1.2.4 Behavioural economics and economic policy

Choice Architecture

The design of different ways in which choices can be presented to consumers, influencing their decisions.

Framing

The context in which choices are presented, affecting the decision-maker's perception and choice.

Nudges

Gentle suggestions or changes in the environment that encourage certain behaviors without restricting freedom of choice.

Default Choices

Options that are automatically selected unless the individual actively chooses otherwise.

Restricted Choice

Offering fewer options to help individuals avoid overwhelm and make better decisions.

Mandated Choice

Forcing individuals to make a decision by law, while still allowing them the freedom of choice.

Libertarian Paternalism

An approach that aims to influence people's behavior while preserving their freedom to choose.

Nudge Theory

A behavioral economics concept suggesting that indirect suggestions can influence motivations and decision-making.

Information Overload

A phenomenon where too much information hinders decision-making.

The Nudge Unit

A team established by the UK government in 2008 to apply behavioral economics to improve public policy.

Five-a-Day Campaign

An initiative aimed at encouraging individuals to consume five portions of fruits and vegetables daily.

Pension Auto-enrollment

A system where individuals are automatically enrolled in pension plans unless they opt out.

Behavioural Insights Team

A UK government initiative focused on using behavioral economics to improve public sector policies.

Shoves vs Nudges

Comparing strong policy interventions (shoves) like taxes versus subtle suggestions (nudges).

Paradox of Choice

The theory that having too many options can lead to anxiety and indecision.

Consumer Well-being

The overall health of consumers' financial, personal, and emotional state as it relates to market actions.

Economic Decision Making

The process through which individuals or organizations make choices, balancing preferences and constraints.

Autonomy

The ability of individuals to make their own choices and exercise their own free will.

Psychological Bias

Cognitive tendencies that affect decision making and can lead to irrational choices.

Optimal Defaults

The best option set as the default choice to encourage beneficial behavior.

Social Norms

The expected standards of behavior within a group that influence individuals' decisions.

Behavioural Economics

A field of economics that studies the effects of psychological, cognitive, emotional, cultural, and social factors on the economic decisions of individuals and institutions.

Paternalistic Policies

Government policies that assume a role of guidance over individuals to promote their welfare.

Consumer Education

The process of informing consumers about their choices and promoting better decision-making.

Cost of Inaction

The potential loss incurred from failing to make a decision, especially in economic terms.

Irrationality

Decision-making that is not based on logical reasoning or objective analysis.

Motivation

The reason or reasons one has for acting or behaving in a particular way, often influenced by nudges.

Health Choices

Decisions impacting personal health, often influenced by informational framing and nudges.

Behavioral Models

Theoretical frameworks that explain how individuals make decisions based on psychological factors.

Choice Overload

A condition in which individuals have difficulty making decisions due to the presence of too many options.

Auto-enrollment

A process by which employees are automatically signed up for a pension or similar program.

Choice Simplification

A strategy to reduce the complexity of choices presented to consumers.

Pension Contributions

Regular payments made into a pension fund for future financial security.

Behavioral Interventions

Actions taken to influence individuals' behaviors towards improved outcomes.

Compliance

The act of conforming to a recommendation or directive, often influenced by nudges.

Choice Architecture Components

The elements that comprise choice architecture including nudges, defaults, and framing.

Consumer Autonomy

The right of consumers to make independent choices without undue influence.

Choice Design

The strategic arrangement of options to influence decision-making.

Influencing Decisions

The process through which various factors, including choice architecture, affect the choices individuals make.

Cost-Effectiveness

An economic analysis that compares the costs and outcomes of different choices.

Public Policy

Government actions intended to solve problems or address issues within society.

Economic Incentives

Factors that motivate individuals to act in a certain way, often used in nudges to promote positive behavior.

Feedback Loops

A process in which the output of a system is circled back and used as input.

Long-term Savings

Funds set aside for future needs, typically through investment in a pension or savings plan.