Behavioral Economics and Regulation of "Bads"

Question 1

Traditional economics

Answer 1

markers are efficient went there are no market failures and people choose rationally according to their preferences

Question 2

Behavioral economics

Answer 2

combination of psychology and economics that investigates what happens in markets when some of the agents do not act rationally

Question 3

What does behavioral economics assume about rationality?

Answer 3

people are not necessarily rational

Question 4

Bounded rationality

Answer 4

individual rationality is limited by the available information, cognitive limitations, and time to make a decision

Question 5

Bounded willpower

Answer 5

people sometimes make choices that are not in their long run interest

Question 6

Bounded self interest

Answer 6

individuals are often willing to sacrifice their own interests to help others

Question 7

Nudge

Answer 7

subtle things in an environment that can influence your behavior in a way that would influence your wellbeing

Question 8

Choice architect

Answer 8

anyone who influences the choices that you make

Question 9

Are consumers complicit when nudges are offered?

Answer 9

yes, because the information is presented differently but the consumer still has all the options/informations

Question 10

What is a push/shove

Answer 10

a deception or device that the chooser would not be complicit in putting into effect

Question 11

Time inconsistent preferences

Answer 11

people tend to prefer more immediate gratification even at the expense of longer-run wellbeing

Question 12

Status quo bias

Answer 12

prefer current state of affairs to change

Question 13

Framing effects

Answer 13

make choices based on how information is presented

Question 14

Availability heuristic

Answer 14

people judge the odds of a given event occurring based on how readily an example comes to mind

Question 15

Misperceptions of social norms

Answer 15

people want to conform to social norms but often misperceive the norms/behavior of others

Question 16

Incentives

Answer 16

nudges that push someone towards a certain option to “better” their wellbeing

Question 17

Present bias preferences

Answer 17

have people make decisions about the future now to nudge them to partake in a certain action

Question 18

Opt in/out

Answer 18

changing the default of a decision and allowing people to opt out rather than opting in

Question 19

Loss aversion

Answer 19

may be more sensitive to losses than gains

Question 20

Choice overload

Answer 20

too many choices leads to no choices

Question 21

Procrastination

Answer 21

limited self control

Question 22

Saliency

Answer 22

focus on most important attribute of a choice, ignoring other important attributes

Question 23

Pigouvian taxes

Answer 23

used to address negative externalities in consumption

Question 24

What are sin taxes designed for?

Answer 24

Reduce consumption of alcohol, tobacco, vaping, sugar etc and raise revenue

Question 25

How can you determine how responsive consumers will be to sin taxes?

Answer 25

Look at the elasticity of demand

Question 26

Are sin taxes regressive?

Answer 26

yes

Question 27

Regressive

Answer 27

the tax has a higher burden on lower incomes

Question 28

What are some alcohol consumption externalities?

Answer 28

addictive properties, intoxicated driving, young/inexperienced drivers, health consequences

Question 29

What are the taxes on beer, wine, and liquor?

Answer 29

There are different taxes for each, and are at the state and federal level

Question 30

What are some alcohol control policies?

Answer 30

Legal drinking age, zero tolerance policy, rules surrounding when and where you can buy alcohol, graduated drivers license programs, surgeon general warning, responsible beverage service, BAC levels, funding for treatment of alcohol use disorder

Question 31

What are some externalities of tobacco use?

Answer 31

addictive properties, involvement by young people, health consequences for self, secondhand health consequences for others

Question 32

What are some tobacco control policies?

Answer 32

excise taxes, smoking restrictions by place, restrict access to youth including advertising, small payments to encourage quitting through Medicaid

Question 33

What is the master settlement agreement?

Answer 33

alleged that Big Tobacco failed to adequately warn customers about the addictive properties of cigarettes which caused smoking related injury; pay over 200B over first 25 years