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2-Economics- Micro > Behavoural Econ > Flashcards

Behavoural Econ Flashcards

1
Q

Behavoural econ

A

Method econ analysis applies physiology yinsights into human behavour explain how consumer acts

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2
Q

Bounded rationality

A

Customersoption to satisfice rathe rthan maximise
Uses rules of thumbs and approximations when making decisions
Due to high complexity of products- too much choice- may not have sufficient info to make fully informed decision

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3
Q

Heuristics

A

Mental shortages/rules of thumb for deicison making to help peopole mke a quick satisfatory decision to complex q
Lack information or time
Optimal behavoir does not eequal maximising behavour

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4
Q

Default bias in choice

A

Carry on behaving as always done
Repat choices- no mental cognitive effort

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5
Q

Choice architecture

A

How decisions we make are affected by layout/range of choirce sthat are advantagous
Eg salad fornt canteen, stairs next to escalator

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6
Q

Choices influenced by soicak birns

A

Accoeted by the majoirty
Bot smoking in public places

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7
Q

Herd behavours

A

Often make decision based on who is around us
Financial markets

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8
Q

Anchoring

A

Value set by anchor /first piece infomration recived
Mental reference point

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9
Q

Rational behavour

A

Actions in persuit of self interest which for a consumer means attempting to max welfare, satisfaction or utility gained from g&s consumed

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10
Q

Utility

A

Satisfaction or econ welfare an individual gains from consuming a gs

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11
Q

Marginal utility

A

The additional welfare satisfaction or pleasure gained from consuming one extra unit of a gs

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12
Q

Hypothesis of diminishing marginal utility

A

For a single consumer, marginal utility dervicesd from a gs diminishes for each additional unit consumed

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13
Q

Utility max

A

Assumed by trad econ
But constrained by limited income, given set of prices budget constraint, limmited time available

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14
Q

Diff between trad and behavoural econ

A

Ariely
Trad econ theory and aply actual theory
Behavoural observe actual behvaour and come up with theory

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15
Q

Homo economicus

A

Economic man
Self interested only cares about himself, knows consequences of everythingh he does, he is rational, knwos what he wants and alwyad acts on those preferenes
Yet not always in relaitym, heuristiccs status quo bias

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16
Q

Bounded self control

A

Limited self control in which individ lack self control to act in whichat they see as their self interest

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17
Q

Kahneman

A

Thinking fast0 intuitive and instinctual-hait
Thinjing slow reflecting big deciaions more r9ational

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18
Q

Cognitive bias

A

Systematic error in thinjig that affects the decisions and judgements that people make

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19
Q

Availability bias

A

Occurs when indivdi make judgements about the likeligood of future events accordinng to how easy it is to recall similar events
Ie buying lottery tickets after seeing people win in news

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20
Q

Social norms

A

Forms or patterns of behavur consudered socially acceptable

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21
Q

Nudges

A

Factors which encourage people to think and act in patricular ways
Nudges try to shift gorup and individ behavour in ways which comply with desirable social norms
Ie presneting statistical info to young poeple to show heavy drinkiing not as common

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22
Q

Alturism

A

Concern for the welfare of others
Gives them happiness to- so still maximising

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23
Q

Fairness

A

Quality of being impoartial just of free of favourism- treating poepole equaliy sharing with others, gibing otherds respect and time

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24
Q

Default choice

A

Option that is selected automatically unless other alternative specifiied
Opt out organ donations

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25
Q

Framing

A

Tendency for poepole to be influkenced by the context in which the choice is presented when making the decision
90% fat free rather than 10% fat

26
Q

Mandated choice

A

Poeple are required often by law to make a decision
Ie cookies

27
Q

Restricted choice

A

Offereing people a limited no of options so not overwhelmend by complexity of situyation
Too many options dont make decisions
Why comparison websites so effective

28
Q

Nudge- factors

A

Provide info for people to respond to
Creates add social norms
Opt out and default schemes
Activcely choosing by industry

29
Q

Shove

A

Uses tax and subsidies alter incentievs- tax detterant
Fines law banning activities and regulations

30
Q

An individual will consume a free good up to the point at which

A

The total utility is maximised

31
Q

An individual will consume a free good up to the point at which

A

The total utility is maximised

32
Q

If a rational consumer has a limited income, they will make purchases to max utility up to the point at which

A

The marginal utility to price rleationship of each good purchased is identical to

33
Q

A consumer will be in a state of equlibrium with respect to the quantity of the goods purchased wheere

A

The relationship between marginal utility and price is the same for each product bought

34
Q

Hypotesis of diminishing marginal unity0 shape of curve

A

Downward sloping demand curve

35
Q

An example of a rule of thumb leaidng to bias in decision making regarding a consumers regular purchase of a bottle of wine

A

The fact it is the second cheapest one in the shop

36
Q

System one thinking-

A

Kahneman
Fast and emotional

37
Q

System 2 thinking

A

Kahneman
Deliberate and logical

38
Q

Choice architecture is sometimes criticised on the grounds that it

A

Effectively restricts some individuals freedom of choice

39
Q

Nudge theory

A

Any feature in the environ that attracts our attention and influences our behavoir without restricting our freedom of choice
Ie opt out scheme
Reduced size of general waste bins to incentivise poeple recyle
Pictoral health warnings on cigrette packs to reduce smoking
Example of libertarian paternalism

40
Q

Intrisic motivation

A

Motivation that is not linked to external incentives, but that is genuinely provided by the pleasure of doing something

41
Q

Loss aversion

A

Tendency of an econ agent to place higher value to losses than gains of teh same amount

42
Q

Risk aversion

A

Tendency of an econ agent to prefer certain outcomes to uncertain one

43
Q

Why do we need nudges

A

When tend to forget somethig
When we see beneifts now and ocsts later- intertemporal choices- choicoes that have cnosequences over time

44
Q

Economists choice architecture

A

Thaler and sunstein

45
Q

Choice overload

A

A situation in which someone is faced with too many choices or options. The outcome is likely to be one of the following:
• Greaterapplicationofheuristics,resultinginaless-than-optimaloutcome
• Greaterunhappiness/stressinthedecision-maker
• Greaterchanceofgoingwiththedefaultoption
• Greaterchanceofchoicedeferrali.e.beingsooverwhelmedthatnodecisionismadeatall • Greaterchanceofboundedselfcontrolasdecisionfatiguekicksin.

46
Q

Curse of knowlegde

A

The difficulty that well-informed people have in understanding how lesser informed poeple may think

47
Q

Dual system theory

A

Thinkking fast and slow
Kahnemann
System 1 fast subconscious and automatic- habit
System 2- thinking slow controlled and conscious- when decision v important and highly personal to us

48
Q

Partitioning

A

Consumption can be reduced by packaging something into smaller amounts
Eg packet of crisps sweets
Consumers face more decision points which can slow down the rate of spending or consumption

49
Q

Zero price effect

A

The demand curve for a good changes shape dramatically once the price of the good is zero

50
Q

Should gov intervene to encourage healthy diet - structure

A

Yes- market failure
Sugar tax- trad policy
Trad policy- education camapigans
Behavoural econ- choice archetecture, framing
Conc- behavoural policies most

51
Q

Gov should intervene to get more people to adopt a healthy diet - intro/explan

A

Market failure present justifies intervention
20% of 10-11y/o are obese suggests failure in market for unhealthy food
Consumers ove restimate net benefit of unhealthy foods- infrormation failyure or due to behavoural heuristics that prevent them from makig rational cchoices that max utility
Information faiklure- consumers unaware of ingredients of their foods or potential health conseqeunces of consuming it- demadn higher than if had full info
Thus market. Signals produce undesirale outcomes, too many resources being allocated to the production of nhelathy foods

Heuristics- consuemrs put less wieght on health consequences of eating sugary and fatty foods than they should, helath consequences uncertain and occur in future- consuemrs overdiscount the future

Negative externalitoes demerit goods- 3rd parties impacted- nhs to treat obesity related illnesses
Neg externality diagrram

52
Q

Gov intervenet to increase healthy food consumption- tax unhealthy food

A

Trad policy
Sugar tax imposed apr 2018- unit tax
Draw diagram
Demand contratcs
Evidence of sugar tax in mexico supports success of this policy with sales of sugary foods decreasing by 12% in first year of tax
Tax rev hypotheicated to reduce consumption of unhealthy foods

But tax unlikely effective- fiff to put monetary value on cost of neg externality
Demand unhelathy foods price inelatic
Regressive

53
Q

Gov intervene to increase healthy food consumption- educational campaign

A

Gov enforce restaurants takeaways fast food outlets and others to provide calorie info
Policy helps individ more effectively wight up benefits and costs of consuming diff foods- make choices that max utility
Reduce info failure
Yet ineffective as uk already has compulsory food labelling of ingreients and campaigns such as Change4life initiative
Consumer protection act 2007 already protects consumers against misleading ads suggesting that info provision cannot eailu be improved

54
Q

Gov intervene increase consumption healthy foods- behavoural

A

Consyers show signs of bounded rationality- peoples ability to make rational decisions severly limited because of human mind limited ability to evaluate info and boucnded self control- inability to conrtol aspects of our own behavour
Choice architecture- change way infor and choices presented dto us, nudge us to make socially optimal deciisons that max utility
Healthy food must be placed on supermarket shelves where more likely pruchased- eye level, near checkout under attractivelighting
Framing- unhealthy yougurt 80% fat rather than 20% fT FREE
Few disadv behavoural policies
Could encourage gov become too paternalistic- dont restrict cnosumer freedom to consuer

55
Q

How useful behavoural policies are in influecing peoples choices

A

Behavoural polcies- lib parternalism approach to influencing poeples choices
Trad econ policies- tax regulation and information campiagns
Behavoural polciies incorporate psychology into their creations and tus may be more useful at directly influencing peples choices

Nudges- smoking
Influence choices- choice architecture healtheir eating
Making decison making easier- default options

Overall- trad econ policies alongside behavoural polciies = behavorual not enough alone

56
Q

Behavoural policies influence peoples choices- nudges

A

Restrict choice- smoking- only smoke in smoking speciific areas- outside ofr in non public places away from children
Additional challenges imprsed- consumption demerit godos may be reduced closer to social optimum
Neg externalities- nhs treat smoking related health conditions

But- lowenstein and chater argue- nudges fail to adress root cuases of the problem, smoking, largely info failyre and adidtcive natioure- behavoural not enough
Info cmapighns- inform individ of health risks such as increased risk throat cancer- mroe people quit
Quit smoking campaigns nictoine replacemn needed tackle addictiveness
Lt combination- reduce normality of smkong, behavoural econ still play orle

57
Q

Healthier eating- behvaoural polciies

A

Choice aerchitecture- place healthier foods and snacks at eye level or near chekcout at a supermakret, increasing the likeliness of pruchain these godos dud eto easy acecsibility, esp when comes to impulsive last min decisions
Place salad bar first- encourage individ full plates woityh salad before

But- need subsity healthy foods- progressive policy reduce health risks nutrient defiiciencies- increase financial acessibility
Subsidy equal msc=msb and mpb
Subsidies- famrer grow furit veg more ffeicinet capital or processes reduce price
But could lead to subsidy capture asymmetric info occurs- subsidy wasted and reducition in price minimal

58
Q

Behvaoural econ- deicison making

A

Bounded rationality and heursiterisi may be utilised in order make deciisons
Default options useful as it more mental effort opt in- proved effective organ donations
Especially effective does not reduce free will- can opt out if wish

59
Q

15 marker- econ a social science

A

Social science- defimed as study of how human behave and interact- eon- around conusmer deicisons
Social science- concerned how people institutions and sociteie make deiciosns how to use scarce reosurce and max welfare
Institutional econ- emphasise legal policital and social framework in which eocn actiity occurs- econ outcomes not determined soley by market forces
But also influecned by ruels regulationa and nroms that shape ehavour econ actors
Analyse issues porperty rights contracts and regulation of markets
Study human and how make choices- how social psychological and polictical fatcors influence deiciosn making, how deicisons affect society
Uses tools and methos other social sciences- sociology and sphycology understand how diff econ systems free or mixed eocn operate- kahnesman

60
Q

But econ not social science

A

Mroe closely related to natural sciences- it increasingly relies on mathematical models and data analysis to study human behavoir and econ systems
Eg econometrics
Application of statistical methods to econ data in order to rto estimate and test hypothesis about econ relationships
Branch of econ thtat aims to provide empircal evidence for economic theories and to forecast future eocn trends

61
Q

Critic of nudges

A

Lowenstein and chater
Nudges turn us into ‘unwitting accomplices to forces opposed to creating a better society’ as it fails to adress root cause of problem

2-Economics- Micro (14 decks)

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