A strong grasp of the psychology behind decision-making is paramount to analysing policy making in Africa. Professor Jean-Pierre Benoît explains why students in Africa need to get up to speed on behavioural economics, to better understand the decisions of their countries’ leaders.
“Just looking at data can be very misleading,” says Jean-Pierre Benoît, professor of economics at London Business School. He focuses on understanding behaviours and game theory, the study of how and why people make decisions.
An offshoot of traditional economics, behavioural economics brings in the study of psychology to analyse decision-making behind an economic outcome. It allows for irrational behaviour and illogical decisions, and is gaining recognition as a field of growing importance.
American economist Richard H. Thaler won the Nobel Prize last year for “providing a more realistic analysis of how people think and behave when making economic decisions”. Israeli-American Psychologist Daniel Kahnemann was awarded the Nobel Prize and the Presidential Medal of Freedom for his studies about human decision-making and pioneering research on behavioural economics.
The UK government has embraced Thaler’s “nudge theory” – the belief that small interventions can change a person’s decision – to conduct successful experiments to reduce unemployment and student drop-out rates.
Professor Benoît first gave a class on game theory to students in Benin ten years ago, before the founding of the African School of Economics, the host of this year’s 2018 Africa Meeting of the Econometric Society (AFES). Ahead of the summit, which starts this week in Cotonou, Benin, Professor Benoît gave a four-hour lecture on microeconomic theory to students.
He says, “My session dealt with looking at some results from experiments in how people behave and questioning the interpretation give. It was a more abstract talk that looked at ways to frame experiments and understand them.”
Professor Benoît has undertaken research on overconfidence, particularly its impact on how we view ourselves and the decisions we take. He explains that overconfidence has policy implications for Africa.
“If I am going to tell you that you should plant your crops in this way or buy insurance, whether you listen to me or not depends on your assessment of yourself. Do I need this or am I smarter than everyone else? Should I listen to your healthcare advice or not? Behavioural economics lets us craft policies in light of how people actually reason.
“The conclusions of these experiments may seem straightforward and appear not to need much theory or rigorous approach, but they actually do. I showed students that you do need a rigorous approach to understand experiments; hopefully it will have an impact on the way they do their analysis.”