Behavioural Economics: Insights for Transport Planners and Policy Makers



Behavioural Economics: Insights for Transport Planners and Policy Makers

Authors

J Crockett, S Reid, MVA Consultancy, UK

Description

The paper outlines the principles of behavioural economics, reviewing the concepts, theory and evidence of alternative behavioural paradigms, drawing out the implications for transport planning and policy making.

Abstract

Behavioural Economics is a relatively new but rapidly growing area of economic thinking. It draws on insights from psychology to improve the understanding of economic decisions, investigating the implications of relaxing the standard economic assumption that decision-makers are rational and act to maximise their self-interest.

A new body of evidence on behaviour is being assembled that is difficult to ignore. This evidence suggests that decision-makers aren't rational in the way that we often assume them to be. Their preferences are not well defined and instead are shaped by context, attitudes and experience. The decision-making process is adaptive and sometimes inconsistent. Individual behaviours are learned from others and are influenced by motives and perceptions. Decision-makers have relatively limited ability to process large amounts of information and instead draw on different strategies and heuristics to make judgements. These strategies suggest that:

- Decisions are guided by inferences drawn from observing other people's behaviour. Individuals take advice from friends and family, listen to authoritative voices and conform to social norms.

- Once an individual has made a decision they are inclined to stick with it. They develop habits which are hard to change.

- Individuals frequently plan before they act and their actions are influenced by their plans. Their plans evolve over time taking account of previous plans (inertia) and past actions (experience).

- Individuals tend to focus on the task in hand rather than considering the "big picture". They find it difficult to review a full set of options, to gain "perfect information" for each, and as a result place too much emphasis on recent events and unlikely events.

- Individuals have a strong preference for avoiding losses. This asymmetry suggests that the behavioural response is both dependent on the reference point and the direction of change.

With one or two notable exceptions, transport researchers and practitioners have been slow to move away from the concepts of rationality and utility maximization, but times are changing. Policy makers are interested in more subtle ways to influence travel behaviour by carefully constructing the "choice architecture" and "nudging" people in the right direction. This new philosophy, sometimes referred to as "libertarian paternalism", opens up a new dimension in transport policy that requires transport planners to revise their analytical framework.

In this paper we outline the principles of behavioural economics in more detail, reviewing the concepts, theory and evidence of alternative behavioural paradigms, drawing out and illustrating the implications for transport planning and policy making.

Publisher

Association for European Transport