Red Hot or Red Herring: Seven principles of behavioural economics

Nick Southgate
Behavioural Economics Consultant

At the beginning of the Behavioural Economic Agenda in 2009 we published 'Behavioural Economics: Red Hot or Red Herring?' to establish why IPA members should take Behavioural Economics seriously.

We listed seven reasons then. This was never meant to be either an exhaustive or a definitive list (although it was often taken as such – itself a lesson in how Choice Architecture works). We hoped they were principles agencies could learn from and apply.

This article recaps on those seven principles, as well as looking at how important each principle turned out to be in practice.

1. Loss Aversion

"People will work harder to avoid losing something than they will to gain it."

Loss Aversion is one of the most central findings of Behavioural Economics. Loss Aversion explains why there are brands at all. We prefer a certain and good enough solution (like McDonald's) to a less certain chance of getting the very best (a trip to The Fat Duck). The framing of value to trigger a loss averse response is at the heart of two campaigns discussed here for Aldi and Dacia. Both champion discount brands and do so by framing the money spent on more premium brands as a loss.

2. The Power of Now