Daily Bulletin


  • Written by Tracey West, Lecturer in Behavioural Finance, Griffith University

The Australian Labor Party’s 2019 election campaign showed a depth and breadth of economic policies rare for an opposition party to present. Its policy agenda was boldly extensive. But in developing these policies over the past five years, it seems Labor’s economic minds overlooked some fundamental principles of behavioural economics.

Had greater focus been put on these principles, it is possible Labor would have taken a different approach to selling its credentials, and succeeded in moving more voters its way.

1. People are loss averse

Distinguished psychologists Amos Tversky and Daniel Kahneman demonstrated in the 1970s that losses have a profound psychological impact and people prefer to avoid them. In 1979 they published a paper proposing what they called “prospect theory” – that the pain a person feels from a monetary loss is greater than the pleasure felt from a monetary gain of the same value.

3 lessons from behavioural economics Bill Shorten's Labor Party forgot about economicshelp.org As Tversky and Daniel Kahneman put it succinctly: “Losses loom larger than gains.” This means, when faced with uncertain outcomes, most people prefer keeping the status quo to the risk of change. Labor’s failure to persuade more voters they would gain more than they might lose under its reforms played to the Coalition’s advantage. The government was able, for example, to make the most of Labor’s policy on negative gearing by playing on the chance all home values would fall, even though modelling suggested any fall would be minor. Read more: Confirmation from NSW Treasury. Labor's negative gearing policy would barely move house prices It did something similar with Labor’s franking credit, casting it as a “retiree tax”, and playing on fears that big promises to increase spending on welfare, health, education and wages might mean them losing money from other tax changes. 2. Limited decision-making People’s decisions are limited by the amount of information they have – a concept known as bounded rationality – and giving them more information doesn’t necessarily help. Our ability to pay attention to two or three things at the same time is much more limited than we think. We tend to be selectively inattentive, screening out information we perceive as unimportant, and preferencing information that confirms existing views. Economists Richard Thaler and Cass Sunstein argued in a 2002 article that bounded rationality demanded “libertarian paternalism” – limiting the choices offered to voters without eliminating freedom of choice. Labor went another way – burying voters in an avalanche of policy prescriptions. Arguably it overestimated how much people would absorb, and diluted focus on a few key ideas. 3 lessons from behavioural economics Bill Shorten's Labor Party forgot about System 1 and 2 thinking. www.upfrontanalytics.com To understand and compare policy detail, according to economist and psychologist Daniel Kahneman, requires a deliberate and methodical approach – what he calls “System 2 thinking”. But most media and social media deals in “System 1 thinking”, which responds instinctively to short slogans and repeated messaging. What Labor failed to do was reconcile System 2 idealism with System 1 necessities. 3. Now is worth more than later People place a higher value on the short-term over the long-term. From an evolutionary perspective, this bias has no doubt served us well, particularly in times past when the future was much more uncertain. This disposition informs an important economic concept known as hyperbolic discounting – the tendency for people to increasingly choose a smaller reward sooner over a larger reward later. Say, for example, you were offered a choice between taking $150 now or $160 in four weeks. Most people would take the $150. But what if you were asked to choose between $150 in 48 weeks or $160 in 52 weeks? Research shows most people would then elect to wait the extra four weeks to receive the higher amount of money. So Labor faced the problem of it promising to deliver benefits that might take decades to pan out, such as transitioning from fossil fuels to renewable energy, while the Coalition was offering immediate tax cuts and cheaper energy prices. Many Australians, we can imagine, preferred the more immediate benefits to the longer-term ones. Whatever criticisms might be made about other aspects of the campaign, the Coalition’s messaging demonstrated an intuitive understanding of the behavioural biases of individuals. From its strategy Labor could learn a lot. Read more: Labor's election loss was not a surprise if you take historical trends into account

Authors: Tracey West, Lecturer in Behavioural Finance, Griffith University

Read more http://theconversation.com/3-lessons-from-behavioural-economics-bill-shortens-labor-party-forgot-about-117404

Writers Wanted

Hippocrates and willow bark? What you know about the history of aspirin is probably wrong


My best worst film: She's The Man – Amanda Bynes shines in a hilarious commentary on gender


The Conversation


Prime Minister Interview with Kieran Gilbert, Sky News

KIERAN GILBERT: Kieran Gilbert here with you and the Prime Minister joins me. Prime Minister, thanks so much for your time.  PRIME MINISTER: G'day Kieran.  GILBERT: An assumption a vaccine is ...

Daily Bulletin - avatar Daily Bulletin

Did BLM Really Change the US Police Work?

The Black Lives Matter (BLM) movement has proven that the power of the state rests in the hands of the people it governs. Following the death of 46-year-old black American George Floyd in a case of ...

a Guest Writer - avatar a Guest Writer

Scott Morrison: the right man at the right time

Australia is not at war with another nation or ideology in August 2020 but the nation is in conflict. There are serious threats from China and there are many challenges flowing from the pandemic tha...

Greg Rogers - avatar Greg Rogers

Business News

3 Ways to Keep Your Business Safe with Roller Shutters

If you operate your business in a neighbourhood or city that is not known for being a safe environment, it is not surprising if you often worry about the safety of your business establishments o...

News Co - avatar News Co

Expert Tips on How to Create a Digital Product to Sell on Your Blog

As the managing director of a growing talent agency, I use the company blog to not only promote my business but as a way to establish ourselves as an authority in our industry. You see, blogs a...

Adam Jacobs - avatar Adam Jacobs

How to Find A company with Tijuana manufacturing

If you have decided to launch a business in Tijuana, there is a need to know about the manufacturing companies. The decision to choose a manufacturing company is not so easy as it looks.   The rig...

News Company - avatar News Company

News Co Media Group

Content & Technology Connecting Global Audiences

More Information - Less Opinion