Monetary policy and behavioural economics

Some key features of behavioural economics research

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Some key features of behavioural economics research

Social psychology factors in decision-making

Published: 10 April 2024

In a famous experiment in the early 1950s, social psychologist Solomon Asch found something interesting.[19] See Asch (1951). A group of trial subjects were asked to compare two boxes: There were three lines in one and one line in the other. The question asked was which of the three lines in one box was the same length as the line in the other box. The answer was relatively obvious based on a visual inspection. In the control group, where people were allowed to answer themselves, less than 1 per cent of the answers were wrong. But in the actual experiment, the subjects were part of a group of 6-8 hired actors. When the actors were asked to answer first and deliberately gave the wrong answer, more than a third of the subjects gave the same wrong answer.[20] When the size of the groups was varied, it was found that all groups from three people upwards had the same effect on the trial subjects. Adapting your behaviour to the group in this way is called conformity. Interestingly, when only one of the actors deviated from the majority and gave the correct answer, the proportion of incorrect answers among the subjects was reduced to only 5 per cent.

Another well-known concept in social psychology is groupthink, which was introduced by social psychologist Irving Janis in the early 1970s.[21] See Janis (1972). The concept implies that the desire of a group of people to reach consensus leads to a tendency to suppress dissent within and outside the group. Studies have also shown that decisions made in groups can lead to more extreme outcomes than the preferences of the individual participants suggest, contrary to the idea that a group "smooths out" extreme preferences.[22] The tendency for groups to make more extreme decisions than their members’ individual preferences initially reflect is known as group polarisation.

Another well-known concept is the so-called Abilene Paradox, which was launched by the social psychologist and management professor Jerry Harvey in the mid-1970s.[23] See Harvey (1974). The name comes from an anecdote that Harvey used to describe the Paradox: A family in Texas took a road trip to the city of Abilene, even though none of the individuals really wanted to. According to the Paradox, a member of a group wrongly assumes that their preferences are different from those of the others and therefore does not object to the group’s decision. As a result, a group can make decisions that are contrary to its members’ own preferences.