Behavioural Economics Flashcards
(20 cards)
What is choice architecture
Refers to the way choices are presented to individuals which can influence their decision eg tobacco
What is framing
Refers to how the presentation or wording of information can influence people’s decisions and perceptions
What is a nudge?
Subtle changes in the environment or the way choices are presented to influence people’s behaviour without restricting options.
Example: piano stairs.
What is anchoring?
The first bit of information received by a consumer has more weight in their decision even if it is not relevant.
What is mandated choice?
Legally forced to make a decision - opt in or opt out.
What is restricted choice?
Stripping back the number of choices to simplify decisions.
What is default choice?
Assume people want the optimal choice unless they opt otherwise.
What is bounded self control?
States that individuals have limited ability to make decisions that are in their long term best interests due to physiological limitations or impulses.
Example: smoking or eating unhealthy.
What are social norms?
Refers to the shared expectation and rules within a society or group that influence how individuals behave.
Example: tipping culture.
What is loss aversion and the endowment effect
Pain of losing something is greater than the pleasure of gaining something of equal value
Value something more highly simply because we own it
What is herd behaviour
Doing something just because everyone else is
Eg ordering from a restaurant
What is availability bias
Making decisions based on information that is more easily available rather than relevant data
Eg shark attacks
What is altruism
Selflessness or kindness that doesn’t make sense in traditional economics
Done due to morals, feelings and emotions affecting decisions
What is bounded rationality
Bounded rationality is the idea that people try to make rational decisions, but their ability to do so is limited by:
1. Incomplete information
2. Limited cognitive processing ability
3. Time constraints
Done by satisicing
Eg choosing a phone
What are heuristics(rule of thumb)
Mental shortcuts to speed up decisions especially when facing limited info
Problems with using behavioural economics as gov policy
Too paternalistic
Unpredictable and costly-no guarantee they work
Based on fallacies and biases-tricking people
Policies may not be strong enough to overcome deep rooted issues like addiction
Eval of behavioural econ used as gov policies
Costs vs benefits(gov failure)
Info provisions better?
Integrated policy may be the best approach as it is a shove and more likely to have desired effect
What does a rational consumer do in traditional economics
Gather all info
Weigh up all info
Take time and make a utility maximising decision
What does behavioural economics do
Disputes rationality and utility maximisation arguing that emotional, social and psychological factors can influence decision making
