Written by: Olivia Pattison and Jordan Whitwell-Mak
Reading Time: 3 minutes
Editor’s note: This article is the third in our series from the incredibly insightful Behavioural Economics Seminar 2020 at the University of Bath. Thank you to Dani Naranjo, Alex Vargas, Sam Ross, Abhi Ranasinghe and Maria Cubel for organising and running the amazing two-day event.
In his presentation, Benno Guenther described his route into behavioural science, which began whilst working as a trader at J.P. Morgan, when he realised that many of his colleagues, including himself, were making trading decisions that did not appear to be fully rational. Benno was inspired to complete an EMSc in Behavioural Science at the London School of Economics and Political Science (LSE), and whilst doing so met his co-founders of UK- and Canada-based behavioural consultancy Salient. While continuing as a director at Salient, he has also started a PhD in Psychological and Behavioural Science at LSE.
Firstly, Benno talked us through his Masters dissertation, evaluating the disposition effect with evidence from professional traders. The disposition effect is the tendency to close out winning positions too early, while holding on to losing ones for too long. This phenomenon is explained by prospect theory, that is, we are risk-averse in the gain domain and risk-seeking in the loss domain. The study is the first of its kind conducted with professional traders. Participants made hypothetical trading decisions based on candlestick charts of tradable securities, covering 50 trading periods. The first securities worked as a control condition. Participants then saw an informational intervention about the disposition effect before continuing to the last five securities. The results found no evidence for the disposition effect in the control but in the treatment condition, there was a significant reverse disposition effect – meaning traders would hold on to winning positions and close losing positions. This behavioural insight could help improve traders’ performance.
Benno fascinatingly went on to describe the work Salient does, and how having his own private pilot’s licence helped to gain clients in the aviation industry. Since global aviation contributes approximately 2% of global greenhouse gases, behaviour change of pilots can have a significant environmental impact. He described a study that ran effective behavioural interventions with Virgin Atlantic attempting to increase their pilots’ fuel efficiency (Gosnell, List & Metcalfe, 2017). Pilots were randomly allocated to one of the following groups: (1) informing pilots their fuel consumption would be monitored, (2) additionally giving information on previous performance, (3) additionally giving personalised targets and feedback and (4) additionally making a charitable donation each monthly target met. Benno highlighted three behaviours of interest in the study: (1) calculating and loading the ‘correct’ amount of fuel required before the flight, (2) fuel efficiency during the flight and (3) turning off (at least) one engine when taxiing to the gate after landing. These low-cost interventions created sizeable savings in terms of money, fuel and CO2 emissions. Additionally, improving overall job satisfaction was reported for pilots in the fourth intervention group.
In addition to aviation projects, Salient delivers behavioural interventions for a wide variety of real-world problems, ranging from trading and consumer research to sustainability and animal welfare. However, their current main focus is on financial services and aviation. Similarly to Guy Champniss, Benno advocates for studies to be designed with controlled, academic rigour insofar as is possible. However, he highlights that the real world is very different to a lab setting, with many external parameters that cannot be controlled. For example, in the experiment with Virgin Atlantic, ideally there would have been a ‘real’ control group, who did not know about the experiment at all. But a) that might be difficult logistically and b) the airline might not want to miss out on efficiency gains during the experimental period. Therefore, it is important to remain flexible and consider other ways of testing interventions in a robust way.
The key insights taken from Benno’s talk are: in industry, companies/clients have real-life constraints, which means that we sometimes have to compromise on running a ‘perfectly’ sterile experiment and to be flexible around the client and delivering the best science you can. He also jovially added that behavioural science, behavioural economics and behavioural insights are all cut from the same cloth, and whilst not being identical, one can often choose which term to use depending on who one is talking to and what it is they want to hear/are familiar with!
Plugging Behavioural Economics 