2.4

• Choice architecture definition

  A framework setting out different ways in which choices can be presented to consumers, and the impact of that presentation on consumer decision making
• what does choice architecture include?

  • default choice
  • framing
  • mandated choice
  • restricted choice
• what is default choice?

  An option that is selected automatically unless an alternative is specified - people often stick with it due to interia or laziness
• what is framing?

  How something is worded or presented influences the choices people make
• what is restricted choice?

  offering people a limited number of options, on the basis that offering too many choices is unhelpful and leads to poor decisions (overwhelming)
• What is mandated choice?

  People are required, often by law, to make a decision, variant if default choice
• why is choice architecture important in policy making?

  because people often act irrationally, how choices are framed can encourage better outcomes (e.g saving, health, education) without banning options or increased costs
• government policies based on traditional economic theories have generally sought to shove people into altering their behaviour rather than to nudge them in the desired direction
• nudges characteristics

  • provides information for people to respond to
  • creates positive social norms
  • opt-out schemes rather than opt-in schemes and default choices
  • active choosing by individuals
• shove characteristics

  • use taxation and subsidies to alter incentives and on occasion, in the case of taxes, to punish people
  • use fines, law banning actives and regulations
• How can consumer welfare be improved through choice architecture?

  Choice architecture improves consumer welfare by:

  • Nudging people towards healthier, smarter decisions
  • Framing information clearly to support rational choices
  • Using default options that protect people’s long-term interests
  • Simplifying complex decisions to reduce confusion
• What are the limitations or criticisms of behaviour economics in policy?

  • nudges may be too weak to change behaviour alone
  • Can be seen as manipulative or paternalistic
  • Behaviour varies between individuals
  • Over reliance may ignore deeper structural problems (e.g poetry, inequality, market failure)
• choice architecture example

  arranging healthier food at the front on canteen encourages better eating habits without removing freedom of choice
• default options example

  workers auto-enrolled into a pension scheme but can opt out. most don’t opt out, so more people save for retirement
• framing example

  saying burger is 90% fat free sounds more appealing than contains 10% fat
• restricted choice example

  a government scheme offering 3 energy providers instead of 15 helps consumers make easier comparisons
• mandated choice example

  when renewing driving license, required to say whether you want to join the organ donor register