Truth Provision of information when receiving pay slip?

42. UK Pensions Saving Goals Process of determining goal retirement income which calculates required contribution.

43. UK Pensions Saving