Behavioural Economics can predict irrational human behaviour

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:


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

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

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

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

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

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

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

  8. 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:

  1. Creating High Performing Teams in enterprises including Virtual and Mobile Teams (based on the Bioteams Book)
  2. 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)
  3. How to use the latest social media technologies including blogging and online communities to promote enterprises, brand, organisation or event
  4. 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.


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