Behavioural economics is an increasingly influential field that is already having some application in both the City and in some areas of policy. For an example of the former, some fund managers have run training sessions that seek to help portfolio managers improve their decision-making (by making them aware of biases). And an example of the latter is some of the analysis in the Pensions Commission report and in the Pensions White Paper which has fed into the ongoing development of Personal Accounts, namely the auto-enrolment approach to membership. This is based on the understanding that failing to join a pension scheme is often (not always) the result of inertia rather than a conscious decision not to join.
I personally find this a really interesting area, but what really surprises me is the apparent lack of interest from those on the Left. I say surprising for a couple of reasons. The first is that behavioural economics in part seeks to establish how people act in practice, as opposed to how economic models suggest that they should act (ie homo economicus). As such it undermines some of the fundamental assumptions of free-market ideology both in terms of economics and human behaviour (although it should be stated that this is not its objective). Secondly, on a purely tactical level, insights from behavioural economics could be used to build the intellectual case against some policies that the labour movement finds problematic, such as the extension of "choice" in public services.
However, to date, as far as I am aware, the Left in the UK doesn't really seem to have grasped the opportunity. The only serious work I am familiar with is an attempt by Which? (ex Consumers Association) to look at choice and public services. I went along to a seminar they ran on the subject a year or two back that was really interesting and attracted quite a lot of civil servants. Around the same time the great Barry Schwartz book The Paradox of Choice was apparently a popular read in policy circles. But there didn't seem to be much interest from the unions then I haven't seen anything since.
I think that this is a missed opportunity, and risks leaving the labour movement stuck in an unproductive anti-choice position. As much as many on the Left are uncomfortable with the idea, if you ask the average punter if they want a choice (in schools, hospitals, pensions etc) they overwhelmingly say "yes". But what behavioural economics shows us is the chasm between what people say and what they do is rather large. And in many circumstances they find the choices they are presented with to be too complex. In many cases, the more choice there is the less likely the individual is to choose. And in public policy the ramifications of choice can be much more significant than in the commercial sector.
My choice of whether to have a pizza or a curry for dinner obviously has less of an impact on me over the course of my life, than my decision whether to save into a pension, or how much to save into it, or where to invest it. Yet many advocates of "choice" fail to make such distinctions. Choice for them is an unqualified good, and whilst there is no attempt to build an intellectual case against the blanket adoption of choice as a policy response their views may hold sway.
It's not just in the area of choice where behavioural economics has useful insights. I would also highlight some of the research into the misinterpretation of statistics, failure to take account of mean regression etc. For example, league tables may provide information that the punters misunderstand. Clearly some of these points are more familiar and some policy people on the Left do apply some of them. But by and large this is still a non-political area.
So my argument is that basically that we should nick it for ourselves. As I have said it provides useful tools to counter the extension of market principles to areas where this is not appropriate (this will clearly vary depending on your politics). But more broadly if the Left wants to remain relevant it needs coherent ideas about both economics and policy reform. I think that behavioural economics is going to play an important role in policy going forward, so we should seek to incorporate the insights it provides into our thinking rather than rely on past assumptions that have not proven so reliable in practice. Behavioural economics shows that the model of the self-interested maximising rational individual is flawed. That means that policy which is based on that model is also flawed. We should be using this as an opportunity to develop alternative approaches.