Bringing the real world to the policymaking process

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02 Dec 2013 15:33:08.193
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A major new academic network backed by £4m in funding is to investigate what can be done to ensure key policy decisions better reflect real-world behaviour.

The Network for Integrated Behavioural Science is made up of economists, psychologists and computer and complexity scientists from three leading UK universities.

Led by The University of Nottingham, it aims to bridge the gap between theories based on assumptions of rationality, which have long dominated policymaking, and opposing ideas that have recently gained a foothold.
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Basic science of human behaviour

The Network involves the Universities of Warwick and East Anglia, as well as several international partners.

At the heart of its research will be the enduring mystery of what really makes us tick — and why most policy decisions have tended to largely ignore any such considerations.

Professor Chris Starmer, of the University of Nottingham, who is leading the Network, said: “The issues we hope to shed new light on are relevant to everyone.

“Our first task is to examine the fundamental limitations of the basic science of human behaviour, which is currently subject to some strikingly different interpretations.

“The economic models that underpin policy in the UK and elsewhere are founded on the assumption that people are perfectly rational and almost machine-like.

“At the other end of the spectrum is a more complex psychological view that allows for individuals to sometimes make poor decisions – maybe because they’re shortsighted, impulsive or irrational.

“But this view also takes account of how people can sometimes use instinct and intuition to make fast and effective decisions.  
“Both schools of thought capture elements of the truth, but we need to bring them together if we’re to develop usable models based on well-grounded behavioural science.

“Once this has been achieved, the key will be to use our work to shape public policy so that it might reflect much better how people actually behave in the real world.”

Is the real world rational?

In recent years the global financial crisis has arguably provided the most dramatic illustration of the dangers of an overreliance on assumptions of rationality.

The whole financial system was essentially founded on the belief that consumers and markets behave rationally – but the meltdown suggested otherwise.

Since then more “behavioural” approaches – including “nudge” theory, a psychology-based means of guiding consumer behaviour – have gained acceptance.

Professor Starmer, a Professor of Experimental Economics, said: “It’s taken years for behavioural science to get the recognition it deserves and enter the mainstream policy debate.

“But ideas like ‘nudge’ can be just as counterproductive as their ‘rational’ counterparts if their theoretical underpinnings aren’t clearly articulated and properly tested.

“The problem is that good decision-making isn’t always about looking at the bottom line. People might simply follow a ‘rule of thumb’ that has worked for them in the past.

“Crucially, right now the science that informs government debate and policy change around the decision-making process is at best rudimentary and poorly understood.”

The network will investigate the complexity of a number of real-world choices and how decisions are influenced by factors such as impulse, inattention and altruism.

One project will focus on solving consumer “credit puzzles”, including why many people rely on expensive payday loans when cheaper options are available.

Shaping policy and regulation

Another will investigate the question of assigning a monetary value to life, health, safety and other non-marketed goods central to policy and regulation considerations.

Further themes will include strategic thinking, market regulation, the impact of “nudging” and paternalism versus libertarianism in the sphere of welfare economics.

The Economic and Social Research Council has awarded the Network a total of £4m in funding, with Nottingham, as the lead institution, receiving £1.5m of that figure.

Professor Starmer, who is based at the university’s Nottingham School of Economics, said: “The award underlines the enormous potential significance of our work.

“We hope our research will eventually have a direct influence on government policy, shape financial regulation and assist in the design of products and services.

“By far the most important benefit that could ultimately emerge is that many of the high-level decisions that affect all our lives will at last be firmly rooted in reality.”

NIBS is hosting a workshop on individual and household financial decision-making and behaviour in financial markets. It will take place on May 6-8 2014 at the University of Nottingham.

Story credits

More information is available from Professor Chris Starmer on +44 (0)115 846 6067, or Suzanne Robey, Administrator, ESRC Network for Integrated Behavioural Science on +44 (0)115 951 4763,

Emma Thorne Emma Thorne - Media Relations Manager

Email: Phone: +44 (0)115 951 5793 Location: University Park

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