The EU referendum is behavioural economics’ largest experiment yet.
Over the last few months, one topic of conversation has been dividing the closest of friends in pubs and restaurants, and turning polite dinner parties into heated debating chambers.
Only last weekend, I overheard a lady enjoying a pint of Stella outside a pub in arty Penzance, declare that she’s fed up with the constant chatter about the EU referendum. She broadcast to the group that immigration was the cause of all the country’s woes, and she would certainly be voting to leave. Without irony, she ended her tirade suggesting they all go for a nice Indian or Chinese meal.
Whichever way Britain’s residents decide to lean, today undoubtedly marks a historic event for the country. For those interested in behavioural economics, it also has become one of the largest ethnographic studies into the science of decision making.
One of the most robust effects to come out of the field that mixes psychology and economics, is status quo bias.
The cognitive bias suggests that when it comes to making decisions, people tend to stick with the default or incumbent position.
It’s why only 5% of people have switched their bank accounts in the last two years, with 57 per cent of consumers having been with their account provider for more than 10 years.
It’s also why organ donations are more popular in countries where you actively need to opt out, why you probably haven’t changed your utility supplier in the last two years and why being loyal to brands is costing you money in your weekly shop.
Today we have the decision to remain within the EU—the status quo—or leave. Interestingly, polls leading up to today have started to show a swing towards the leave camp. However, this would go against the strong case for the preference of status quo.
We don’t have to look back very far to see how another UK referendum showed a similar pattern. The Scottish Independence referendum in 2014 also had major polls leaning towards an exit in the build up to the final vote. However, not everybody was convinced.
With the referendum on Scottish independence just weeks away, Alan Renwick looks at the patterns of previous votes and finds that support for change generally falls as the day approaches — Daily Telegraph, August 2014
Similar effects have been shown in the vote for electoral reform in 2010 and the abolishment of the Irish senate in 2013, both ending in victory for the default position. A study, using data of 142 popular decisions in Switzerland in the eighties and nineties, showed that the less citizens feel able to make a decision, the less they will vote in favour of a pro- posal.
The reason this bias is so powerful is that we are instinctively more motivated to minimise loss than we are to maximise gain. It’s why, when visiting an unknown town, you’re more likely to end up at Pizza Express, Nandos or McDonald’s than a local independent restaurant. The draw of knowing what you’re going to get outweighs the possible advantage of finding somewhere better.
It’s also why leading financial advisers have admitted not even preparing their clients for a possible Brexit, as they do not see it as a likely eventuality.
So I’m sticking my neck out and saying that the psychological need to stay with what you know will swing the vote today in favour of the remain camp. But don’t let this influence you.
