use of behaviourial economics

• what is choice architecture?

  intentional design of how choices are presented so as to to influence decision making

  • E.g. Salad bar placement at the beginning of buffets to encourage people to put fruit and vegetables on their plate
  • Supermarkets place more profitable products at eye level on the shelves
• what does choice architecture aim to do?

  aims to simplify decision making process

  -tesco replaced confectionary found at checkout till with healthier options to encourage better food choices
• what are the types of choice architecture?

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

  • Occurs when an individual is automatically signed up to a particular choice
  • This reduces choice as it means a decision is already made even if no action has been taken
  •  individuals rarely change from the default choice
  • When signing up for an online service, the default choice for receiving promotional emails may be set to "opt-in," 
• what is restricted choice?

  occurs when the choices available to individuals are limited, which helps individuals make more rational decisions

  • E.g. In a cafeteria, if unhealthy food options like sugary drinks are removed and replaced with healthier choices like water, consumers will be more likely to purchase them
• what is mandated choice?

  •  require individuals to make a specific decision or take a particular action by imposing a requirement or obligation
  • used to ensure compliance with regulations or societal norms, making it necessary for individuals to make certain decisionsE.g. Some countries mandate car insurance, which requires all vehicle owners to make an active decision to choose and purchase car insurance rather than leaving it as an optional choice
• advantages of choice architecture?

  -nudge individuals towards making choices that are in their best interest or align with desired outcomes

  -Well-designed choice architecture can simplify complex decisions by providing clear and understandable options

  -improved outcomes such as encourage healthier eating habits and combatting issues like obesity

  -provide guidance, reduce biases, and increase the likelihood of individuals making choices they would consider to be better (quality of decision increases)
• disadvantages of nudge choice architecture

  -manipulation ->attempts to influence people's decisions without their explicit consent, which may infringe on free choice

  -ethical concerns->Individuals may not be aware that their choices are being influenced, or they may not fully understand the consequences of their decisions 

  -bias in design process to increase profits

  -unintended consequences
• what is nudge theory?

  • Nudge theory is the practice of influencing choices that economic agents make, using small prompts to influence their behaviour
• who coined the phrase, nudge theory?

  • Richard Thaler coined the phrase ‘nudge theory’ and argued that firms should use nudges in a responsible way to guide and influence decision-making
• what is an exmaple of nudge theory?

  Save My Exams choice architecture nudges users to select the £5 a month option - blue button
• what framework did DR David Halpem suggest to nudge decision making?

  • Easy: Simplify or make it straight forward
  • Attractive: Gain people's attention, e.g through personalised messages, encourage people not to miss out on opportunities
  • Social: Individuals are influenced by what other people do rather than rules and regulations
  • Timely: identify when people are most responsive
• what are the advantages of nudge theory?

  -cost effective

  -preserves freedom of choice

  -improved public health

  -better decision making

  -improves sustainability
• what are the disadvantages of nudge theory?

  -ethical concerns - manipulation, potential abuse by gov

  -lack of transparency

  -variable success rates

  -unintended consequences
• what are examples of UK government nudge theory in action?

  • Workplace pension schemes 
  • Health checks 
  • Labels on food packaging 
• what are workplace pension schemes?

  • Employers enrol eligible workers automatically into pension schemes unless they choose to opt-out
  • Administrative costs for employers to implement the scheme
  • benefit to consumer: Encourages retirement savings among worker and financial security in old age
  • benefit to society: Reduces reliance on state pension and future financial strain on government welfare systems
• what are health checks?

  • Preventive health checks offered for those aged 40–74
  • Cost of funding the healthcare professionals who carry out the tests 
  • benefits to consumer: Early detection of diseases that can be treated and nudges to patients to manage own healthcare and wellbeing
  • benefits to society: Reduced future health care costs  and healthier and more productive  society
• what are labels on food packaging?

  • Traffic light labelling on food packaging to indicate nutrient value 
  • Traffic light labelling on food packaging to indicate nutrient value 
  • benefit to consumer: Improved health of individuals as they can make more informed choices about food 
  • benefit to society: Improved public health of society and reduced long term cost of healthcare