Predicting Decisions Using Behavioural Economics Principles
Predicting Decisions Using Behavioural Economics Principles
Predicting Decisions Using Behavioural Economics Principles
To make sense of humans’ irrational behaviour, behavioural economists have compiled a large series of ‘Behavioural Economics Principles’. Each principle describes at a high level how the majority of people will behave under specific circumstances. In practice, these principles can a) help you understand current behaviour, and b) help you change behaviour by leveraging relevant BE principles at the right moment of decision making.
Please note, the principles below have been written and distributed by the Center for Advanced Hindsight, a leading behavioural economics center.
To make sense of humans’ irrational behaviour, behavioural economists have compiled a large series of ‘Behavioural Economics Principles’. Each principle describes at a high level how the majority of people will behave under specific circumstances. In practice, these principles can a) help you understand current behaviour, and b) help you change behaviour by leveraging relevant BE principles at the right moment of decision making.
Please note, the principles below have been written and distributed by the Center for Advanced Hindsight, a leading behavioural economics center.
Download the illustrated card deck containing Bridgeable's Behaviour Change Framework Cheat Cards, and a set of BE Principle flashcards kindly created and distributed by the Center for Advanced Hindsight.
Behavioural Economics Principles Reference List
Anchoring
The first fact, number, or figure a person hears will bias their judgements and decisions down the line.
Anchoring
The first fact, number, or figure a person hears will bias their judgements and decisions down the line.
Availability Bias
People give undue weight to what easily comes to mind: often vivid memories or recent events.
Availability Bias
People give undue weight to what easily comes to mind: often vivid memories or recent events.
Confirmation Bias
People analyze and search for information in ways that support their current ideas.
Decision Paralysis
When given many options, people make the easiest choice, which is often no choice at all.
Default Bias
People pick the easiest option to avoid complex decisions. Defaults provide a cognitive shortcut and signal what people are supposed to do.
Disposition Effect
People have a habit of holding on to poor investments too long and selling good investments too soon.
Ego Depletion
The ability to make good decisions is a limited resource that can be drained by both decision overload and external fatigue.
Endowment Effect
People overvalue what they own.
Friction Costs
People can be deterred from taking action by seemingly small barriers.
Gamification
People like to play games! They will go to great lengths playing a game even if all they get are points.
Goal Gradient
People will work harder to achieve a goal as the goal gets closer.
Herding
People tend to do what others are doing.
Hyperbolic Discounting
People put an unrealistically high value on the here and now and an unrealistically low value on the future.
Identifiable Victim Effect
One identifiable individual, who is described in great detail, evokes deeper emotions and sympathy than does a large group of anonymous individuals.
Implementation Intentions
People are more likely to do something when they specify how, when, and where they will do it.
Lack of Self-Control
People have a hard time delaying gratification.
Loss Aversion
People react to losses more strongly than gains and they try to prevent losses more than they try to make gains.
Mental Accounting
People categorize and spend money differently depending on where it came from and where it is going.
Money Illusion
People confuse actual dollar amounts with the buying power of dollars.
Omission Bias
People consider harmful actions worse than equally harmful inactions.
Opportunity Cost Neglect
People tend to ignore what they give up when they make decisions.
Opportunity Cost Neglect
People tend to ignore what they give up when they make decisions.
Optimism Bias
We overestimate the probability of “things going right for us” and underestimate the probability of “things going wrong for us”.
Ostrich Effect
People who are worried they have fallen off track don’t want to know how they’re doing.
Ostrich Effect
People who are worried they have fallen off track don’t want to know how they’re doing.
Overconfidence
Everyone believes they are right and everyone believes they are above average.
Pain of Paying
Some purchases–such as incremental payments or paying with cash–are more painful than others so people will avoid them.
Payment for Effort
People place a greater value on services and products if they can see the amount of effort put into them.
Planning Fallacy
When planning, people underestimate the resources needed to meet their goals (such as time or level of commitment).
Power of Free
A price of zero is psychologically much more attractive than any other price, no matter how low.
Pre-Commitment
When people actively commit to a goal, they are more likely to achieve it.
Pre-Commitment
When people actively commit to a goal, they are more likely to achieve it.
Reciprocity
People have an inherent desire to help those who have helped them in some way.
Regret & Counterfactuals
Satisfaction depends both on actual outcomes and ideas about what could have happened.
Relativity
People evaluate options by comparing them to what else is around.
Relativity
People evaluate options by comparing them to what else is around.
Relativity
People evaluate options by comparing them to what else is around.
Reward Substitution
Immediate rewards, which appeal to people’s impulsive nature, can be used to motivate behaviours that are beneficial in the long run.
Reward Substitution
Immediate rewards, which appeal to people’s impulsive nature, can be used to motivate behaviours that are beneficial in the long run.
Scarcity Mindset
People who lack a resource, such as money, time, or calories, tend to tunnel in on the scarce resource and carry a larger cognitive load.
Self-Herding
People make decisions by asking themselves what they did last time and assume what they already did must have been a good idea.
Self-Signalling
People behave in ways that reinforce the type of person they believe themselves to be, even if no one else is around to witness it.
Social Proof
People want to be like everyone else and are heavily influenced by what they perceive everyone else is doing.
Status Quo Bias
People are very committed to keeping things the way that they are.
Substitution
It is easier for people to substitute a similar behaviour than to eliminate an entrenched one.
Tunneling
When faced with an emergency, people can only focus on the emergency.
What-the-Hell Effect
People give up on their goal once they’ve fallen off track.
You Are What You Measure
People repeat behaviours that are rewarded, regardless of whether those behaviours lead to success.
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