Nobel economics prize: Richard Thaler and behavioural economics

Supply and demand curves

Nobel economics prize awarded to Richard Thaler — Tyler Cowen, Marginal Revolution

This is a prize that is easy to understand. It is a prize for behavioural economics, for the ongoing importance of psychology in economic decision-making, and for “Nudge,” his famous and also bestselling book co-authored with Cass Sunstein.

Behavioural economics essentially applies the lessons of psychology to economics. Reading in this area is essential if you are a designer, to help you gain an understanding of what makes people tick.

How studying social science made me a better web designer.

The approaches pioneered by Richard Thaler heavily influenced the Behavioural Insights Team, the UK government organisation known informally as the Nudge unit. It was set up in 2010 by the Conservative–Liberal Democrat coalition government to apply behavioural science to policy decisions.

Policymakers around the world are embracing behavioural science — The Economist

Technology is increasing the impact of behavioural techniques. Several British departments employ data scientists who can run speedy trials of letters and leaflets, much as media companies learn what works online by “A/B testing” content, serving one version to half their audience and another to the rest to see which one is more viewed, liked and shared.

Tim Harford’s 2014 article What next for behavioural economics? is a good primer on the field, and the influence it has had through the Behavioural Insights Team. It describes how the team designed cost-effective tests to see what would encourage more people to become organ donors.

…[T]his is exactly why running trials is an excellent idea: had the rival approaches not been tested with an experiment, it would have been easy for well-meaning civil servants acting on authoritative advice to have done serious harm. The trial was inexpensive, and now that the most persuasive message is in use (“If you needed an organ transplant, would you have one? If so, please help others”), roughly 100,000 additional people can be expected to sign up for the donor register each year.

This approach is exactly what good digital designers are doing: A/B testing; minimum viable products; Lean UX. Small, testable hypotheses, designed to help you learn quickly and cheaply.

Once again, economics teaches designers the way forward.

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