They thought we react rationally to prices and consider all information about a product without bias, and that any choice we make would be in our best interest.

They were wrong. Thanks to the work of psychologists and modern economists we've begun to understand just how wrong they were.

Did you know someone is more likely to buy a convertible if they test-drive it on a sunny day, or that they'd be happier to pay more for a house with a swimming pool if that sale took place on a sunny day?

This behaviour has profound implications for public policy.

Shadow Assistant Treasurer Dr Andrew Leigh talked about this in a speech last week.

Dr Leigh said insights from a branch of economics, called "behavioural economics", that concerns itself with human irrationality are increasingly being applied to areas of public policy to our benefit.

And he thinks one of the most important applications of behavioural economics to public policy is in the area of retirement savings.

Compulsory super was introduced in Australia in 1992 because authorities had realised that if we are left alone we tend to under-save for our retirement.

We know that if we put aside a small part of our income during our working lives we can guarantee – thanks to compound returns – a decent standard of living in retirement.

But before the introduction of compulsory super few people did this. The compulsory system was designed to counter this irrationality.

Since then, the system has been tinkered with as our understanding of human behaviour improves.

As Dr Leigh pointed out, since the early 1990s, policymakers have realised that most people do not exercise the choice that compulsory super's architects believed they would.

Rather than jump around from fund to fund, most people prefer to remain in their default fund.

That's why successive governments have tried to make default funds simpler and less expensive.

Dr Leigh gave more examples in his speech of policies that rely on insights garnered from behavioural economics, so you can look them up if you want.

But he made one suggestion that was very interesting for future policy development.

Dr Leigh suggested policymakers ought to run randomised policy trials of potential policies to see how Australians react to them in real life before rolling them out through the community.

That's very different from the current practice of using government-run pilot programs for policies that have already been decided upon.

"A key feature of [behavioural economics] studies is that they are based on randomised policy trials – testing new policy interventions in the same way we require pharmaceuticals to be tested before providing them with a government subsidy," Dr Leigh said.

"Randomised policy trials are underutilised in Australia, and are a valuable way to test new policy ideas.

"Governments already do plenty of pilots – the difference with a randomised trial is that it includes a credible control group. In many cases, behavioural economics involves tweaking something the government is doing already."

That's a good idea. By finding out how people will actually react to a policy before it is implemented, rather than seeing how they do react to it once implemented, would save us all time and money.