Behavioural Economics is crucially different to traditional economics, and has many everyday applications to business problems and decisions. Behavioural economics moves away from the ‘rational decision maker’ that underpins traditional economics and instead combines theories of economics with lessons from psychology and how people really behave. In practice people experience risk aversion, regret and uncertainty – how do these impact upon the decisions they make and the outcomes they achieve?
Different types of consumer behaviour under different scenarios can lead to dramatically unexpected outcomes. Our advice and modelling techniques in this area inform businesses on how to use this knowledge to alter their strategies.
Volterra’s research considers how behavioural economics provides insight into how businesses respond to regulation and regulatory change, and what this means for both the regulators setting the rules but also for the businesses trying to maximise their results both in terms of their reputation with the regulator but also their shareholders and customers.
Volterra and Indepen have been working together for several years on applying the concept of behavioural modelling to the regulation of the water industry to analyse the effect of existing and proposed regulatory incentives.
The most recent report, published in November 2012, uses this technique to consider the impact of some of the incentives proposals in Ofwat’s wholesale consultation. This report brings together a number of conclusions on:
- Ofwat’s options for rewards, penalties and trade-offs
- The current incentives on innovation
- The importance of understanding the customer utility function
The Advertising Association
In 2010 Volterra carried out a study to consider the importance of peer acceptance in explaining the rise of childhood obesity in the UK. We found that peer acceptance is a very powerful phenomenon in helping to understand childhood obesity, and is better at explaining the rise in obesity than other factors on which policy interventions are typically based, such as inequality, happiness, physical activity and healthy eating. Have a look at the presentation here.
Volterra carried out a study to test the hypothesis that copying of behaviour by individuals across their social networks is a sufficient condition to account for the recent rapid rise in binge drinking in the UK. We used market research data and models of behavioural choice to examine the rise of binge drinking. We presented the results at the European Social Simulation Association conference in Brescia, and a paper was published in Mind and Society (read the study here). Our findings attracted widespread media coverage including articles in the FT, Nature News, Science Daily and the Telegraph.