Behavioural economics and economic policy

• Consumer behaviour 


  Influences policies that governments employ. Policies developed from the theories of behavioural economics could be more effective for dealing with economic issues.
• Choice architecture


  The way choices are presented to consumers. Well-designed choice architectures can help consumers avoid making poor choices and irrational decisions, improving consumer welfare.
• Example of choice architecture


  Keeping fruits and vegetables near the front of a supermarket while keeping dairy food at the back, encouraging consumers to choose the healthier options because they take less effort to choose (i.e. they don't have to walk to the other side to find it).
• Framing


  The way by which consumers are influenced by the context of how a choice is presented.
• Example of framing


  If consumers are told the monthly payment for a subscription of a good or service, rather than the aggregate yearly payment, they are more likely to purchase the good or service because it seems more affordable.
• Nudges


  They aim to change the behaviour of consumers without taking away their freedom of choice. This type of encouragement may be done through advertisements and choice architecture.
• It is sometimes implied that nudges are manipulative, however due to imperfect information between consumers and producers, they can help to prevent a irrational choice from being made. This maximised welfare.
• Default choice 


  When a consumer is automatically enrolled into a system, such as a pension scheme. This method is more likely to make a consumer participate if they don't take the action to opt-out.
• Restricted choice


  A choice which is not mandated, but is still there.
• Mandated choice


  When consumers are required to state whether they wish to participate in an action.