How behavioural economics explains the Brexit

If the Brexit – the UK’s decision to leave the European Union - doesn’t seem rational, you may be right.

Here are three ideas from behavioural economics - the study of economics from the perspective that humans aren’t always obviously rational - which could help explain the outcome. 

" How could the majority of the UK voting public come to hold perspectives which would support ‘Leave’?"
Dr Martin Joy, Senior Manager, Global Regulatory Change at ANZ


The first idea is that losses matter more than gains.  This is called loss aversion.

Brexit has clearly involved losses and, using this idea of loss aversion, you’d think people should have voted “remain”. But in the voting booth last week what losses and gains were voters assessing?

Well, this clearly depends on the voter’s perspective.

Those voting ‘Leave’ likely perceived continued membership of the EU involved a loss of national identity, sovereignty and, potentially, employment.

Conversely, those who wanted to ‘Remain’ valued the benefits of EU membership and were probably averse to losing them.

Of course, this first idea is perhaps no more helpful than observing people have preferences based on their perspectives on the world. Whether something is a loss or gain comes down to perspective.

So, how could the majority of the UK voting public come to hold perspectives which would support ‘Leave’? 

Two further ideas may help here.


The ‘Leave’ vote appears to have been driven, at least in part, by concerns over immigration and its effect on domestic jobs. 

How did people form the view immigrants threaten jobs when the evidence suggests otherwise?

Well, the second idea from behavioural economics which may help explain Brexit is an availability cascade.

This states belief in perceived problems (like immigrants taking jobs) can be based on what some individuals see around them, the lack of easily available information to the contrary and our desire to believe what others believe.  

The key here is the availability heuristic – we’ll believe in something if we can recall an example of it.  As influential or numerous people use this as the basis for identifying problems, others may do so as well, particularly if they can’t get hold of or understand information that reveals the ‘truth’.

So, while evidence may show immigration helps the economy, the ease with which people can recall supposedly uncontrolled immigration (e.g. television coverage of the European immigration crisis) could generate a belief jobs are threatened. 

If those holding and expressing this belief are sufficiently powerful or numerous, this version of the ‘truth’ could easily have been perpetuated despite evidence to the contrary (particularly if the evidence is complex or not easily accessible).


The third idea is we all rely on mental shortcuts to deal with complexity.

The availability heuristic is one short-cut but there are many others individuals use.  Our heavy reliance on these short-cuts means understanding complex ideas can be hard.

The benefits of ‘Remain’ arguably required reflection to appreciate and patience to enjoy (with the exception of cheaper Champagne).  Trade deals, access to financial markets and broader appeals to a European identity are complex, ephemeral concepts with little short-term gain for some.  

In contrast, ‘Leave’ offered simple, concrete payoffs which were easy to understand and could be enjoyed immediately: a quick return to national sovereignty and no more weekly payments to Brussels.

Of course, with hindsight it’s clear Brexit carries simple, short-term costs as well…

Martin Joy is a Senior Manager, Global Regulatory Change at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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