Ep. 4 discusses behavioural economics - the psychology of decision-making. Economics has a reputation for not fully appreciating the complexities of human decision-making. Many economic theories assume that we all make 'rational' decisions - that we can perfectly process all the details like a computer and come up with the best outcome (or, in econ-speak, we 'maximise utility'). Liam explains that this simplification was not always present and that somewhere in the early stages of the discipline, the psychology fell by the wayside, only to be re-introduced very recently. We discuss this development, taking a detour to discuss Longford's under-appreciated Francis Edgeworth (often overshadowed locally by his Aunt Maria!) and his contribution to the development of economics.
We discuss the various psychological factors that affect our decision-making and how behavioural economists try to understand them. We discuss nudging - how public bodies can use psychology to guide us towards choices that are in our best interest (like taking out a pension or eating a healthy diet) and touch on the ethical issues of these policies. We also consider the risk that firms may use this knowledge to 'nudge' us towards outcomes that are not necessarily in our interest.
We wrap up by discussing how working in this field has affected Liam's decision-making.
Professor Liam Delaney is the AIB Chair of Behavioural Economics at the UCD Geary Institute and Visiting Professor of Economics at Stirling University. Some of the papers mentioned in the interview are available in the 'Contributors' section of IrishEconPod.com.
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