2.1.4 Economic Policy

Question 1

Summary

Answer 1

1. Choice Architecture
2. Framing
3. Mandated Choices
4. Restricted Choice
5. Choice Architecture
6. Nudge Theory

Question 2

1. Choice Architecture

Answer 2

• Describes how government policy can lead people into making particular choices.
• Consumers are ‘nudged’ to achieve socially desirable outcomes.
• E.g. countries that require people to ‘opt out’ of organ donations generally have a higher proportion of the population willing to donate.
• Default choice: option chosen automatically unless an alternative is specified.
• Policy-makers improve social welfare by designing government programmes that select a default option that’s considered an individual’s best long-term interest.

Question 3

2. Framing

Answer 3

• People are influenced by how information is presented.
• Politicians often frame economic statements in a manner that is favourable to the argument they are making.
• Osborne: claimed that by 2014, the deficit has been more than halved.
• This was true in terms of GDP, but in Money terms it was only 40%

Question 4

3. Mandated Choices

Answer 4

• Where people are required by law to make a decision.
• This system is favoured by libertarians who reject the idea of government guiding citizens into making the ‘correct’ choice.

Question 5

4. Restricted Choice

Answer 5

• Offering people a limited number of options (offering too many choices leads to poor decisions.)
• E.g. BIT shows that personalised letters increase response rate

Question 6

5. Nudge Theory

Answer 6

• As a government policy, nudges must be open and transparent to the public
• ‘Nudge’ Policies lead people by providing them with helpful information that assists them to make an informed choice.
• ‘Shove’ Policies instruct people to behave in certain ways, often by their responding to financial incentives and disincentives that reward or punish.