“I wonder how, I wonder why,
Unraveling ethics that touch the blue, blue sky,
And all that I can see is just a question why.”
What if economic theories had a conscience? What if they developed ethical dilemmas, not just in theory but related to their existence? What if they could whisper to each other and have a roundtable meeting for the same? What if you could do a deep dive into this enigmatic world to find the solution to their delusion?
Though the answers to these questions might not seem crucial enough, indirectly knowing the economic theories and their ethical concerns will help you never fall prey to such split personalities of behavioural economics again. But before we delve into this world of hypothetical madness, let's look at the wicked magic of behavioural economics.
Where it all began!
Behavioural Economics represents the fusion of psychology and economics, and it begins where rationality leaves the centre stage to give way to deceived irrational decisions and focuses on how human behaviour deviates itself from the basic assumption of traditional economics which is being completely rational!
Now, to answer all the presented “what ifs” that have been hypothesised, we must turn our attention to the masterful watcher of this symphony of behavioural economics: Nudging! Nudging is the cornerstone, the linchpin, the one hidden in plain sight that orchestrates our perfectly rational decisions into the realm of irrationality, ironically watching and moderating a discussion for the ones who themselves are trying to seek redemption and wash away their sins of unethically influencing individuals.
“Good morning, Theories and Effects, I’m Nudging, the moderator and watcher of this discussion for the ages. Welcome to this roundtable, which will not only challenge your perception but will make you question your convictions, beliefs, and especially your ethics."
When will we know?
All the esteemed guests are seated in their places, and Nudging presents a scenario for the guests to ponder:
“I’ll start off easy and ask you all that: If a consumer is in an electronic store for a new smartphone, then how will you all work to influence the consumer’s decision to buy a not-so-rational option?”
Anchoring Effect: "As Anchoring, I recognise that marketers often use me to set a high initial price, which acts as an anchor for a product, and then offer a lower priced product, thereby making the lower priced product seem like a deal to grab. In this case, the marketer deliberately sets an unreasonably high anchor to deceive consumers into thinking they are getting a value for money purchase; it becomes unethical."
Scarcity Heuristic: “I understand that marketers state that a certain product is exclusive, limited, or in short supply to create a sense of urgency. While this can facilitate faster decision-making by consumers, it's unethical when marketers make false claims related to limited availability to put pressure on consumers. This can not only lead to rushed purchases but also regrettable ones, which undermines the practice of ethical marketing."
Decoy Effect: "Hello, everyone! I'm Decoy Effect, and I've been feeling a moral tug-of-war. You see, marketers often bring me into play by introducing a third, less attractive option alongside two others, one of which is typically pricey. This pushes consumers to choose the more expensive option, making it appear like a better deal than it is. Is this ethical manipulation or a clever nudge? I'm conflicted."
Choice Overload: "Greetings, distinguished guests. I'm Choice Overload, and my job is to shed light on the ethical quandaries that arise when consumers are confronted with an overwhelming array of options. In the field of behavioural economics, I frequently materialise when marketers or decision-makers overwhelm consumers with too many options. This abundance can seem enticing, promising endless possibilities, but it often leads to undesirable outcomes."
Anchoring Effect: "Choice overload. True, a plethora of options can perplex consumers and potentially lead to illogical conclusions. But what exactly makes it unethical?"
Choice Overload: "That's a valid question, Anchoring Effect. Individuals may develop decision fatigue when presented with too many options, resulting in inferior choices. Marketers can take advantage of this by offering consumers a variety of options, successfully directing them towards choices that are more profitable for the seller but not always in the best interests of the consumer.
The moderator, Nudging, concludes the conversation with a needed reminder: "Thank you, my esteemed theories and effects, for your candid insights. Your contributions shed light on the complex ethical web created by behavioural economics. The pursuit of ethical decision-making may be difficult, but it is a worthwhile trip since it allows individuals to make decisions that are true to their desires and free of undue influence."
What’s at stake?
Each scenario indicates the number of intriguing ethical considerations that lie at the core of these behavioural economic theories and effects. The problem remains: whether to maintain the purpose of their existence or respect individual autonomy and guide people to better-informed decisions aligned with their rationality. While the use of these theories is often not noble, their ethical dilemmas do raise an important question: to what extent should marketers use these theories and effects to influence consumer decisions and choices?
Where it all leads...
Nudging's never-before-seen round table discussion has provided us with a deeper knowledge of the ethical quandaries within the psychological discipline of behavioural economics. As these theories struggle with their ethical limitations and boundaries, they remind us that the pursuit of ethical decision-making is a complicated and bumpy road. Real-world behavioural economics applications frequently have substantial effects, making it critical for practitioners and politicians to examine these ethical practices when guiding individuals' actions. Finally, the delicate balance between guiding choices for the greater good and making a profit is an issue that highlights behavioural economics in developing environments.
Author: Hardik Jain
Illustration: Ojas Arora