User:LBird BASc/sandbox/ATK/Seminar6/Evidence/Evidence in Behavioural Economics

Behavioural economics is the study of the psychological aspects of economics. The main question is why people make the economic choices they do, and the fundamental difference to the classic study of economics is that behavioural economists don't believe humans make rational choices. As this is a discipline concerned with both masses of people as well as individuals, a mix of different types of evidence becomes important.

Quantitative Methods
Summary of Quantitative Methods

Quantitative data is essentially numerical data, which is then used to establish correlations and causations. Researchers will collect it using some form of measurement, depending on what variable they are researching. Some examples would be weight, height or number of years. The most common methods used to collect this data are: surveys, experiments, field research, and public data with open access.

Application in Behavioural Economics

Much like in classical economics, behavioural economics requires a large number of data which will be used to examine general trends in behaviour. For example, straightforward surveys were used when developing the Prospect Theory. Prospect Theory was developed to understand how people reacted to risk, which was done by posing them a series of scenarios which they had to pick either a risky or a non-risky alternative. The crucial element of this piece of research is that the researchers did not ask why the people made the choices they made. If they had, they would have been using qualitative methods, and they would have had difficulty generalising the phenomenon as each person would give slightly different reasons. Thus, quantitative methods are used to establish patterns of choices.

Qualitative Methods
Summary of Qualitative Methods

When using qualitative methods, researchers collect and interpret non-numerical data. The data could be collected in for example interviews, focus groups or surveys. This method of collecting data lends itself well to understanding how people think and why they act the way they do. However, it's important to note that the results of qualitative research cannot necessarily be generalised.

Application in Behavioural Economics

Qualitative methods have not traditionally been used frequently in behavioural economics, however, suit themselves well to research within behavioural economics. For example, when formulating and studying the phenomenon heuristics, researchers had to ask probe deeper into the reasons for a consumer's choices. The information gathered could be used to classify types of behaviour, such as availability heuristic. Availability heuristic is when a person makes a choice based on previous experiences, and assess the probability that an event will happen based on those experiences.

However, qualitative methods are also limiting within behavioural economics in that they give insight into attitudes rather than behaviour. A person's views of what is right doesn't always translate inte action. Additionally, people can be dishonest or simply not know all the reasons for their behaviour.