Nudge Theory Flashcards
Anchoring Bias
Consumers have a reference point to determine whether something is good or not
Inertia Bias
Consumers are overflooded with so much options they decide to stick with same product
Framing Bias
Expressing information of a product in a positive or negative way
Why is PED is different in a straight curve (2)
higher prices = consumers less willing to purchase + more sensitive to price changes
lower prices = consumers more willing to purchase + less sensitive to price changes
Is PED the same throughout a curve (2)
No
higher prices = higher PED
lower prices = lower PED
Income elasticity of demand equation
percentage change in quantity demanded/percentage change in income
YED for luxury goods
> 1
YED for normal goods
0 < YED < 1
YED for inferior goods
negative
Define specific tax (2)
fixed amount of tax imposed on a product
vertical shift upwards of supply curve
Define percentage tax (2)
tax is a percentage of price
supply curve is more inelastic
Define incidence of taxation
distribution of burden of indirect tax
Consumer tax burden on graph
top part of tax
Producer tax burden on graph
bottom part of tax
Incidence of taxation for products with elastic demand (2)
producers bear most of tax
producers cant pass on tax as it will lower demand significantly
Incidence of taxation for products with elastic supply
more of tax borne by consumers
Incidence of taxation for products with inelastic demand (2)
consumers bear most of tax
producers can pass on most of tax in the form of higher price as it will not reduce demand much
Incidence of taxation for products with inelastic supply
more tax borne by producers
Define neoclassical theory
the assumption that human behaviour is completely rational + utility-maximising
Limitations of neoclassical theory (4)
cognitive bias
bounded rationality
bounded self-control
bounded selfishness
Features of cognitive bias (4)
rule of thumb - mental shortcuts to help people make quick decisions to a complex choice
anchoring
framing - presenting choices in a way to affect choices made
availability - recalling past examples of similar events to make a decision
Features of bounded rationality
idea that consumers are bounded by information + ability and cannot be ideally rational
