If tomorrow there was a heat wave would you prefer to have an ice cream or an ice lolly? This may seem a trivial question but getting the question right could make the difference between profit or loss for a business. It may be assumed that as ice cream is popular across all groups of consumers that most people will prefer ice cream. Research by the supermarket chain Tescos in the UK shows how people actually behave. It shows that indeed sales of ice cream increase as it gets hot. But if in the south of the UK then at 25 degrees Celsius, the sales of ice creams actually plateau. And above this temperature the demand for frozen ice lollies increases. However in Scotland this change in behaviour happens at 19 degrees Celsius. This information of how people behave assists the sophisticated stocking of products on supermarket shelves and enhances profits. Knowing how people actually behave is critical for businesses, but it is even more critical for governments.
The use of behavioural economics by governments to regulate is a growing trend globally. There is an increase in the application of the inductive scientific method to the study of economic activity that is helping OECD countries to shape regulatory policies based on the actual, and not assumed, behaviour of people. Most notably the United States and United Kingdom have been introducing behaviourally informed policies.
For more information, contact Faisal Naru, Senior Economic Adviser, Regulatory Policy Division/GOV.