behavioural economics' Flashcards

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1
Q

What is assumed about the ‘economic man’

A

rational,intelligent and emotionless

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2
Q

What is ‘bounded rationality’

A

Consumers do not have sufficient information

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3
Q

What is ‘bounded rationality’

A

Consumers do not have sufficient information

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4
Q

What is ‘Heuristics’

A

mental shortcuts for optimal, not perfected, decisions

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5
Q

What are default choices (habitual nature)

A

repeat behaviour as they require little cognitive behavious

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6
Q

What are choice architecture

A

describes how the decisions we make are affected by the layout / sequencing / range of choices that are available

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7
Q

What are is an example influenced by social norms

A

Social norms about ‘giving’

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8
Q

What is Herd Behaviour

A

Making decisions based in part on who is around us and the choices they make e.g. financial markets, items off a menu in restaurant

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9
Q

What is Anchoring

A

Value set by mental reference points e.g. 2.00 wings meal

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10
Q

What is Priming

A

Our behaviour by cues that work subconsioucsly and prime us to behave in certain waves

e.g. playing of certain types of music in a shopping mall

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11
Q

What is framing

A

framing a question or offering in a different way

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12
Q

What is asymmetric framing

A

including an obviously inferior 3rd choice or a hyper-expensive 3rd option rather than a simple expensive/cheap option that can guide consumers to more expensively priced items

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13
Q

Availability Bias

A

distortion that arises from the use of information which is most readily available

e.g. over estimate likelihood of an air crash based on recent headlines

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14
Q

What is the Commitment effect

A

The more public our position, the less willing we are to change it

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15
Q

What is bounded self control

A
  • People frequently lack the self-control to act in a manner that they claim is in their own best interest.

For example, the recently introduced Workplace Pension Scheme automatically enrols workers in the scheme but allows people to opt out if they wish. The take-up of such schemes is far greater than if people were required to opt in.

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16
Q

advantages and disadvantage of rules of thumb

A

Advantages

Shortens thinking process in consumption

Disadvantages

Could lead to poor/irrational decisions

17
Q

advantages and disadvantages of Anchoring

A

Advantages

Advantageous for firms - allows them to attract the consumer

Disadvantages

Consumers would be exploited and unable to think for themselves - they believe what firms tell them

18
Q

advantages and disadvantages of Avaliability

A

Advantages

Could be helpful in terms of predicting events or circumstances as it relies on previous occurrences

Disadvantages

Recent occurrence of an event and its consequences is not always a useful guide to underlying probability of similar events reoccurring

19
Q

advantages and disadvantages of social norms

A

Advantages

Allow consumers to make more or less moral decisions and may be helpful in terms of making rationalised decisions

Disadvantages

There may be bad influences surrounding you meaning there may be immoral decisions made rather than moral

20
Q

What is a mandated choice

A
  • This is where people are required by law to make a decision by law.
21
Q

What are some critiques of nudges

A
  • The use of nudges and choice architecture assert that they are manipulative and interfere with an individual’s freedom to choose.
  • It may be useful in changing minor behaviours in a modest way but not in changing deep rooted psychological problems such as alcoholism, drug dependency and street violence
  • Conventional policy interventions such as taxes, subsidies and regulations are often just as effective as nudges because price remains an important determinant of choices in markets.
22
Q

What are some benefits of nudges

A
  • If people are always influenced by the context in which decisions are made, complete freedom of choice isn’t really feasible.
    • Thaler and Sunstein argue that since people are unlikely to have complete information, unlimited cognitive ability and unrestrained will power, they will inevitably make sub-optimal choices and so using nudges can improve people’s well-being.
23
Q

HMRC behavioural insights team

A

social norm based taxation by more than £1.6 million

24
Q

Save More Tomorrow

A

Rhaler and Benartizi nudges people into taking private pesnions plans by using behavioural economics

helped over 15 million americans

25
Q

Traffic light calorie system

A

nudge

26
Q

OPT-OUT Organ Donation

A

25-30% increase

27
Q

NUdges for consumption of single-use carrier bags

A

Must ASK for one, 10p charge

Plastic bag sales fell by 95% in the early years after they were introduced