3.2.4 - Behavioural Economics and Economic Policy Flashcards
What is choice architecture?
A framework setting out different ways in which choices can be presented to consumers, and the impact of that presentation on consumer decision making.
How and why are choice architectures employed by government?
Behavioural insights design choice architectures so that citizens are nudged to opt for chioces that are in their best interests.
On a practical scale, the literal placement of items in a canteen, for example. Studies within the field of behavioural economics find that items placed at the front of a canteen are more likely to be purchased. If a canteen wants people to eat more healthily, or make more profit, they should place salads or expensive items at the front respectively.
What is the default choice?
An option that is automatically selected unless an alternative is specified.
How and why is default choice employed by government?
When framing policy on certain issues, you can be asked to opt-in or opt-out of certain issues. If it is an opt-out system, many people will not change it as they cannot be bothered, or do not have the time.
If it is an opt-in system, people will also not change it as they cannot be bothered.
Opt-out systems are better within wider society as in the example of organ donation, the NHS now has organ donation as an opt-out system and as a result, the supply of organs is now much closer to the demand, and the public health improves.
The BIT introduced automatic pension enrolment under the same theory of opt-in vs opt-out.
What is framing?
How something is presented.
What is an example of framing?
Advertisers saying a yogurt is ‘90% fat free’ sounds a lot better than ‘10% fat’.
Where is framing commonly employed?
Advertising
Politics
What is mandated choice?
People are required by law to make a decision.
Where is mandated choice employed?
Microsoft Software Installation Boxes
How does mandated choice aid a company like Microsoft?
They comply with technology laws, but most people choose the recommended settings of sending their data to Microsoft.
They often automatically have the box already ticked for you, so in order to make the ‘wrong’ choice in the opinion of Microsoft, you must move your mouse to untick it then continue. Most people cannot be bothered to do even this and as a result, they move on with recommended settings.
What is restricted choice?
Offering people a limited number of options so people are not overwhelmed by the complexity of many different options.
Why is restricted choice mandated to energy companies?
Ensures people make a well-informed decision and are not overwhelmed.
What is a shove?
Instructions to behave in certain ways, often by introducing financial incentives or disincentivest to incentivize people to follow what the government wants them to do.
What are the differences between nudges and shoves?
Nudges:
Provide information for people to respond to in their own way
Creates positive social norms
Opt-out schemes rather than opt-in schemes and default choices
Active choice from individuals
Shoves:
Uses taxation and subsidies to alter incentives or punish people through tax
Uses fines, laws and regulations.
What are 4 behavioural insights that can be employed to charitable giving to increase it?
Make it easy
Attract attention
Focus on the Social
Timing Matters
