4.1.2.4 BEHAVIORAL ECONOMICS AND ECONOMIC POLICY

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What was the work of Richard Thaler?

He researched behavioral economics and highlighted the influence of psychology and social factors on economic decision making

• mental accounting

• endowment effect

• nudging

Give 2 examples and explain why they are an example of a nudge

1. Instead of forcing peoople to eat vegetables, this nudges people by changing the physical placement of food

2. Painting bright, fun footsteps leading directly to the stairs or making the stairwell visually appealing with artwork (the elevator remains full available, but the design makes the stairs more inviting)

How could you get more people to use the salad bar at lunch?

Place the salad bar on a central, highly visible area that people must walk past, as well as proving bigger plates to encourage bigger portions

How could you influence traffic flow and speed?

Paint visual cues directly onto the road surface, such as lines that closer, naturally prompting drivers to slow down

How could you encourage people to avoid the lift and take more exercise?

Redecorate the stairwell with bright colors, artwork or motivational quotes and place clear, fun signage on the floor leading to the stairwell

How could you change the placement of a lift to encourage the use of the stairs?

Place or round the corner, or on the other side of the shop

How could you get people to use hand sanitizers more frequently?

Position sanitizer dispensers prominently at eye level directly at major entryways and heavily trafficked areas, accompanied by clear visual reminders like a bright sign

Are these examples of architecture nudges or shoves?

Nudges

What is loss aversion in basic terms?

When people don’t want to gain but just want to avoid loss

Does the app Betfair want people to cash out?

Yes

What do commitment contracts do?

Commitment contracts can reinforce decisions to adopt healthful behaviors

(they might impose a penalty if people do not reach a goal - invoking our bias or loss aversion)

Give a real world example of commitment devices

Financial penalty for weight loss

• a person agrees to record their weight every so often, if they fail to do so, £100 will automatically be deducted from their bank and sent to an organization/political party they despise

Give another example of commitment devices (gym memberships)?

Gyms deactivating memberships if they are not used

• make you pay to sign up again (shove)

What are examples of nudges using the EAST framework?

Easy

Attractive

Social

Timely

What are some limitations of the use of behavioral nudges?

• nudges may only produce short term (temporary) changes

• context dependency

• may not work in the real world

What is priming?

A psychological phenomenon where exposure to a stimulus influences a persons subsequent thoughts, feelings or behaviors without their conscious awareness

Give examples of priming to change behavior

• playing a certain type of music

• cues in films/TV adverts

How did the UK use framing when constructing the ballot paper from the EU referendum?

They used the options "remain" and "leave" instead of yes or no

Restricted choice (only 2 options

Who frames data?

The government

How is framing used on cereal packaging?

Used to highlight positive health attributes while drawing focus away from less healthily aspects (high sugar/sodium levels)

What would sell better? 90% fat free or 10% fat?

Most consumers prefer 90% fat free, because it highlights the positive attribute when though both represent the exact same nutritional value

What is mandated choice?

A situation or scenario in which people must decide in advance with respect to whether they wish to participate in a particular action - they are required by law to make that choice

Give 3 examples of mandated choice during the pandemic?

Using masks, mandate for vaccine passports for travel, vaccine requirement for certain jobs

People tend to stick with the default option, how does this help the government to encourage people to make a specific decision without having to force them to do so?

Setting a default action allows governments to guide people towards a desired decision because individuals naturally tends to follow the path of least resistance

How does restricted choice help the consumer?

Reduces cognitive load

Prevents decision paralysis (stops consumers from abandoning their choices out of frustration)

Simplifies comparison

Guides better decisions so people are more rational