Computing and Behavioural Economics

Most of the commentary on the crisis in the economics disciplines since the credit crunch has focussed on the problems within banking and insurance.

The report sponsored by CISCO on the international state of broadband is making me reflect on how the IT disciplines are themselves impacted by the problems within economics.

Let me explain. Britain has one of the most competitive and lowest cost regimes for telecoms in the world. Yet, the CISCO report puts the UK at 25th in the world in terms of preparedness for next generation networks. Even if you want to quibble about methodologies and so on, I hear no-one arguing that actually we are number 1 or 5. To market fundamentalists this should not be so.

The UK pioneered the privatisation and liberalisation regimes for telecoms infrastructure back in the early 80s. The promise was that open liberal markets would attract private investment and put the UK in the front running for the networked era. So why hasn’t it happened?

There have been two perennial challenges within IT over my thirty years. First there is the link between IT and productivity (the Solow paradox), where many economic studies have shown IT to be low impact or even negative.

The second is identifying and measuring the returns on investment in IT. Ask any CIO.

Both these topics arise regularly like sunrise and never seem to go away.

Early in my career in the 80s I remember some research we had commissioned on building the business case for office automation and email. This was a study of early adopters of email. We wanted to use the research to create marketing collateral.

What the research clearly showed was that organisations who invested in email because "it was the future, the way things would be done" got superior returns over those who invested against a return on investment. Indeed some of those who had been most rigorous had difficulty proving any (positive) economic returns. That wasn't a message many finance directors would buy into.

One group within economics that has come out better than most of the crisis is behavioural economics.

The pure market theorists believe than homo economicus is a rational beast and that decisions are taken on the basis of rational expectations. For behavioural economists this is not so. There is a concept known as economic myopia. This basically means that if I offer you £100 tomorrow or £1000 in a years time you may well take the early decision, when in a low inflation era the latter might be more rewarding.

We can divide goods and services in the economy into categories of "arousal" and "commitment goods". In the former we pay now for gratification now (think food and wine). In the latter we pay now for deferred or accrued benefit( think pensions, insurance, marriage?).

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About the author
Chris is a technology and policy futurologist. Chris has been in the IT industry since 1980. His roles have spanned Honeywell, ICL, HP, Microsoft and Capgemini. He is a Fellow of the BCS and a Fellow of the RSA.

See all posts by Chris Yapp

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