2.4

Question 1

Behavioural economics

Answer 1

Disputes rationality and utility maximisation arguing that emotional social and psychological factors can influence decision making

Question 2

what influences decisions

Answer 2

cognitive biases

Question 3

price anchoring

Answer 3

where a value is imprinted in the mind to compare prices to e.g. recommended retail price makes offers below this point look like a good deal

Question 4

social norms

Answer 4

decisions are influenced by rules society dictates e.g. tipping in restaurants but don’t do it at houses

Question 5

availability bias

Answer 5

decisions are made upon examples that come to mind e.g. may not going swimming is Australia due to threat of shark attack even if they are rare. justify smoking if see old healthy person who smoked

Question 6

Framing

Answer 6

people being influenced on how information is presented e.g. advertising of low fat more likely to consume as seen as healthy

Question 7

loss aversion

Answer 7

the idea that people don’t want to give things up that have a value e.g. the attachment to money may not been invested.

Question 8

what is the endowment effect

Answer 8

adding too much monetary value to something you have compared to something else you could gain. (even if worth the same or more)

Question 9

Herd Behaviour

Answer 9

decision made because other people around are also making the same decision e.g. ordering at a restaurant the same as friends are ordering

Question 10

choice architecture

Answer 10

decisions are influenced on decision or placement of something e.g. location of salad bars in restaurant if closer to entrance more likely to consume.

Question 11

altruism

Answer 11

the idea of kindness where consumers or individuals don’t expect anything in return

Question 12

how does BA help us understand altruism

Answer 12

gives understanding that consumers aren’t rational utility maximising robots and are influenced by emotion, morals etc so moral value attached to giving to charity not to maximise utility.

firms may employ additional workers as they want to give them a good standard of living or level of employment in society

Question 13

what are behavioural economic policies based on

Answer 13

choice architecture

Question 14

why are behavioural economic policies different from normal govt policies

Answer 14

behavioural economic policies nudge consumes instead of shove consumers like traditional economic policies i.e. gives consumer freedom of choice in whether to do something or not.

Question 15

examples of BA policies

Answer 15

framing (way in which information is presented) e.g. marketing low fat, information provision on recycling benefits, price information (weekly or monthly gym charges) to encourage use of leisure centres

nudges, hiding unhealthy foods, location of salad bars, recycle bins located, design of building stairs closer

default choice, entered into something if don’t opt out, organ donation on drivers licence increased organ donation, salad comes with burger

restricted choice, banning smoking in public areas, restricting unhealthy options at school lunch

mandate choice- forces choice to be made, e.g. use recycle bin or not

Question 16

issues with BA policies

Answer 16

too paternalistic e.g. govt going too far

unpredictably as no guarantee consumers will follow, smoking bans may not work

very costly as high administrations costs, if costs outweigh the benefit it will result in Govt Failure

based on fallacies and biased, all consumers don’t act the same way consumers may be able to act on their own account

strength of policy could be limited to overcome deep routed issues e.g. addiction or information failure

Question 17

evaluation of BA policies

Answer 17

SLAP,

costs and benefits argument

is information provision better if is route cause of over or under consumption could be better way to deal with

integrated/shove policies may have to better effect

may be useful alongside not as a sole policy