Behavioural economics

Question 1

Heuristics

Answer 1

Mental shortcuts based on a persons experiences.
eg. cognitive bias (systematic error based on judgements) & rule of thumb.

Question 2

Nudges

Answer 2

A low cost technique used to influence consumer behaviour without reducing the options available.
eg. calorie counts on menus.

Question 3

Framing

Answer 3

Consumer choices are influenced by how information is presented eg. positive or negative framing.

Question 4

Bounded rationality and self control

Answer 4

Bounded rationality is that decision making cannot be fully rational eg. time constraints, misinformation.

Bounded self control is when consumers continue to consume when it makes sense to stop eg. discounts

Question 5

What are the 3 different types of choices?

Answer 5

Default choice - only choice available

Mandated choice - must make a decision to advance on an action eg. opt in opt out organ donor.

Restricted choice - government restricts choices available to consumers eg. banning smoking indoors acting as an incentive to stop smoking.

Question 6

Anchoring and choice architecture

Answer 6

Anchoring is when people rely on the first piece of information given to them to make decisions.
Choice architecture is influencing choices by product placement.

Question 7

Altruism

Answer 7

People make sacrifices to benefit other people without expecting a personal reward.

Question 8

Availability bias

Answer 8

People’s decision making process is restricted due to past events or experiences.

Question 9

The importance of information for decision making

Answer 9

People will make decisions based on their resources to achieve the best outcome.
Weighing up the costs and benefits, and choosing the one which will provide the highest net benefit.
eg. maintenance costs, and price of car.