nudge Flashcards

1
Q

whats the difference between neoclassical economics and behavioural economics

A

Neoclassical economics

  • Assumption of rational choice
  • Governments should take a hands-off (or libertarian) attitude towards private choice

Behavioral economics

  • emphasis on predictable irrationalities,
  • Government intervention (or paternalism) seem less unreasonable
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2
Q

whats a nudge

A

any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives..

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3
Q

describe the behavioural model by Chetty et al. 2015

A
  • U(c); agent’s experienced utility – actual well-being
  • Planner wants to max U(c)
  • By choosing a set of tax rates (t) and nudges (n)
  • V(c); agent’s decision utility
  • Agent wants to max V(c) when choosing c

Utility function is influenced by two groups of conditions
-n; can be manipulated by policy makers
Eg. framing, default
-d; cannot be manipulated by policy makers
Eg. overconfidence or perception
-Z; wealth
-Revenue requirement 𝑅̅

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4
Q

what happens if n relaxes

A

yields new policy tools

can make some choices more noticeable

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5
Q

what happens if d relaxes

A

Yields better predictions about the effects of existing policies

can make better predictions about the effect of taxes

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6
Q

what happens if you relax n, d and u=v

A

Yields new welfare implications and better predictions about the effects of existing policies

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7
Q

Policy question: should we encourage low-income families to move to lower-poverty areas?

A
Behavioral models: moving families to lower-poverty areas improves their welfare
Use subsidies (housing vouchers) or nudges (counseling) to  encourage such moves

Neoclassical model: do not intervene unless there are externalities
May include intergenerational externalities if parents underinvest in children

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8
Q

what model should we use when we are uncertain about the true model

A
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