Behavioural Economics can predict irrational human behaviour

December 31, 2012 | article by Ken Thompson in Think Differently (31)

I have been reading about Behavioural Economics (and Behavioural Finance) through the excellent 8-minute summaries from iminds.com. BE explains why we are systemically and predictably irrational in our economic decisions and introduces 2 terms "Bounded Rationality" and "Bounded Willpower" as limits to rationality within which we all operate.

Behavioural Economics

There are 8 prevalent behavioural biases identified by BE which resonate with my previous article on Meta Dilemmas:

Endowment Effect: tendency to place more value on expected losses than expected gains (also known as Risk Aversion)

Status Quo Bias: tendency to stick with current state of affairs even though we can see clearly better alternatives

Framing Bias: tendency to draw conclusions according to the way something seems as opposed to reality

Availability Bias: tendency to rely on easily available information rather than seeking out harder to obtain but more accurate/relevant info

Confirmation Bias: tendency to prioritise evidence which accords with our pre-existing beliefs

Choice Overload: where we have so many options we don't make any decision

Overconfidence: tendency to rate ourselves more knowledgeable and skilful than we actually are

Money Illusion: tendency to judge prices and interest rates at nominal rates rather than taking into account inflation

The article explains how the current global financial crisis could be analysed behaviourally as a large number of players in the market all succumbing to 3 main BE biases - overconfidence, confirmation bias and availability bias.

About Ken Thompson

Ken Thompson delivers keynote conference speeches, workshop facilitation and in-house consultancy in four key business areas:

Creating High Performing Teams in enterprises including Virtual and Mobile Teams (based on the Bioteams Book)
Establishing effective Collaborative Business Networks enabling companies to co-operate effectively in areas such as sales and product development (based on the book - The Networked Enterprise)
How to use the latest social media technologies including blogging and online communities to promote enterprises, brand, organisation or event
Development of graphical on-line interactive Business Games, Dashboards and What-if Simulators for organisations to support Performance Improvement, Strategy Development and Executive Team Development.

Tags: Behavioural Economics, change management, dilemmas, mental models

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Bioteams Books Reviews

Social Propagation is the secret to organizational and team learning

August 21, 2005 | article by Ken Thompson in Book Reviews (37), Online Collaboration Techniques (47)

and the most evolved non-human species on the planet is not who you think it is! Arie de Geus is credited by many as the inventor of the concept of "the learning organisation". In his book "The Living Company" Arie describes an interview with Professor Alan Wilson, distinguished zoologist and botanist.

Buy it now from:
Amazon.Com
Amazon.Co.UK

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Click here to check all Bioteams book reviews

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