On a podcast this morning (Gastropod) I heard that a recent study shows people spend 10% more when there is classical music playing in restaurants. Rational economists would say this makes no sense as the value of the food should not be affected by whether the restaurant is playing classical music or jazz. However behavioral economists like Richard Thaler are more concerned with what people actually do rather than what they should do according to purely rational models. Perhaps people associate classical music with more upscale things and therefore expect the food will be more upscale as well. In this book Thaler discusses the history and concepts of behavioral economics including transaction utility and how our expectations of what we should pay, reference prices, influence how much we are willing to pay for pasta at a restaurant with classical music vs. one playing easy listening music.
I first came across Richard Thaler's work when I was doing research for Motiv and read his paper written with Schlomo Benartzi on the Save More Tomorrow program. This is a program that uses inertia to increase retirement savings through automatic increases in retirement account contributions. Then I recently heard him discussing the difference between 'Econs,' people who always act perfectly rationally, and 'Humans' on an amusing episode of Freakonomics. That prompted a visit to the local library which had recently acquired this book. (Nudge is currently checked out, but I will be looking for it next.)
In Misbehaving Thaler covers his whole career starting in the 70's, how he become interested in behavioral economics, the resistance he met to it and his hopes for its continued development as a field. As a designer I was intrigued by his interest in Don Norman and his book The Design of Everyday Things which was originally published in 1988. As he says in Misbehaving, "Designing good public policies has a lot in common with designing any consumer product." I believe the interest and growing acceptance of behavioral economics mirrors the interest and acceptance of the need for 'user-centered' research in product development. These fields are becoming entwined in the increasingly valued fields of service design and user experience design.
It is interesting as we become more reliant on technology we are beginning to acknowledge that humans are not computers and social norms and emotions have a much larger part to play in how we act than we were previously willing to admit. Interestingly, early economists were aware of this but then in the early and mid 20th century I suspect people had a heightened desire to make sense of the world by creating hyper rational systems to explain how things worked and why their systems (particularly free market systems) were best. Emotions are also often viewed as unpredictable and that is somewhat scary. However, as Thaler demonstrates in this book and Dan Ariely described in Predictably Unpredictable, humans do react to many things in predictable, if somewhat irrational ways. Knowing this can be extremely beneficial to practitioners of macro and micro economics, business and design. It also helps us to appreciate and empathize with our fellow human beings, understand human history a little better and forgive ourselves for our lapses in logic. We are all just Humans.