behavioural economics

Question 1

what is behavioural economics

Answer 1

-disputes rationality and utility maximisation arguing that emotional, social and psychological factors can influence decision making

Question 2

traditional vs behavioural on how consumers act

Answer 2

-gather all info, weigh it up, take time to make utility max decision
-bounded rationality (time, choice, info), bounded self control, consumers follow HEURISTICS (rule of thumb) to make satisfying decisions

Question 3

cognitive biases in behavioural economics

Answer 3

-price anchoring (shops and supermarkets creates anchor compare actual vs retail price)
-social norms (decisions influenced by rules, tip restaurants but not at friends house, and seat belt)
-availability bias (make decisions based on how easy it is to conjure examples may not decide to go swimming in Australian seas due to shark attacks, reality is very low)
-framing (influenced by way which information promoted: low cholesterol, or low fat)
-loss aversion (attachment to money, don’t wanna take risk of losing money)
-herd behaviour (jump on bandwagon i.e. social smoking)
-choice architecture (influenced based on location i.e. salad bars on restaurant, hand santizers)
-altruism: don’t expect anything in return after doing something good (moral value attached to charity, firms hire workers because they want to give them good standard of living)

Question 4

behavioural economics and policy making, issues and evaluation

Answer 4

choice architecture policies (nudge)
1) framing: low fat, low sugar, low cholesterol, recycling
2) nudges: location of salad bars, recycling bins
3) default choice: organ donation
4) restricted choice: public smoking bans, location of takeaway
5)mandated choice: recycle bins and organ donation

but:
1) too paternalistic (going too far)
2)unpredictable and costly
3) based on fallacies and biases

eval:
-costs vs benefits
-info provision better?
-integrated policy best approach