Behavioural economics and economic policy

Question 1

What is behavioural economics

Answer 1

Behavioural economics is a branch of economic research that adds elements of psychology to traditional models in an attempt to gather a understand of economic decisions made by investors, consumers and other economic participants

Question 2

What does behavioural economics challenge

Answer 2

Behavioural economics challenges the assumption that agents always make rational choices with the aim of maximising utilities

Question 3

What is choice architecture

Answer 3

Choice architecture a framework setting out different ways in which choices can be presented to consumers, and the impact of that presentation on consumers decisions making

Question 4

What are examples of choice architecture

Answer 4

Behavioural studies have found that when fruit and salads are placed at the front of a canteen more are purchased then when placed at the back

Question 5

What is rational choice

Answer 5

Rational choice involves the weighing up of costs and benefits and trying to maximise the surplus of benefits over costs

Question 6

What is default bias (status quo bias)

Answer 6

Human are resistance to change. We follow daily routines and exhibit strong default behaviour which can be hard to change.

Question 7

what is a cognitive bias

Answer 7

A cognitive bias is simply a systematise error in thinking that happens when people are processing and interpreting information in the real world around them and this effects there decisions and the judgments they make

Question 8

What is an example of default bias

Answer 8

menu habits

Question 9

What is loss aversion (risk aversion)

Answer 9

When we emphasis losses more than potential gains

Question 10

What is anchoring

Answer 10

when people use irrelevant information as a reference point to make an estimate of something. People use an “anchor point” of an event or a value that they know to decide or estimate

Question 11

what is an example of false anchoring

Answer 11

when a shop keeper would put a sign up stating DONUTS 25p, 3 for £1.00
customers then proceed to but 4 donuts for £1.00
shopkeeper put up the sign to trigger people to buy more because they may have just bought one donut

Question 12

What is framing

Answer 12

A frame is the way choices are described and present

Question 13

What is framing

Answer 13

framing a question or offering it a different way often generates a new response by changing the comparison set it is viewed in

Question 14

What is over confidence

Answer 14

When we become over-confident in our own ability due to recent success

Question 15

what is confirmation bias

Answer 15

This is favouring information that conforms to your existing beliefs and discounting evidence that does not conform with your beliefs

Question 16

what is social proof

Answer 16

What an individual looks to the behaviour of their peers to inform their decision-making

Question 17

What is herd behaviour

Answer 17

When individuals act collectively as part of a group. Often the result of social pressure to conform and settle for group-think. Can go against your natural instincts

Question 18

What is social pressure

Answer 18

People want to be accepted and this may mean behaving in a curtain manor that may go again there beliefs

Question 19

why do people follow groups

Answer 19

they follow the groups behaviour in the mistaken belief that the group knows something that the individual don’t

Question 20

What is choice overload

Answer 20

Choice overload is when individuals have too many options to make a full-informed rational decisions

Question 21

what are social norms

Answer 21

Prevailing norms or customs of behaviour within social groups. They become accepted by the majority of a given community.