Unlike rational choice theory, which assumes that individuals always make decisions in their own best interest, behavioural economics points to a gap between rational decision-making on the one hand and the way people actually behave in real life on the other, emphasised Predrag Jovanović, Senior Research Fellow at the Institute of Social Sciences and author of the book Behavioral economics and sustainable development.
Presenting the main results of his research, which is among the first in Serbia to offer readers a comprehensive introduction to the foundations of this relatively young yet internationally well-established and influential field of economic science, Jovanović illustrated through several examples how certain factors lead individuals to make irrational decisions in everyday life, such as excessive borrowing, purchasing unnecessary goods, or maintaining harmful lifestyle habits. At the same time, incentives aimed at encouraging more economical behaviour often fail to produce the expected results, even when they result in financial savings. The need to understand the irrationality and biases inherent in human behaviour has led to the development of behavioural economics.
One of the reasons for the lack of rationality in decision-making, as noted by Dragana Draganac, Associate Professor at the Faculty of Economics, University of Belgrade, lies in the fact that people have limited attention and can be relatively easily steered toward a particular choice – whether beneficial or harmful – often without being aware of it. This so-called choice architecture, she emphasised, although seemingly leaving individuals with freedom of final choice, raises a number of additional questions, such as whether it is ethically justified to “nudge” people toward certain decisions without their awareness.
Boris Delibašić, Full Professor at the Faculty of Organizational Sciences in Belgrade and the third participant in the discussion of Predrag Jovanović’s book, pointed out that people are capable of predicting many things, yet have a limited ability to consider multiple parallel criteria relevant to decision-making simultaneously. This constraint on reasoning results in small probabilities being overestimated and large ones underestimated. It was precisely the insights from behavioural economics that prompted the governments of several developed countries to establish dedicated institutions tasked with developing complex models for assessing facts and criteria and, subsequently, guiding people’s behaviour in a positive direction through simple solutions, which, among other outcomes, has led to significant public cost savings.
During the discussion, a number of important questions were raised, along with additional examples of the advantages and disadvantages of nudging strategies. All participants concluded that, while behavioural economics reveals the negative aspects of human behaviour, it simultaneously opens up opportunities for societies to be better organised and for resources to be used more rationally.
The series “Conversations Аbout Books of the Institute of Social Sciences – Let’s Talk About…” is dedicated to publications of the Institute of Social Sciences. Through discussions with authors, the series presents research results, situates them within a broader scholarly context, and highlights the relevance of the topics for society and public policy. The series is edited by Dr Irena Ristić.
