2- Economic Decision Making Flashcards
What is Behavioural Economics?
A field of study which focuses on insights of psychologists who want to understand human behaviour.
What does bounded rationality state?
No matter how clever individuals are, there are three factors which hold them back.
What are these three factors?
Imperfect Information on alternatives, limited mental processing ability, time constraints.
What does bounded self control state?
Due to limited self control, some people may start out with good intentions, but slip into less rational behaviours, as they see more appealing alternatives.
What is an example of bounded self control?
A healthy eating regime turning into fast food.
What are the Biases in Decision making?
Rule of Thumb, Availability Bias, Anchoring, Social Norms, Altruism.
What is the rule of thumb?
Short cuts in decision making used by humans to help make sensible decisions based on the limited information they have.
What is Availability Bias?
Occurs when individuals place too much weight on the probability of an event happening, as they can recall examples of similar events.
What is an example of availability bias?
An individual reading about an event, then thinking it’s more likely to happen to them.
What did a recent study about UK opinions on immigrants find?
UK citizens believed 24% of the UK population were immigrants, when it’s actually 13%.
What is Anchoring?
The idea that most people have a tendency to compare and contrast a limited set of items.
What is an example of anchoring?
Choosing the middle option in price on restaurant menus.
What are social norms?
Unconsciously learning from the behaviour of other people.
What is an example of a social norm?
Attitudes towards drinking in young people, as well as smoking, are influenced by social norms.
How were opinions on smoking changed?
Health campaigns and a ban on smoking indoors.
What is Altruism?
Acting to promote someone else’s well being, even when we suffer as a consequence.
What is an example of Altruism?
Most people’s first impulse is to co-operate with each other, not compete.
What is Choice Architecture?
Sets out how government can guide people into making better choices, and the impact that presentation has on consumer decision making.
What are the different types of choice architecture?
Default Choice, Mandated Choice, Restricted Choice.
What is default choice?
One option is automatically selected, unless an alternative is specified.
What is an example of default choice?
Opt out organ donation, rather than opt in.
What is mandated choice?
People are required to make a decision, sometimes by law, and there is no default option.
What is an example of mandated choice?
Microsoft software installation.
What is restricted choice?
Offering people a limited number of options, on the basis that offering too many choices is unhelpful.
What is an example of restricted choice?
Personalised letters for appointments.
What is Framing?
The tendency for people to be influenced by the context in which the choice is presented.
What is an example of framing?
The wording of the question in a referendum.
What is a nudge?
A nudge tries to alter people’s behaviour in a predictable way without forbidding options.
What are the key aspects of nudges?
Provide information for people to respond to, create positive social norms, opt out schemes rather than opt in, active choosing by individuals.
What are the key aspects of shoves?
Use taxation and subsidies to alter incentives and punish people, uses fines, bans activities, and regulation.
What are the four key behavioural insights?
Easy, Attractive, Social, Timely.
What are the examples of Behavioural Insight in government?
Putting a picture of an unregistered vehicle in a letter to an owner of a vehicle. Sending personalised text messages to people with outstanding fines, emotional wording in campaigns, encouraging charitable donations in wills.
