2.4 Behavioural Economics And Economic Policy Flashcards
How should we think of behavioural economics in comparison to traditional economics?
A way of complementing and improving traditional economics, not being opposed to it
What should the gov do to help people with behavioural economics?
Aim at helping individuals achieve an outcome that is in their own best interest
What is choice architecture?
Framework setting out different ways choices can be presented to consumers, and the impact of that presentation on consumer decision making
What is choice architecture used by behavioural economics to describe?
How gov policy makers can guide people into making better choices
-gov can use choice architecture to nudge citizens to choices for their best interests
What is the default option?
The option that is selected automatically unless an alternative is specified
What is framing?
How something is presented ‘the frame’ influences the choices people make
What is a mandated choice?
People are often required by law to make a decision
How is framing used?
Advertisement present products in a favourable light
E.g 90% fat free rather than 10% fat
When would a mandate choice come about?
When choice architect designs a system that forces individuals to make an explicit decision and not merely go ahead with the default position
What is law,negative or a mandate choice?
Less effective with more complex decisions than with simplistic decisions
What is a restricted choice?
Offering people a limited number of options so they are not overwhelmed by the complexity situation. (If there are too many choices people may make a poorly thought-out decision or not make any decision)
What is an example of a restricted choice in action?
Requiring energy companies to simplify their pricing structures to restrict the number of options available to consumers
Is a nudge a legal requirement or an economic sanction?
No
Are fines, taxes or subsides a nudge?
No because there is a legal requirement
What do shove policies do?
Instruct people to act in certain ways
(Often by responding to financial incentives and disincentives that reward or punish different decisions)
Do government policies nudge or shove people?
Shove
What 4 things does a nudge do?
-provides information for people to respond to
-creates positive social norms
-opt-out schemes rather than opt-in schemes and default choices
-active choosing by individuals
What 2 things does a shove do?
-uses taxation and subsidies to alter incentives and on occasion in the case of taxes to punish people
-uses fines,laws banning activities and regulations
What are the four behavioural insights
- Make it easy
- Attract attention
- Focus on social
- Timing matters
How does making it east increase charitable giving?
-give option to increase future payments and prevent donations from being eroded by inf
-use prompted choice to encourage people to become donor
How can focusing on social increase charitable giving?
-prominent individuals to send out strong signs
-drawing on peer effects
-establish group norms around it
Why does timing matter in charitable giving?
-timing of year influences ppl
-understanding people may be more willing to commit to future donations than equivalent sums today
What is heuristics
any approach to problem solving or self-discovery that employs a practical method that is not guaranteed to be optimal(rules of thumb)
