Each interaction between business and customer can be based on the simple principles of behavioural economics, that while we believe each decision is solely our own, we are influenced by multiple factors some of which we cannot control.
What is behavioural economics
Put simply, behavioural economics is the interaction of psychological, cognitive, emotional and cultural factors that form the basis for the individual’s decisions and views. An example of how these aspects interact can be seen, for example, by an individual taking up Veganism. From cognition of environmental benefits through watching documentaries, varying cultural influences, such as a friend recommending the lifestyle, to innate emotional predispositions, individuals may form different views on becoming a vegan depending on what tools they had at their disposable. It is these elements that shape an individual’s preference and can be applied to business decision making. That these inputting factors all have a role to play when it comes to making decisions, even in the workplace.
Over the last few decades, more companies have been developing software programmes specifically targeted at providing the psychological and in some instances tangible recognition. From earning points during an incentive scheme, to their colleagues being able to thank them on a public level, these platforms ensure employees feel valued. It is this idea of being valued that is ever more important during the current rise in working from home culture, to ensure talent is retained.
Behavioural economics can also be applied to making business strategies. When pitching to another company or an internal team, taking these foundations of behavioural economics into account will ensure a better outcome due to the deeper level of consideration. In the same what rhetoric works, by using logos, pathos and ethos alongside behavioural economic principles, you will not only be able to connect with your audience on a more cognitive level but be able to anticipate potential obstacles.
Behavioural economics and classical economics theory
It is important to understand the distinction between behavioural economics and classical economics theory. Classical economics theory suggests the idea that the economy self- regulates; that it has the ability to ebb and flow from recession to exponential growth. This alongside Say’s law that suggests this continuum is due to monetary measures such as salary and interest rates being flexible, suggests that the economy is governed by itself. However, in terms of behavioural economics, these actions are condensed more in terms of altruism and thus emphasising the decision-making of these individuals; it is the psychological elements that are more important to behavioural economics.
So why is it important to be aware of both ideas? While it can be argued that the economy is able to preserve itself to a certain degree, behavioural economics suggests that actions on a human level may have some impact, such as employers going over the normal salary rate. That when making decisions you should consider not only the classical economic factors but the behavioural economics. Afterall the economy in governed by human beings.