5. Individual Economic Decision Making - Nudge Policy

Question 1

How do ‘nudge’ policies differ from traditional ‘shove’ policies?

Answer 1

With nudge policies we as individuals maintain a degree of freedom to choose how we behave - shove policies remove that choice and force us to behave in a certain way

Question 2

What are the 5 choice architecture policies that can be used to deal with market failure?

Answer 2

1. Framing2. Nudges3. Default Choice4. Restricted Choice5. Mandated Choice

Question 3

How could framing be used as a policy to deal with market failures?

Answer 3

We cld introduce policies to force companies to clearly state the level of sugar, fat etc on fizzy drinks to discourage ppl to over consume such goods

Question 4

How could nudges be used as a policy to deal with market failures?

Answer 4

We cld design building with stairs at the front lifts at the back in order to encourage healthy active lifestyles

Question 5

How could default choices be used as a policy to deal with market failures?

Answer 5

We can encourage ppl to opt in to schemes etc. by placing them in the schemes by default and forcing them to make the decision to withdraw themselves - e.g. organ donors - automatically one unless you say otherwise

Question 6

How could restricted choices be used as a policy to deal with market failures?

Answer 6

Restricted choices serve to make life more difficult/inconvenient for a consumer of a certain product to encourage them to consider alternatives - e.g. smoking bans in public areas, an inconvenience to smokers - may make them consider quitting

Question 7

How could mandated choices be used as a policy to deal with market failures?

Answer 7

Mandated choices force people to choose one way or the other, they can’t just drift along not doing either - e.g. organ donation (in some parts of the UK) you have to choose yes or no - forcing ppl to make a decision makes them think about the area

Question 8

What are the potential issues with choice architecture or nudge policies?

Answer 8

Too paternalistic - gov. going to far in influencing are decisionsUnpredictable & costly - there are no guarantees ppl will react to the policies in the way the gov wants them to + a lot of them also have high admin costsBased on fallacies & biases - individuals may not always be so ‘dumb’ to succumb to policies based on biasesStrong enough policies? - are such policies strong enough to overcome deep rooted market failures like drinking cultures etc

Question 9

What are the evaluation points of use of choice architecture policies?

Answer 9

Costs v Benefits - are the potential benefits greater than the costs - gov. failure?Maybe information provision is a better policy - if thats the root cause of failures maybe its better to go down this routeAre shove policies more appropriate for dealing with deep rooted market failure - if so maybe an interactionist approach is best with ‘nudge’ policies complementing stronger nudge policies