Why Planners should know about Behavioral Economics

Let’s face it. People are crazy. They make ridiculous decisions, often based on personal biases and inexplicable desires. This irrationality leads to odd results, like building NASA’s mission control 1,000 miles from its launch site, founding a Central American civilization in the middle of a lake, or refusing to purchase a great house because it doesn’t have a bathtub.

While this wackiness can result in some funky and unique outcomes, it unfortunately makes people really hard to understand and predict, especially at an individual level. This irrationality forces all kinds of rational behavioral models to fall apart in the real world.

Take rational economics for instance. Based on a set of behavior ideals, standard economic theories produce over-simplified models. The results assume that all humans have access to all the knowledge available, have no emotions, and will always make logical decisions.

Cue Dan Ariely, Professor of Behavioral Economics at MIT (and director of the Center for Advanced Hindsight). He says the goal of any modeling exercise should be “to reflect the world as accurately as possible” rather than create a beautiful algorithm.

Ariely’s writings, teachings, and extremely accessible videos, circle around the idea of what he calls Predictable Irrationality: that once you admit people are irrational, you can manipulate their decision-making process better and improve your ability to understand and model their behavior.

Beyond academic studying of the subject, Ariely has also applied his expertise to actually try and help people become better decision-makers, ranging from:

Visual Illustrations of our irrationality…

decision illusion

…to calculating your Irrationality Quotient to help determine where you are most vulnerable to making bad decisions…

decision quiz

…to some really cool iPhone apps which you can use for daily decision-making. One of the apps, called Oranges2Apples, helps users better understand the true opportunity cost of the decisions they make.

decision app

In urban planning, we may have something to learn from Ariely and the irrationality of behavioral economics. Rational planning models and economic value systems may help simplify the complex world around us, but may also fail to capture the more nuanced realities of our communities.

Can urban planners plan for irrational human behavior and better advise the decision-making process? Perhaps we take a note from Predictable Irrationality.

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