2.4 Behavioural Economics And Economic Policy

Question 1

How should we think of behavioural economics in comparison to traditional economics?

Answer 1

A way of complementing and improving traditional economics, not being opposed to it

Question 2

What should the gov do to help people with behavioural economics?

Answer 2

Aim at helping individuals achieve an outcome that is in their own best interest

Question 3

What is choice architecture?

Answer 3

Framework setting out different ways choices can be presented to consumers, and the impact of that presentation on consumer decision making

Question 4

What is choice architecture used by behavioural economics to describe?

Answer 4

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

Question 5

What is the default option?

Answer 5

The option that is selected automatically unless an alternative is specified

Question 6

What is framing?

Answer 6

How something is presented ‘the frame’ influences the choices people make

Question 7

What is a mandated choice?

Answer 7

People are often required by law to make a decision

Question 8

How is framing used?

Answer 8

Advertisement present products in a favourable light

E.g 90% fat free rather than 10% fat

Question 9

When would a mandate choice come about?

Answer 9

When choice architect designs a system that forces individuals to make an explicit decision and not merely go ahead with the default position

Question 10

What is law,negative or a mandate choice?

Answer 10

Less effective with more complex decisions than with simplistic decisions

Question 11

What is a restricted choice?

Answer 11

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)

Question 12

What is an example of a restricted choice in action?

Answer 12

Requiring energy companies to simplify their pricing structures to restrict the number of options available to consumers

Question 13

Is a nudge a legal requirement or an economic sanction?

Answer 13

No

Question 14

Are fines, taxes or subsides a nudge?

Answer 14

No because there is a legal requirement

Question 15

What do shove policies do?

Answer 15

Instruct people to act in certain ways

(Often by responding to financial incentives and disincentives that reward or punish different decisions)

Question 16

Do government policies nudge or shove people?

Answer 16

Shove

Question 17

What 4 things does a nudge do?

Answer 17

-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

Question 18

What 2 things does a shove do?

Answer 18

-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

Question 19

What are the four behavioural insights

Answer 19

1. Make it easy
2. Attract attention
3. Focus on social
4. Timing matters

Question 20

How does making it east increase charitable giving?

Answer 20

-give option to increase future payments and prevent donations from being eroded by inf
-use prompted choice to encourage people to become donor

Question 21

How can focusing on social increase charitable giving?

Answer 21

-prominent individuals to send out strong signs
-drawing on peer effects
-establish group norms around it

Question 22

Why does timing matter in charitable giving?

Answer 22

-timing of year influences ppl
-understanding people may be more willing to commit to future donations than equivalent sums today

Question 23

What is heuristics

Answer 23

any approach to problem solving or self-discovery that employs a practical method that is not guaranteed to be optimal(rules of thumb)