In the past several days, there have been two pieces from the Fairfax economics team paraphrasing some very thin economic papers which are deemed to been informed by behavioural economics.
The first piece was by Ross Gittins who told us if the tax office changes the way it expresses its letters of demand to non-payers, then rates of compliance lift. Gosh, the insights – make it short, keep it simple, express it clearly, use statistics to which the receiver will relate, hint at a sense of local obligation.
And to to think we needed paper after paper in behavioural economics to realise all this. My suggestion is – just ask the advertising/marketing gurus and they would have told us all this years ago.
And then there was a piece by Peter Martin telling us that people are more likely to be buy convertible cars in the warmer months. I guess that news will really shock the car dealers.
And wait for this – the weather affects our mood and propensity to buy things.
I am in the school of wondering what really is the contribution of behavioural economics. And if the person on the street suffers from bounded rationality, etc., surely this applies to the bureaucrats who are trying to push us around and save us from our poor decision-making.
I am however intrigrued by the possible correlation between weather and responses to happiness/wellbeing surveys. If it is true that one’s sense of wellbeing is influenced by what the weather is at the time the question is asked, there may in fact be a serious inherent flaw in the surveys and all the analysis undertaken on the results.
I’m expecting a lot of sore heads with the upcoming heatwave, although we are in Queensland where it is 30 degrees pretty much every day. Someone should say a prayer of thanks to all those goldplated poles and wires as the demand for electricity soars!
The introduction of the Carbon Tax will prevent heat-waves and make everybody happier.
Win-win. Whoopee.
Rodney
3 Jan 13 at 9:37 am
Bottled water companies stand to make a mint!
The problem with behavioural economics is that it is based on the rational and irrational (as is the nature of behaviour). How do you build a model on the irrational? “Gee it is hot today, I think I’ll go buy myself a new laptop.” Sounds more like irrational economics to me!
Lysander Spooner
3 Jan 13 at 10:37 am
Behavioural economics appears to be a reaction against the ultra-rationalism of mainstream economics. Mainstream economics assumes we can know our preferences over a full range of actual and possible choices and that we will choose our most prefered option within a given budget. No actual living person has ever made such a decision. Behavioural economics’ single contribution to economics is to ridicule this ridiculous assumption of mainstream economics.
I prefer Mises’ approach which only requires that people make an ordinal valuation of actual options available to the individual. You don’t need a whole lot of fancy, but incomprehensible, maths to describe the process and you can leave the behavioural economics to the marketing gurus (which is where it belongs).
johno
3 Jan 13 at 11:30 am
I used to be acquainted with some Sydney prostitutes (in the course of my job) who were adamant that the weather affected their, er, prospects. Warmer weather, better business. Colder weather, less business.
TheWombat
3 Jan 13 at 12:23 pm
I recently read a book on advertising. The author’s main peeve was advertising gurus who didn’t test their ads.
He did make one salient point: if you see the same ad year after year, that means it is working, no matter how hokey.
Jacques Chester
3 Jan 13 at 12:25 pm
He also mentioned that advertising responses are affected by weather. Not just the obvious ones (hot day, more calls to A/C firms); but in general for all advertising.
The “best” weather for an advertiser is bad weather. If it’s too hot, too wet, too cold etc, people stay at home and are more likely to see your advertising in the newspaper, on TV etc.
So I guess this means that, in the long run, the carbon tax will undermine compliance.
Jacques Chester
3 Jan 13 at 12:27 pm
Jacques, are you talking about the Bayswater Car Rental ads? The format hasn’t changed for 45 years, and I still can’t figure out the “No Birds” line.
Winston SMITH
3 Jan 13 at 12:46 pm
There is no doubt that weather affects moods. I spent some years in that socialist mess known as the UK, which has appalling weather. I got very unhappy after a time, which I fixed by returning to the only place worth living in. Many happy years of sunshine and good health have followed.
I actually think weather related mood is probably a learned response rather than an inbuilt biological response. Some people are happy no matter the weather, and in general I’ve found these people come from places with wild weather swings. Those that grow up in sunny, warm places tend to get antsy if they spend too long without seeing it. I’ve actually experienced ‘whinging poms’ complaining about it being ‘too sunny’ as they start to miss weather variability, so the reverse is probably true as well.
brc
3 Jan 13 at 1:26 pm
Winston — anything, really.
For example: “How I X” is a perennial seller. How I lost 10kg in a week, how I saved $5,000 on my new car, how I got a raise, how I got people to read the headline of this ad … and so on.
Similarly, the cheesy long-form copy you find all over the web hawking everything from $9.99 ebooks about weight loss to expensive software to surgical procedures. Complete with use of bold type, lists, subheadings and — of course! — plentiful exclamation marks.
Jacques Chester
3 Jan 13 at 1:50 pm
Judith,
I think the crew at the Office of Best Practice Regulation (yes, that’s what it’s really called Mr Orwell) have been backgrounding the Fairfax press to get a run on their flimsy “Research Paper” on behavioural economics.
These are the supposed deregulation people.
FFS!
Econocrat
3 Jan 13 at 2:31 pm
m0nty
3 Jan 13 at 2:36 pm
Jacques – on the long-form sales letter rife on the internet – the lore is that it converts the best of all. But have they really been tested against other formats, or just against other long-formats?
It seems to me that these days the long-form is considered the gold standard for selling dubious value, but that in itself is such a meme it surely is wrong, because it’s almost urban legend now.
brc
3 Jan 13 at 3:27 pm
This is the crux of my objections to behavioural economics. But this phenomenon goes wider than behavioural economics. If I had a dollar for every time I heard the phrase: ‘the social planner’s problem is…’ In tutorials in all manner of economics subjects. Implicit in that phrase in most cases were the following assumptions:
*There was only one benevolent, omnipotent, omniscient social planner. Politics did not exist.
*The ‘ideal state of affairs’ was known by the social planner in advance, with certainty.
*The social planner could execute their plans perfectly.
Anyone would think that Hayek never won his Nobel prize…I certainly never heard of him from the two G8 universities I attended. I discovered him myself (thank Christ!)…
Skuter
3 Jan 13 at 5:49 pm
That is the very description of Ken Henry, apart from the “knowing”, “certainty”, and “execution” bits.
Econocrat
3 Jan 13 at 6:35 pm
It is all imperfect. There are so many variables that affect behaviour. All that advertisers and economists can do is try to pick the big factors in any given situation. Politics, in the broadest sense, are not at all irrelevant: choices contain inherent arguments.
Elizabeth (Lizzie) B.
3 Jan 13 at 7:06 pm
No Birds – first factual and sensible post I’ve seen from Monty.
Ubique
3 Jan 13 at 7:42 pm
brc — Caples says that long copy sells better than short copy. Given any amount of advertising space, Caples would put in more copy instead of whitespace or other design elements.
He was working in direct mail advertising, where you can track the results.
These days you can very easily track the performance of any advertisement on the internet. It would seem that long copy is measuring up.
Jacques Chester
3 Jan 13 at 11:18 pm
Thanks for that mOnty – it’s been bugging me for thirty odd years, and I never expected to get an explanation this side of the Pearly Gates.
Winston SMITH
4 Jan 13 at 4:35 pm
It really depends on the category you are selling, Jacques. Are you creating a brand image (diamonds! perfume! soft drink!) or are you explaining something (why is this widget going to be 100 times better than that one)? Sometimes clever ads can do both. But it is rare. Direct marketing ads have always concentrated on long copy; that’s the sell, and the medium (now media) sustains it.
Elizabeth (Lizzie) B.
4 Jan 13 at 8:07 pm