26 - Nudge

Question 1

what is a nudge

Answer 1

subtly guiding individuals’ choices and behaviors in a predictable way without restricting their options or significantly changing their economic incentives

policy intervention that must be cheap

Question 2

examples of nudges

Answer 2

automatic enrolment
reminders
restrictions
nutritional flags

Question 3

what is choice architecture

Answer 3

the design and organization of the environments in which people make decisions

framework of nudging

• structuring the presentation of choices to influence behaviour

Question 4

what is paternalism

Answer 4

• policy of limiting an individuals freedom for their own good

Question 5

what is libertarianism

Answer 5

philosophy that emphasizes individual liberty
individuals should be free to make their own choices

Question 6

what is libertarian paternalism

Answer 6

nudging individuals towards better choices while preserving freedom to choose

the rationale for Thaler and Sunstein

Question 7

what do Thaler and Sunstein believe about nudging

Answer 7

unobjectable form of paternalism
new approach that can benefit policymakers

Question 8

what are 6 anomalies that may justify the use of nudging?

Answer 8

1. present bias = excessive weight on present
2. status que = tendency to stick with status quo
3. preference reversal = preferences either intransitive or task sensitive
4. decoy effect = more likely to choose y when feasible set is xyz than when it is xy, if z is similar but slightly worse than y
5. framing effect = the way information is presented may change behaviour
6. effect of irrelevant factors

Question 9

what is the general competitive equilibrium theory

Answer 9

state where all markets are balanced simultaenously
- supply = demand
- price clears the market
- optimal allocation - pareto efficient - resources are allocated in a way that no one can be made better off without making someone worse off

Question 10

what are the fundamental theorems of welfare

Answer 10

1. every competitive e is pareto efficient = efficient allocation of resources (no need for gov to improve allocation of resources)
2. pareto efficient allocation of resources can be achieved by GCE given appropriate redistribution of resources

Question 11

how does GCE and fundamental theorems relate

Answer 11

• GCE = markets are balanced and resources are used efficiently

1. competitive markets naturally lead to efficient outcomes
2. efficient outcomes can also be achieved by redistributing resources

Question 12

assumptions for GCE

all markets clear if…

Answer 12

agents…
1. optimise
2. price takers
3. fully informed
4. there are no missing markets

Question 13

what does GCE suggest that government role is

Answer 13

• legal framework
• adjust for excessive inequality - redistributing
• correct market failure
• shouldnt help individuals pursue their own goals/improve their own wellbeing

Question 14

what is Mill’s harm principle

opposed to paternalism

Answer 14

• individuals should be free to act however they wish unless their actions cause harm to others
• constraining on the basis of helping them for their own good is not sufficient warrant

Question 15

what 2 arguments support mills harm principle

Answer 15

autonomy argument - individual should make own choices

epistemic argument
individuals know their best interests better than anyone else

Question 16

in what 3 ways do anomalies cast doubt on standard economics - Mills harm principle

Answer 16

1. feasible set is not the only aspect of economic environment that affects behaviour - status quo
2. individuals may not have stable preferences - PR, decoy
3. preferences may not align with enhancing own wellbeing

Question 17

what is internality

an extra market failure

Answer 17

failure of individuals to choose well from a given feasible set - they cant always make best decision for themselves

• GCE theory assumes that consumers do

Question 18

what are the 2 assumptions of Thaler-Sunstein policy approach

Answer 18

1. actions not in line with their well being
2. behaviour is malleable in predictable ways - because doesnt only depend on feasible set

Question 19

what are the 4 principles on nudge approach

Answer 19

1. behavioural biases = tool for policy intervention
2. policy should influence choice - not restrict
3. change choice architecture
4. improve lives of nudged from the perspective of the nudged

Question 20

what is choice architecture
brief

Answer 20

different ways to present a feasible set
- behaviour varies with choice architecture

Question 21

what is Thaler and Sunsteins

argument
to why traditional econs object paternalism

Answer 21

1. false assumption
2. 2 misconceptions

Question 22

what is the false assumption

Answer 22

people make choices in their best interest

Question 23

what is the first misconception

Answer 23

there are viable alternatives to paternalism

Question 24

what is the second misconception

Answer 24

paternalism must involve coercion