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Symposium 2015

Virtual Library File - Behavioural Economics and Public Policy

The Challenge

Most human thinking is automatic, not deliberative. It is based on what effortlessly comes to mind. Human thinking is also socially conditioned.  Beliefs about what others are doing and expecting sha ...

Most human thinking is automatic, not deliberative. It is based on what effortlessly comes to mind. Human thinking is also socially conditioned.  Beliefs about what others are doing and expecting shape an individual’s own preferences. And humans don’t face situations as “tabula rasa,” but instead interpret situations against the backdrop of their own understandings shaped by culture and existing social patterns.

Behavioral economics has grown in importance over the past decade. It is based on the traditional “neoclassical” model of human behavior used by economists, but incorporates insights from (social) psychology to explain behavior that deviates from this basis. For policies to be effective such as taxes on domestic heating or subsidies for insulation need verifiable predictions of human behavior. However, applying psychological insights to economics is not a simple task and relies on trials and experiments to verify presumptions. Unfortunately, although these trials are often inexpensive, they are frequently neglected by policy makers. This article describes how behavioral and experimental economics has only just begun to extend its influence over to public policy in order to design more sophisticated policies to address current problems.