When it comes to transport choices, economic factors influence people’s decision-making – but not necessarily in the ways that you might assume.
To demonstrate how behavioural economics affects decision-making, I’d like to talk you through a few imaginary scenarios.
Scenario 1 is played out under the status quo. Michael lives in St. Sampson’s and works in Town. He owns his own car and he usually fills it up with petrol every Saturday when he does the weekly shop. One of his colleagues, Susie, has recently been extolling the virtues of getting the bus to work (this is an imagined scenario, after all!) so one morning he contemplates following her example. The money that he has already invested in his car (to buy it, insure it, maintain it and refuel it) is a retrospective cost, or sunk cost – in other words a cost that cannot be recouped. By contrast, taking the bus is a future avoidable cost – in other words, money that hasn’t yet been spent and doesn’t necessarily need to be spent – to the tune of £2 for the return fare for the day – provided of course he can show he is local. He’s already paid for his car and anyway it’s more convenient than the bus, so he decides Susie is slightly batty and drives to work as usual, parking in a 10hr bay at North Beach.
Scenario 2:The States of Guernsey have voted in fareless buses – but not user pays long-stay parking, which remains free at point of use. Michael’s colleague Susie is banging on about the virtues of commuting by bus more than ever now they’re free and more frequent and reliable, with improved coverage and free wi-fi thrown into the bargain. Michael secretly quite fancies Susie, so one morning he again considers catching the bus to work instead of driving. The buses are certainly more convenient than they used to be – possibly, if he’s honest, even more convenient than driving to work, as he wouldn’t have to leave for Town so early and then walk the five minutes from North Beach – and now there’s no associated cost to put him off. Yet he still chooses to drive to work. Why?
If he were a truly rational creature, the money that Michael had already spent on his car would have no bearing on his decision on how to get to work: he would make the decision based purely on the merits of each of the two options he’s considering. The problem is, he’s not a truly rational creature: he’s a human – and therefore the idea of wasting money he’s already spent carries much more weight in his decision-making process than the idea of what he could potentially gain.
It’s like the time that he spent £100 on a ticket to see One Direction (on that memorable but fictional occasion they gave an open air concert in Guernsey). The day of the concert arrived: it was cold, wet and miserable, Michael really wasn’t in the mood, and to top it all, he’d just come to the realisation that he didn’t even like One Direction… he’d only bought the ticket because Susie had told him she was going, and now she’d just texted to say she wasn’t going after all. But because loss aversion is such a powerful human instinct the thought of effectively wasting his £100 meant that he went to the concert anyway. The prospect of spending his time more enjoyably having a warm, cosy and contented evening in the pub with Susie didn’t even stand a chance when weighed against the £100-already-spent factor. So he stood in the rain watching a band he didn’t like, having a miserable time. But at least he hadn’t wasted that £100.
Anyway, I digress… There’s one more scenario, which I’ve given the creative title of Scenario 3. Imagine if you will that the States has voted in an integrated Transport Strategy complete with fareless buses and user pays long-stay parking. Susie has of course been singing the praises of the new bus service and Michael is once again considering his travel options over breakfast. On the one hand, the fact that he’s already invested a lot of money in his car is a very compelling reason to use it. He wouldn’t want to waste that money, after all… On the other hand, there is now a cost associated with driving to Town, to the tune of about £5 to park at North Beach while he’s at work. This is a future avoidable cost: it’s a cost that he hasn’t yet spent and he can easily avoid spending it. So on this occasion, that’s exactly what he decides to do. Instead of jumping in his car at 7.30am he catches an 8.15 bus – by happy coincidence the very same bus that Susie is on… I’ll leave the story there, except to mention that Michael was very, very glad he got the bus that day!
Now Michael is of course a fictional character, but his decision-making process is entirely real, as evidenced by a huge body of science that falls under the title of behavioural economics. We may like to think of ourselves as rational beings when it comes to making decisions, but all the studies and research show that in fact we make decisions under the influence of a variety of different biases that we’re probably not even aware of.
What my three scenarios demonstrate is that we cannot for a moment underestimate the bias in our society towards using the car. No matter how many carrots we dangle in front of someone, we are very unlikely to be able to simply encourage them into using alternative forms of transport, because the bias towards their car generally carries far more weight than any benefit they stand to gain from the alternatives. The most effective way to overcome the bias is to use that same human instinct – the instinct to avoid loss – on the other side of the equation. People are far more likely to use alternative transport if by doing so they can avoid spending a fiver. Suddenly it’s a different proposition. They can avoid spending £100 a month. Under an integrated and balanced transport strategy, many people will choose to avoid this cost and people’s behaviour will change.