The Australian Labor Party’s 2019 election campaign showed a depth and breadth of economic policies rare for an opposition party to present. Its policy agenda was boldly extensive. But in developing these policies over the past five years, it seems Labor’s economic minds overlooked some fundamental principles of behavioural economics.
Had greater focus been put on these principles, it is possible Labor would have taken a different approach to selling its credentials, and succeeded in moving more voters its way.
1. People are loss averse
Distinguished psychologists Amos Tversky and Daniel Kahneman demonstrated in the 1970s that losses have a profound psychological impact and people prefer to avoid them. In 1979 they published a paper proposing what they called “prospect theory” – that the pain a person feels from a monetary loss is greater than the pleasure felt from a monetary gain of the same value.
- ^ published a paper (www.uzh.ch)
- ^ economicshelp.org (www.economicshelp.org)
- ^ Confirmation from NSW Treasury. Labor's negative gearing policy would barely move house prices (theconversation.com)
- ^ libertarian paternalism (papers.ssrn.com)
- ^ www.upfrontanalytics.com (upfrontanalytics.com)
- ^ economist and psychologist Daniel Kahneman (books.google.com.au)
- ^ Labor's election loss was not a surprise if you take historical trends into account (theconversation.com)
Authors: Tracey West, Lecturer in Behavioural Finance, Griffith University