Behavioural Economics, alarm clocks and kickable stones

Posted: 8th January 2016


I’d like to start with a question… Do you use an alarm clock to wake yourself up in the morning? (Or maybe you have small children for that!) If you use an alarm clock, a couple more questions for you…

How many times do you hit the snooze button? No, honestly, how many times? Do you use your mobile phone as your alarm? Do you set a second alarm for a few minutes after the first one? Maybe it’s just me then ;)

Was your first thought this morning that you will probably have a bad day today because it started so badly? Because you had to rely on your alarm clock YET AGAIN to help you wake up?

Sounds daft when I put it like that, and generally, no we don't beat ourselves up for using alarm clocks. The truth is we have assembled a whole range of tools, systems, services and techniques to help us navigate our day-to-day lives efficiently. And we do it without apology. It’s our humanness that makes us push our luck, get things wrong, change our minds, make rash decisions, spend too much, laugh a lot, forget things... Being human is ace!

What is Behavioural Economics?

Behavioural Economics is concerned with the gap that exists between what a perfectly rational person would do in their own best interest and what a real human being would do. These characters are often referred to as ‘Econs’ and ‘Humans’ respectively. Perfectly rational Econs make smart rational decisions, take out pensions at the first opportunity, save money, invest in the best products, switch energy supplier for the best deals and complete their assignments early. They can balance the merits of multiple complex possibilities and choose the one that will work for them in the long term. They will know just how much effort to put into their education, their work, their homes and they know the value of time and money. Econs have perfect memory and they don’t need alarm clocks.

Humans on the other hand operate in a more sub-optimal way. We apply an economics of effort, including mental, social and physical effort. In the same way that we have limited physical capacity, we also have a limited mental bandwidth to work with, so we take shortcuts to help us process things quickly and make thousands of minute momentary decisions each day. It turns out that these shortcuts; applying rules of thumb, heuristics and biases, are quite predictable and give us a clue as to how people are likely to behave or choose under certain circumstances.

The godfather of this field of thought is Daniel Kahneman, an Israeli-American Psychologist, who punched a hole in traditional economic theory with his university colleague, the late Amos Tversky in the 1970s. It led to his winning the Nobel Memorial Prize in Economic Sciences in 2002.

Kahneman and Tversky demonstrated we have two very distinct operating systems in our brains:

"" System one: the HUGE, fast, instinctive, emotional, subconscious part; and
"" System two: the much smaller, slow, deliberate, rational and more clunky, conscious part.

Not only that, they also showed us how neatly flawed the workings of both can be.

The system one brain is rather dazzling and computes ridiculously complicated things very fast. System two is a slower, cooler processor, whose job includes keeping a check on the stream of barely conscious outputs and decisions that the system one brain is turning out.

The Kickable Stone

A fun example of the difference between the two types of thinking can be illustrated with the “kickable stone”.

"Hoofable stone"


You will have experienced the thrill of the kickable stone. This is the stone you see on a path that just HAVE to kick. It literally begs you, “kick me, pleeease!”

What happens next is that you somehow adjust your gait and get yourself into the perfect position to kick it as you walk past. And if you kick it just right it will roll a few metres down the path and you get another go at it a few paces later. I wonder if there is a word for the momentary disappointment you feel when you finally kick it out of range. Our super-fast system one brain has this one wrapped up in a flash. Not only that but it is flexible enough to apply a closed loop of judgment, making minor tweaks and adjustments to our steps as we get closer.

If our system two brains were managing this process this is what would happen (let’s ignore for a moment the fact that the cold, system two brain wouldn’t have even the slightest interest in experiencing the joy of kicking a small stone along a path): You stop still for a moment. You realise the stone is a little to your right so it will be best for you to kick with your right foot. You calculate you need to plant your left foot approximately a quarter of a pace length before it, at hip width… You ask yourself “how far away is that stone?” “What is my average step length?” You find the math quite hard, because you haven’t done any long division since you were about 14 years-old, your pupils narrow and your brain starts to hurt with the effort of working it all out. Luckily there’s a calculator in your smartphone...

The fast-thinking system one mind is brilliant, but it is also flawed. It can do relativity in a flash but it doesn’t understand numbers. It can say which gap is bigger, which sound is louder, but it doesn’t know how big or how loud.

Is Behavioural Economics just fashionable right now?

Many people dismiss behavioural economics as a fad and but it’s actually a field that has been emerging for the last 40 years. What amazes me the most is how little its principles are applied. Imagine your work was a game of snakes and ladders, and you were offered a few extra ladders, you’d take them, right? I’m not talking about cheating, I’m talking about a gift of an advantage you can choose to use if you just pay attention and learn even the basics.

I have a background in elite sport and back in the 90s, huge strides were taken in sport science, developing specialised training and recovery techniques to enable athletes to train and compete at ever-higher levels. Would you believe that British Cycling, the World and Olympic medals factory, only 12 years ago still documented that cyclists who consulted sports psychologists must be mentally weak! And it wasn’t a fledgling operation at the time, but a project that had already received millions of pounds of lottery and exchequer funding and which had already succeeded in achieving many Olympic and world titles. Now that British Cycling have experienced the benefits of taking sports psychology seriously, you wouldn’t expect to see them going back to the way they used to do things in a hurry.

Another indicator that behavioural economics is here to stay is the emergence of the C-level behavioural posts across the private sector and some of the public sector. This is where the winning brands and services of tomorrow (and today) will be set apart from their competition and it will touch on more and more of our everyday lives (though most of it will happen under the radar and in reality most of us will barely be aware of it).

And the next time you see a hoofable stone you might be more consciously aware of how you approach it. Don’t you just hate when you become acutely and awkwardly aware of how you walk when you’re walking!!

 

 

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