Economics is mainly about psychology
Many people in the Netherlands have difficulty managing on their income. Professor by special appointment Wilco van Dijk, affiliated to Leiden University and Nibud, is researching what we can do to gain a healthier approach to managing our finances. His inaugural lecture is on 1 April.
Nibud Chair in Behavioural Economics
The Netherlands is one of the world’s richest countries, yet at least 15% of Dutch households have a serious financial arrears and7% of households have problematic debts. More knowledge about economic choices – such as whether or not to save – can help promote people’s financial self-reliance. It is with this in mind that the National Institute for Budgetary Information (Nibud) and Leiden University have installed a special chair: ‘Psychological determinants of Behavioural Economics’. Professor of this special chair Wilco van Dijk conducts research on economic behaviour and his findings are integrated into the information and advice provided by Nibud.
People are ruled by their emotions
It’s difficult to make sound economic choices, says Van Dijk, and it is becoming even harder in our increasingly complex society. ‘To gain greater insight into how choices are made, we need to adjust our ideas about how humans make choices. We are not Homo economicus, but Homo sapiens, so we make decisions based not only on rational considerations, but also on our emotions. In many cases we don't make good use of the information available, or we use it wrongly.'
React less impulsively
Van Dijk examines both in the lab and in the field how desires and impulses influence choices. Together with Nibud, he also develops and tests different interventions that can help people respond less impulsively to temptations. Clear information can help them make good choices, for example, if people decide to take out loans but also want to save regularly to build up a financial buffer to tide them over during economic setbacks.
Too many choices cause frustration
In our ever more complex society, it is often difficult to take in the amount of information available and the number of options, Van Dijk has found. Take health care insurance, for example. There are at least 18 sites for comparing more than fifty health insurances. ‘The effect of too much choice can be that we put off making a decision. And when we do make a choice, we are often less happy with our decision than if we had had fewer options. A wide choice may seem attractive, but is often overwhelming and frustrating.’
Making choices easier
We make choices based on the one hand on personal factors, such as our character, knowledge and skills. And then on the other hand, the context also plays an important role - such as the way a choice is presented. Van Dijk believes that to help people make healthier choices, it is important to provide better financial education and to make it easier for them to make choices.