In the previous post, we embarked on an exciting journey exploring the birthplace of behaviour thinking. We uncovered its roots in the convergence of psychology and economics, from the emergence of behaviourism to the early challenge of the rational choice theory.

But the picture of human decision-making wouldn't be complete without delving into the pivotal work of psychologists Daniel Kahneman and Amos Tversky. Let's take a leap forward to the 1970s, where the field of behavioural economics began to redefine our understanding of human decision-making.

The Limitations of Rationality

While the rational choice theory in economics postulated that humans were perfectly rational, making decisions solely based on calculated costs and benefits, Kahneman and Tversky saw things differently. They recognised the limitations of human cognition and the impact of emotional and cognitive biases on our decisions.

Enter Prospect Theory

Prospect Theory, developed by Kahneman and Tversky, brought a significant shift to our understanding. It suggested that people don't always act rationally, as traditional economics would have us believe. Instead, we often use cognitive shortcuts or heuristics when making decisions, which can lead us to make choices that seem irrational from an economic perspective. This influential theory highlighted our innate biases and demonstrated how they could skew our perception of loss and gain, risk, and value.

Explore our more in depth look at Prospect Theory

A New Era: Behavioural Economics

The development of Prospect Theory marked the birth of behavioural economics - a field of study combining psychology's nuanced view of human behaviour with economics' analytical rigour. Behavioural economics began to examine the cognitive, social, and emotional factors influencing our decisions. This fresh perspective provided more accurate and comprehensive predictions of human behaviour.

Behavioural economics shifted the focus from the assumption of rational agents to understanding actual human behaviour, acknowledging our imperfect information processing and our often emotional, context-dependent decision-making. With this, it introduced a more nuanced, holistic approach to understanding economic decision-making.

The Impact on Behaviour Thinking

The insights from behavioural economics transformed behaviour thinking. Recognising that humans aren't perfectly rational allowed for a more realistic approach to understanding and influencing behaviour. By considering the cognitive shortcuts and biases that affect decision-making, professionals working across design, research, and management can develop more effective strategies to nudge people towards desired outcomes.

Stay Tuned...

In our next post, we'll delve into how these groundbreaking insights have been applied in practice, from nudging in public policy to enhancing user experience in design. Look out for "From Theory to Practice: Nudging and Beyond."

In case you missed...

Revisit our previous blog post: The Convergence of Psychology and Economics: The Birthplace of Behaviour Thinking

Related posts

Check out the rest of the series here:

The Convergence of Psychology and Economics: The Birthplace of Behaviour Thinking
From Theory to Practice: Nudging and Beyond

Remember, understanding the past of behaviour thinking equips us to shape its future more effectively. By appreciating the evolution of behavioural economics, we're better positioned to leverage its power to design more human-centred solutions and create positive change.

Key Takeaways:

Behavioural economics marked a leap in our understanding of human decision-making by introducing the concepts of cognitive shortcuts, biases, and irrational choices. This has fundamentally transformed behaviour thinking, enabling a more nuanced and effective approach to influencing behaviour.

The emergence of Behavioural Economics