Nudges and Behavioural Public Policy Flashcards
What is the aim of economic policies?
To enhance welfare
What are the different types of economic policies?
- Bans and Prohibitions
- Dis(incentives)
- Nudges
Examples of Bans and Prohibitions
- mandate to wear a mask on public transport
- banning international trade of nuclear waste
- prohibiting entry to pubs and restaurants to those who are not vaccinated and do not have a negative covid test
Examples of Economic (dis)incentives
- Fines for driving above the speed limit
- Taxes on diesel
- Grants for Electric Vehicles
Examples of Nudges
- pictures and warnings on cigarette packages
- stickers on car rentals in Ireland reminding drivers to drive on the left
- sending a reminder to schedule a doctor’s appointment, e.g., HPV cancer screening
- poster on public transport reminding us to wear a mask & wash hands
What is a Nudge?
- ussed to inform/ make a choice easier
- aimed to steer people in a certain direction
- maintain freedom of choice
- should impose little to no cost to those who are exposed to it
- no effect on choices of those who are already rational and informed
- potentially positive effect on those who are not informed or are not rational
IMPORTANT: Positive effect by their own standards
What is the key idea of nudges
is not to change incentive (e.g. poster reminding to wash hands)
- instead often the aim is to inform the decision maker or make a choice easier
- interventions target the choice architecture, i.e. the set-up for making a choice
What is the aim of incentives and disincentives?
encouraging or discouraging individuals to undertake a particular action (e.g. tax on diesel or subsidy for installing solar panels)
What are nudges not?
- not about lying
- unethical practice
Key features of a Nudge
The “Road curved ahead” sign example:
- aims to help people make better driving decision by themselves rather than making decisions for them
- imposes no cost to people exposed to it
- no effect on drivers who are rational and informed
- potential beneficial effect on drivers who are boundedly rational (e.g. paying limited attention) or uninformed (beneficial according to them)
Why are nudges needed?
System 1 instead of System 2 thinking.
System 1 thinking is unconscious thinking
- use of heuristics (anchoring, availability, representativeness) may result in systematic biases
- people exhibit inertia (maintain current decision even when an alternative may be better) & status quo bias
- bounded memory, limited attention
- overoptimism and overconfidence
- loss aversion
- framing effects
- dynamic inconsistency (self-control issues)
When are nudges needed?
more important for decisions that are:
- difficult and rare (e.g., choosing a retirement plan)
- benefits now - costs later (e.g., discourage smoking & excessive drinking)
- for which people do not get prompt feedback (e.g., if credit card statement issued rarely)
- when it is difficult to map the situation into possible outcomes (e.g. choosing a health insurance)
Who can nudge?
Choice architect: anyone who designs an environment where choices are made
- director of food services for school/university
- designer of ballots voters use to choose candidates
- doctor who prescribes treatment available to patients
- parent describing educational options to child: the way you describe choices to people matters
What are features of choice architecture?
- Expect errors (e.g. beep if someone has forgotten to fasten seat-belt)
- Set default options (e.g. default software installation package)
- Give feedback (e.g. digital cameras provide immediate feedback as to whether a person is in the picture)
- Make it easy to understand mappings from choice to welfare (RECAP reports by credit card companies, utility providers, mortgage providers)
- Structure complex choices (e.g. paint store example)
- Make incentives salient (highly visible) (e.g. thermostat tells you cost per hour of having heating air conditioner on)
Who can be choice architects?
individuals, private institutions, and governments could all be choice architects
