Hello and welcome
to this short taster lecture
in Behavioural Economics.
My name is Dr Helen Paul
and if you would like to ask
any questions about this talk,
please do email me.
I’m going to take you
through ideas about something
called Economic Man.
Economic Man is the basis
for a lot of the traditional
economic theories and modules
which we used in the past.
However, a new school
of thought has appeared
called Behavioural Economics,
which is about how people
behave in practice
rather than in theory.
And it owes a lot
to the discipline of psychology,
especially with issues
around experimental design.
I particularly want to talk
to you about our own
Experiments module,
which is run
in our own laboratory
and which you can take
if you come to the Southampton
Economics Department.
In the past theories
in economics were
often highly unrealistic
about human behaviour,
people were supposed
to be utility maximising,
which meant that they did
essentially what was best
for their own self-interest.
In all cases they
behaved totally rationally
with regard to their choices
and preferences and they
were able to access
complete information.
This very simplistic idea of
the world is called Economic Man
and it doesn’t really
help us understand
how people operate in practice.
In reality, we know
that people have incomplete
information and it’s costly
for them to access it
or to use it in any way.
Plus, people have
noticeable cognitive biases,
for instance, you’re
more likely to pay attention
to what’s said first
and last in a lecture.
That doesn’t mean
that you’re behaving
completely rationally.
We know that in reality people
aren’t completely rational,
we think of them as
having bounded rationality,
because they don’t have
complete information and
they’re not always processing
that information without bias.
Also, Economic Man
was difficult to square
with ideas around altruism
and self-sacrifice.
And there are points where,
clearly, economic theories based
around Economic Man do not work.
It was very difficult,
for example, to believe in such
a creature as Economic Man
when you start to see financial
stock market bubbles appearing,
people herding into
certain stocks and buying
too many of them,
pushing up prices
to highly unrealistic levels.
How can that happen
if people are totally rational?
We also can think about why
do people believe in fake news?
Again, what is it
about that so-called news
that attracts them
instead of, for example,
scientific evidence?
And we all know
of instances of short-termism,
anyone who has started
an exercise plan or a diet plan
or even a study plan
and given up half way
through will know what I mean.
If we want to look
at how people work
in practice we need to look
at experiments and there
are three types we can use.
One is a natural experiment,
something that has not been
planned or designed by
the person running it.
Essentially, it’s something
that happens in the real world
that just is there
for the economist to look at.
For example, the COVID lockdown,
how do people being
off the streets affect,
say, something like
pollution targets.
That, again, isn’t
something anyone planned,
it’s a natural experiment.
Then we have field experiments,
which are much easier
to set up and control,
they are when we go out
into the wider world and try
to collect data,
maybe through surveys
or other sorts of attempts
to illicit a response.
And a laboratory experiment is
when we control the conditions
within our lab.
I’ll give you an example
of a field experiment done
by our Head of Department,
Corrado Giulietti,
and two of his co-workers.
He was looking
at racial discrimination
in local public services.
Essentially, he and his team
created some sort
of request for help
from various US entities,
that could be
a local police station,
it could be a library
and they created
a reasonable sounding request
and then duplicated it.
It was these two copies
that are the same
in every detail
except that one had a name
that sounded like an African
American name and one did not.
Then they sent off
these requests and saw whether
there was a delay in response,
whether they simply got
a no instead of a yes,
whether the language
used was more abrupt
if the person thought
they were dealing with
an African American citizen.
And Corrado discovered
that actually there were
big differences in the way
African Americans were treated,
especially in the former
slave owning areas
of the Southern States.
That research was
then communicated back
to the people concerned
who’ve started putting
in policies to improve
their treatment of their
African American clientele.
Now, that’s a field experiment
because you’re going
out into the world
and asking for a response.
A lab experiment is going
to take place within
your own laboratory setting
and it’s a much more
controlled environment.
The idea is
that you should have
a testable hypothesis
and you keep things
as simple as possible.
So, that could be
around questions of
whether people cooperate
with one another under
certain conditions.
Or it could be something
that one of our students did,
she wanted to see if people’s
decision making changed
if they were hungry or not
and she used people
who were doing the Ramadan
fast as her experimental group.
You want people to be invested
in what they’re doing,
so there has to be some sort
of payoff as a function
of the actions taken.
That could be anything,
it could be a reward of money,
it could be a reward of sweets,
and it could be
in the case of our module
that some of the marks
for the module are a function
of the actions taken
when you’re going
through the experiments.
You want to have
a way of distinguishing
between control and treatment
conditions and anything
that you can’t control you try
to deal with by randomly
assigning subjects.
Essentially, if we look
at this Bloomberg trading suite,
we can’t use that as
an experimental laboratory,
because you can see
the people here are sitting
next to each other
and they’re able to see
each other’s work.
With psychology laboratories
and economics experimental
laboratories you can’t do that,
you have to have these screens,
so that people
are not influenced by
the person sitting next to them.
That’s why the lab is
different to most just
ordinary computer rooms,
and that’s necessary
in order to do robust research.
When you take
Experiments as a module,
what we do first is we allow you
to have hands-on experimental
experience in that lab.
You run the experiment,
then you feedback
on the results you obtained,
the lecturer then discusses
the relevant economic theory
that underpins the experimental
design and you discuss
the applications of that theory.
This allows you to really get
a hands-on understanding
of how theory works
in the real world
and reminds you
that you are not Economic Man
and neither is anybody else.
This is why Economics
with Experiments is one
of our most popular modules.
Thank you very much
for listening and remember,
if you have any questions
at all we’d be happy
to answer them for you.
Thank you very much.
