BEHAVIOURAL ECONOMICS
A rational
Maximize
should
Utility have perfect information and make choices that
Consumers are not always rational this goes against the idea of homo economic
consumer
;
,
Behavioral economics shows
◦
that there
are
limitations and biases of rational behaviour
many
Biases
Rules of thumb simple guidelines based on experience and common sense
.
.
.
Anchoring involves the use of irrelevant information decision making often involves the first piece of information that
framing deals with how choices
presented to decision-makers
heavily
Availability refers to information that is most recently available which people rely
:
in
:
-
,
are
on
,
Bounded Rationality
consumers
→
human mind's limit
the
and
Bounded Self Control
-
to
Imperfect Information
NUDGE
THEORY
→
~
.
-
>
the theory of
applying Behavioral
By learning behavioural economics
-
savisfice
consumers seek to
rationality
,
assumes
help us to predict non rational behaviour
.
information
,
we
have
people exercise self-control
perfect
the cost of
obtaining information
access
to information
,
within limits
.
which is not the
case
.
Economics
try to predict now people behave and will react
we can
.
-
and refers to the idea that
behaviour
consumer
more
insufficient
,
process information
related to bounded
is
→
only rational within limits as we are limited by
are
consumers came across
.
:
-
◦
their tastes and preferences
:
-
◦
among
;
-
◦
are consistent
us !
,
in
variety of situations
a
.
This is valuable
as
it can
-
nudges
and
→
without
~
are
a
limiting
method
choice
.
influencing consumers choices in a predictable way without offering financial
'
of
,
incentives
imposing sanctions
or
,
.
these maintain freedom of choice while
guiding
thoughts to
a
particular choice
.
I. CHOICE ARCHITECTURE
→
is the
design of particular ways or environments in which people make choices therefore people maintain their freedom of choice yer are
•
•
•
Default choice is
:
Mandated choice :
Possible
-
-
-
is
by default which
choice made
a
choice
,
.
limited
thar is
.
Possible Disadvantages
Advantages
-
may influence people into acting in socially desirable ways
they
freedom of choice
combined with other
When Could these be
-
to achieve objectives
combined with other
it
is
-
policies?
.
.
in
-
e.:
or
,
,
,
among sugary / junk food Same applies for soda us wavers juice
.
→
.
.
.
-
Choice Architecture
,
anchoring bias
if people are told that most people have already payed their
taxes they are more likely to
,
◦
.
Increasing taxpayers
-
do
so
aswell
.
Improving healthcare
-
as
.
this may also be effective in supermarkets
◦
default choice organ donation has been effective
:
in
countries such
the Ub, France or Austria where numbers have increased to 90%
,
rather
.
new
branch of economies and
has not
yet been proven
.
may cause complaints if people feel
other
Reducing Marker Failure; Neg Ext Consumption
school canines
by placing healthy food near children
they are
to ear i.
salads fruit
more likely
vegetables than if they were placed
.
a
regularly effective
.
.
policies
◦
,
.
:
-
can be
,
.
simple and low cost to implement
it continues to offer
.
.
means people have to opt out if they do not wish to
participate
by the government or other authority This way with less choices people make better decisions
is when a choice between alternatives is made
compulsory
a
:
Restricted choice
evaluating behavioral economics
-
,
.
influenced by how options are presented to them
traditional economic policies
may
that their choice
be more
effective
.
is
being restricted