behavioural economics'

Question 1

What is assumed about the ‘economic man’

Answer 1

rational,intelligent and emotionless

Question 2

What is ‘bounded rationality’

Answer 2

Consumers do not have sufficient information

Question 3

What is ‘bounded rationality’

Answer 3

Consumers do not have sufficient information

Question 4

What is ‘Heuristics’

Answer 4

mental shortcuts for optimal, not perfected, decisions

Question 5

What are default choices (habitual nature)

Answer 5

repeat behaviour as they require little cognitive behavious

Question 6

What are choice architecture

Answer 6

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

Question 7

What are is an example influenced by social norms

Answer 7

Social norms about ‘giving’

Question 8

What is Herd Behaviour

Answer 8

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

Question 9

What is Anchoring

Answer 9

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

Question 10

What is Priming

Answer 10

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

Question 11

What is framing

Answer 11

framing a question or offering in a different way

Question 12

What is asymmetric framing

Answer 12

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

Question 13

Availability Bias

Answer 13

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

Question 14

What is the Commitment effect

Answer 14

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

Question 15

What is bounded self control

Answer 15

• 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.

Question 16

advantages and disadvantage of rules of thumb

Answer 16

Advantages

Shortens thinking process in consumption

Disadvantages

Could lead to poor/irrational decisions

Question 17

advantages and disadvantages of Anchoring

Answer 17

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

Question 18

advantages and disadvantages of Avaliability

Answer 18

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

Question 19

advantages and disadvantages of social norms

Answer 19

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

Question 20

What is a mandated choice

Answer 20

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

Question 21

What are some critiques of nudges

Answer 21

• 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.

Question 22

What are some benefits of nudges

Answer 22

• 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.

Question 23

HMRC behavioural insights team

Answer 23

social norm based taxation by more than £1.6 million

Question 24

Save More Tomorrow

Answer 24

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

helped over 15 million americans

Question 25

Traffic light calorie system

Answer 25

nudge

Question 26

OPT-OUT Organ Donation

Answer 26

25-30% increase

Question 27

NUdges for consumption of single-use carrier bags

Answer 27

Must ASK for one, 10p charge

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