2.4B Choice architecture Flashcards
What is “choice architecture”?
Refers to the way choices are presented to members of society and how different designs affect the choices made
What is “restricted choice”?
Limiting choice to enable people to make choices easier.
What is “mandated choice”?
When people are required to make a decision in advance and declare whether they’ll participate in a particular activity
eg. Voting in Belgium
–> declaration to want to vote –> on the electoral roll –> if you don’t vote –> fine
What is the “nudge theory”?
The practice of influencing choices that people make. Nudges are created by choice architects using small prompts or tweaks to alter social or economic behaviour, but without taking away the power to choose.
What are some examples of “nudges”?
- warnings in cars for seatbelts
- labels on foods
- loyalty cards
- IKEA
- Coloured bins to encourage recycling
- Firms showing the first month payment rather than the annual subscription
- Free trials
What are some possible business objectives?
- Make a profit
- Increase wellbeing in society
- Autonomy/ Independence
- Innovation ideas of products
- Entrepreneurial mindset - Risk takers
What are some possible reasons why a firm would want to profit maximize?
- To become market leader
- Reinvest in the future
- Employ stable workforce
- Diversification
- Ensure quality goods
- Take advantage of economies of scale (EOS)
- To distribute dividends to shareholders
- For CSR reasons
- To improve marketing strategies
- Personal financial goals (become richer)
- Sources of finance (lenders will be more likely to give you lower interest rates)
When does profit maximization occur?
Profit maximisation occurs at the level of output where there is a positive difference between TR and TC
or where MC = MR (marginal cost = marginal revenue)
What is the equation of MC?
MC = change in TC / change in Q
What is the equation of MR?
MR = change in TR / change in Q
What is “satisficing”?
Occurs when a firm sacrifices profit to satisfy as many stakeholders as possible
–> It involves making a satisfactory level of profit
Where does profit “satisfying” occur?
Profit satisfying occurs at the level of output greater than the profit maximisation level of output (where marginal cost = marginal revenue), and greater than the revenue maximisation level of output (ie MR = O)
