By Jake Courage, co-founder of the edtech company 42courses.com and avid reader, author & car fanatic.
Although not the sexiest of subjects, behavioural economics is certainly one worth learning more about. It studies the effects of psychological, social, cognitive, and emotional factors on the economic decisions we make. It turns out, human beings are far from the rational decision-making machines we think we are.
Despite being sophisticated, we are still prone to many cognitive biases that impact our decisions. For example, did you know that we can be influenced to buy more French wine in an off-licence simply by listening to French music? Or that imposing an artificial limit on a product will make us buy more of it?
Brought to fame by the extensive research of Amos Tversky and Daniel Kahneman, behavioural economics found itself promoted to the mainstream with the award of a Nobel Prize to the psychologist Richard Thaler in 2017 for his work in the field.
Learning the key techniques of behavioural economics is useful for any individual or organisation trying to affect behaviour change. Mastering this topic will help any business to grow regardless of what stage they’re at. The fact is the principles are very cost efficient to employ and often take a short amount of time to put in place.
To get you started on the subject, here are the 5 top books to read:
- Nudge: Improving Decisions about Health, Wealth, and Happiness by Cass Sunstein and Richard Thaler
The book that arguably kicked behavioural economics out of academia and into the mainstream, Nudge is packed full of fascinating case studies into how we can learn to better influence ourselves and others when it comes to health, wealth and happiness. Sunstein is an American legal scholar and is currently a Professor at Harvard University. As mentioned above, his writing partner Richard Thaler was awarded a Nobel Prize for his efforts to popularise the benefits of this discipline.
- Predictably Irrational by Dan Ariely
Ariely is the Professor of Psychology at Duke University and one of the most well known behavioural economists. Ariely has a knack of explaining difficult academic concepts in a playful and easy to understand way, he’s also given many popular TED talks on the subject and written a number of best selling books. Predictably Irrational is his most popular book and exposes that the way we make decisions is far less rational than we think. It outlines some of the most common and paradoxical ‘errors’ in our thinking and how, in becoming more aware of them, we might enable ourselves and those around us to make better decisions in life and in business.
- Thinking Fast, and Slow by Daniel Kahneman
Daniel Kahneman is considered one of the godfathers of behavioural economics. Although a challenging read, it is worth preserving for an insight into some of the most ground breaking psychological experiments into how humans actually behave, as opposed to how rational economic theory claims they do.
The book mainly looks at the concept of System 1 (fast and automatic) and System 2 (slow and considered) thinking. Kahneman argues that these are the two main ways our brain makes decisions. By taking this into account, we can better understand how to influence behaviour in order to achieve the desired outcome.
- The Choice Factory by Richard Shotton
Shotton is considered one of the brightest minds in the UK advertising industry. As Deputy Head of Evidence at the media agency Manning Gottlieb OMD, he works with some of the world’s leading brands including Virgin, Coke, Halifax and many more.
His debut book has been a runaway success and was described by TED speaker and Vice Chairman of Ogilvy, Rory Sutherland, as “a Haynes Manual for understanding consumer behaviour.”
It takes a close look at 25 behavioural key biases that influence us the most in life. Written as a series of enjoyable and easily accessible chapters, it shows you how you can exploit them to your own advantage when it comes to testing and marketing your products and services.
- Dollars and Sense: How we Misthink Money and How to Spend Smarter by Dan Ariely and Jeff Kreisler
When it comes to dealing with money, we are led much more by our hearts than by our heads. This brilliant book uncovers the emotional forces at work that influence our financial decisions. Using a collection of case studies, hilarious anecdotes and practical examples, Dollars and Sense teaches us how to be better with our money. Something, the book asserts, we could all be a bit better at. Reading the above books will give you a new way to look at the world. It will enable you to much better understand people’s behaviour, as well as how to nudge them into getting the desired outcomes you or your business need.
Can’t wait for the books to arrive? There’s also a more immediate and digital friendly option. An online master class taught by TED speaker and Ogilvy Vice Chairman Rory Sutherland.
Just head to www.42courses.com and select the Behavioural Economics class. Fintech Times readers get a 25% off discount using the code ‘FintechTimes25’