Behavioral Economics Flashcards
What’s is the law of diminishing utility
As quantity consumed increases the marginal utility derived from the extra unit of output decreases
Where is total utility maximized
Where MU = 0
Give two types of information failure
Lack of information
Asymmetric Information
Give an example of lack of information
Merit Goods – Lack of information on the benefits of education gym
Demerit Goods – Lack of information on the negatives of consumption of unhealthy eating or getting a pension
Give an example of asymmetric information
Labor Markets – An employer wants to get all the information about the employee to see their motivation and skills.
Second hand car dealerships
What does information failure lead to
Irrational decisions
Choice Architecture
The design of different ways in which choices can be presented to decision-makers, and the impact of that presentation on decision-making.
Examples of framing
low fat, low sugar, low cholestral
Examples of Nudges
Location of salad bars,
Healthy options in front isle supermarkets
Examples Default Choice
Organ Donation having an opt in opt-out system
What are the 5 types of nudge unit
Default
Mandated
Restricted
Framing
Nudges
Examples of Restriction Choice
Restriction on smoking in public places
Could restrict how many bets you take a day
Examples of mandated choice
Recycling bins
Arguments against choice architecture
1) Too paternalistic – Limits free choice
2) Based on fallacies
Evaluation points of choice architecture
1) Costs vs Benefits (Gov Failure)
2) Integrated policies better approach
3) Limit free choice?
