Behavioural Economics
This section contains a collection of resources on behavioural psychology and economics, as these disciplines relate to competition, contracting and public policy.
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To Guide the Human Puppet: Behavioural Economics, Public Policy and Public Service Contracting (PDF) Cumming, Lauren, 2008 Serco Institute Institute Discussion Paper No. 3: Behavioural economics is the latest fashion in political circles. This paper critically analyses the application of behavioural economics to policy design and its relevance to public service contracting. UK
Behavioural Economics and Public Policy: Some Insights (PDF)
McAuley, Ian, 2007
University of Canberra Working Paper
This working paper describes how behavioural economics can contribute to evidence-based policy-making. It then discusses several behavioural anomalies whose impact on different aspects of public policy should be explored.
Design a Contract! A Simple Principal-Agent Problem as a Classroom Experiment (PDF) Gächter, Simon and Königstein, Manfred, 2006 The Centre for Decision Research and Experimental Economics Describes a classroom experiment that introduces the reader to the importance of reciprocity and fairness in contract design. UK
Behavioural Economics: Seven Principles for Policy Makers (PDF)
Dawnay, Emma and Shah, Hetan, 2005
New Economics Foundation (nef)
This report summarises findings from behavioural economics and psychology which show how empirical human behaviour differs from the 'rational man' of neoclassical economics. Informed by this multi-faceted, nuanced view of human behaviour, the authors distil their analysis to make seven key recommendations for policymakers.
Behavioral Economics, Psychology, and Public Policy (PDF)
Amir, On; Ariely, Dan; Cooke, Alan; Dunning, David; Epley, Nicholas; Koszegi, Botond; Lichtenstein, Donald; Mazar, Nina; Mullainathan, Sendhil; Prelec, Drazen; Shafir, Eldar; Silva, Jose, 2005
Marketing Letter, Vol. 16, No. 3, pp. 443-454
This paper reviews several of the behavioural improvements to classical economics and cites some of the very few examples in which these insights have informed public policy. The authors then consider possible ways to increase the impact of behavioural research on public policy.
'Protecting Consumers by Protecting Competition': Does Behavioural Economics Support this Contention? (PDF)
Gans, Joshua S., 2005
University of Melbourne Paper
Personal Responsibility and Changing Behaviour: the state of knowledge and its implications for public policy (PDF) Halpern, David; Bates, Clive; Beales, Greg; Heathfield, Adam, 2004 Prime Minister's Strategy Unit This paper reviews the different models based on empirical observations of how people really behave in different situations. It then examines how the government might apply these insights to influence behaviour subtly in the areas of welfare to work, health, crime and education. Finally the paper considers a number of challenges to this approach to designing public policy. United Kingdom
Regulation for Conservatives: Behavioral Economics and the Case for 'Asymmetric Paternalism' Camerer, Colin; Issacharoff, Samuel; Loewenstein, George; O'Donoghue, Ted; Rabin, Matthew, 2003 University of Pennsylvania Law Review, Vol. 151, No. 3, pp. 1211-1254 This article proposes an approach called "asymmetric paternalism", in which policies create large benefits for those who make suboptimal decisions at very little or no cost for those who are fully rational. The authors document those policy interventions, existing and potential, that satisfy this criterion. USA
Libertarian Paternalism Is Not an Oxymoron (PDF)
Sunstein, Cass R. and Thaler, Richard H., 2003
The University of Chicago Law Review, Vol. 70, No. 4, pp. 1159-1202
The Lessons of Behavioural Economics (PDF)
Maynard, Debra, 2003
Australian Graduate School of Management
This short paper reviews the research of two academics at the AGSM on trust and reciprocity in contracting and irrational expectations (optimism) in managerial decision-making.
Why Social Preferences Matter - The Impact of Non-Selfish Motives on Competition, Cooperation and Incentives Fehr, Ernst and Fischbacher, Urs, 2002 The Economic Journal, Vol. 112, No. 478, pp. C1-C33 This article argues that people are not solely motivated by self-interest but that they care positively or negatively for the material payoffs of relevant reference agents. When economists disregard such social preferences, they fail to understand the effects of competition on market outcomes, laws governing cooperation and collective action, effects of material incentives, which contracts and property rights arrangements are optimal and important forces shaping market failure. UK
Do Incentive Contracts Undermine Voluntary Cooperation? (PDF) Fehr, Ernst and Gächter, Simon, 2002 Institute for Empirical Research in Economics This working paper provides experimental evidence indicating that incentive contracts may undermine voluntary cooperation. This undermining effect is consistent with models of inequity aversion and reciprocity. The strength of the effect depends on the way the incentive is framed; voluntary cooperation is undermined to a greater degree when incentives are framed as a price deduction, and to a lesser degree when they are framed as a bonus. ISSN 1424-0459 Switzerland
More Order with Less Law: On Contract Enforcement, Trust, and Crowding Bohnet, Iris; Frey, Bruno S.; Huck, Steffen, 2001 The American Political Science Review, Vol. 95, No. 1, pp. 131-144 This article seeks to understand how contract enforceability affects individual performance for exogenous preferences. It finds that individuals perform a contract when enforceability is strong or weak, but not with medium enforcement probabilities, as the result of trustworthiness being "crowded in" or "crowded out". USA
Motivation Crowding Theory: A Survey of Empirical Evidence (PDF)
Frey, Bruno S. and Jegen, Reto, 2000
Institute for Empirical Research in Economics, Working Paper No. 26
This study demonstrates the empirical relevance of motivation crowding theory using circumstantial evidence as well as findings from laboratory studies and field research.
Altruism, Nonprofits, and Economic Theory Rose-Ackerman, Susan, 1996 Journal of Economic Literature, Vol. 34, No. 2, pp.701-728 This article summarizes the literature on the economics of altruism and discusses the links between altruism, organisational form and market structure. The author then explores the role of competition between nonprofits and for-profits and concludes with some lessons for the regulation of the nonprofit sector. USA
Human Services Contracting: Environmental, Behavioural, and Organizational Conditions DeHoog, Ruth Hoogland, 1985 Administration & Society, Vol. 16, No. 4, pp. 427-454 This article examines three conditions that appear to be critical to achieving the benefits of the contracting out of public services: competition, rational decision-making and government oversight. The author analyses two policy areas, social services and employment and training services, as implemented in the state of Michigan, and concludes that these key organisational, behavioural and environmental factors have often been overlooked. USA