Slideshows | May 14, 2013

Behavioural economics? It’s child’s play

If needing to simply convey complex ideas, one technique is to imagine explaining them to a child. Now an academic in Canada has applied this idea to behavioural economics with fun – and insightful – results.

Neil Bendle’s Behavioural Economics for Kids applies the endowment effect (the extra attachment we tend to feel for objects we own) to the bond children form with their toys. The tendency to think events are more likely to happen than they are – or overweighting probabilities – is summed up by a child’s resolve to become a famous pop star.

Why the last M&M?
He summed up 14 of the key concepts, writing that it “should be of interest to students, teachers, researchers and even children who want to know why their sister always wants the last M&M”.
This slideshow highlights five of our favourites.
Bendle is an assistant professor of marketing at Canada’s Richard Ivey School of Business. The free ebook is illustrated by Philip Chen.

 

1

I love my dolly

Possessing something makes it more valuable to us. Research on the endowment effect says it applies to coffee cups and a wide range of other items. Bendle explains it in terms of children’s attachment to their toys.

2

How you say it

The way information is presented can shape our reactions to it. Known as framing, a common example is restaurant menus – although children’s bed time is another great example.

3

This goes in my ice cream fund

Mental accounting is the tendency to divide money into separate buckets. It has significant implications for grownups’ budgeting, with Bendle applying it to the financial goals of younger money managers too.

4

I will be a famous singer

It is difficult to understand “the difference between unlikely and practically impossible”, writes Bendle on the trap of overweighting small probabilities. This is a reason so many people play the lottery week after week and an inconceivably high number of children believe they will be professional singers or footballers.

5

But I thought I would get...

If you get a pay rise, it might feel great for a few months but then expectations might “acclimatise” to expect the new level of income. Bendle writes we tend evaluate relative to what we have (or expect) not on an absolute scale. An ice cream minus sprinkles is his example of “reference dependence”.

EmotionFamilyIrrationalMental accounting

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