Behavioural Economics

Question 1

What is bounded rationality

Answer 1

Most consumers and producers do not have sufficient information to make fully-informed judgements when making decisions. People opt to satisfied rather than maximise.

Question 2

What is heuristics

Answer 2

Mental short cuts of rules of thumb for decision-making

Question 3

What are default biases in choices

Answer 3

People prefer to carry on as they always have - people prefer to have the same behaviour

Question 4

What is choice architecture

Answer 4

The layout / sequencing / and range of choices that are available

Question 5

When is choice architecture often more effective

Answer 5

When it encourages simplicity in the decisions that people have to make and in which the benefits and costs are made clear

Question 6

Examples of choice architecture

Answer 6

Getting more people to use the salad bar at lunch

Question 7

How is our day-to-day behaviour in markets influenced by prevailing social norms or social customs

Answer 7

Social norms
Queuing behaviour
Smoking bans
Seat belts compulsory

Question 8

What is herding

Answer 8

When we often make decisions based in part on who is around us and the choices they make

Question 9

Examples of herding

Answer 9

Choosing items off a menu

Question 10

What is anchoring

Answer 10

Where an anchor of value or imprints is set in our minds which we then use as mental reference points when making decisions

Question 11

Examples of price anchoring

Answer 11

‘Big price drop’ campaigns

Question 12

What is priming

Answer 12

Our behaviour by cues that work subconsciously and prime us to behave / choose in certain ways

Question 13

Examples of priming

Answer 13

Certain types of music in a shopping centre

Question 14

What is framing

Answer 14

Offering a question a different way often generates a new reliance by changing the comparison set it is viewed in - altering the way information is provided

Question 15

Examples of framing

Answer 15

Privacy settings on Facebook

Question 16

What is availability bias / availability heuristic

Answer 16

Biases affect how people process complex information.

When we judge the likelihood of an event, or the frequency of its occurrence

Question 17

When are people less likely to change their decision

Answer 17

When their position is public

Question 18

What are commitment contracts and choices

Answer 18

When people feel strongly about activities where they have made a personal commitment

Question 19

Are behavioural nudges effective

Answer 19

They can give the impression that consumers are dumb

Question 20

Limitations of behavioural nudges

Answer 20

Cannot change deep rooted psychological problems such as alcoholism and street violence

Question 21

What is argued to be just as effective as nudges

Answer 21

Conventional policy interventions such as taxes, subsidies and regulations