Topic 2 Micro

Question 1

Behavioural Economic Biases

Answer 1

~Anchoring
~Social Norms
~Availability Bias
~Framing
~Loss/Risk Aversion + Endowment Effect
~Herding/Herd behaviour
~Choice architecture
~Altruism?

Question 2

Other sources of Irrational/Non-utility maximising behaviour

Answer 2

*Imperfect information
~Merit/Demerit goods (benefits/costs valuation)

*Asymmetric Information
~Labour Markets
~Second Hand Markets
~Insurance Markets (+adverse selection)

*Altruism

Question 3

Behavioural Economics & Govt Policy: Nudge Policies

Answer 3

*Framing
~’low fat’, pricing info (e.g Savemyexams month vs year membership pricing)

*Nudges
~positioning of choices: e.g placing stairs at front and elevator near back of entrance

*Default choice
~salad option instead of chips first at McDonald’s

*Restricted choice
~school-provided meals only when studying

Question 4

Behavioural Economics & Government Policy: Nudge Policy Negatives (However…)

Answer 4

*Too Paternalistic?

*Unpredictable & Costly

• Based on generalising fallacies & biases
• Strong enough policies?
  ~Are they addressing the root cause?
  ~If not, only benefits in the SR & not in LR

Question 5

Behavioural Economics & Government Policy: Nudge Policy Evaluation (Depends on…)

Answer 5

*Costs vs Benefits?
~Government failure risk
~e.g administrative costs

*Would information provision be more effective?
~addressing root cause?

*Would ‘Shove’ policies (taxes/subsidies etc) be better?

+Would integrated policy approach be better?