| What are the Key Principles of Traditional Economics?
-How does Behavioural Economics challenge that idea? | -Economic Agents have a Maximising Behaviour [Total Self Control]
-Economic Agents are Rational - act for the Best Interest for Themselves
-Behavioural Economics says this isn’t Realistic due to the Social, Psychological and Emotional Factors that may sway Economic Agents. However, they do not Ignore the Traditional Viewpoint, but make it more Suited for the Real World |
| What is the Concept of ‘Homo Economicus’ | -Rational Individual will Maximise their Utility, Profit - Whatever by seeing if the Opportunity Cost is too Big or not. They choose the Option that yields in the most Reward |
| How can Asymmetric Information/ Imperfect Information challenge Traditional Economics? | -Traditional Assumes that Economic Agents have all the Information needed to make the Right Choice, therefore, leading to the Perfect Choice.
-However, in real life, Economic Agents will most likely not have All Information needed, therefore, leading to Market Failure
-They may also be in a Situation where 1 Party knows more than the Other - which can be Abused.
-Therefore it is Wrong to Assume Rationality predicts how Consumers Consume. |
| What other Restrictions prevents Economic Agents from acting Rational? [Bounded Rationality]
-What sort of Decision happens in the End with Bounded Rationality? | -Time is Limited to make a Decision
-Not all Information is Available - Some may be Wrong
-Unable to Evaluate such a Swarm of Information to make a Decision, and not knowing the Opp Cost.
-A Satisfying Decision is therefore made as they may not be able to spend Ages on making a Decision and just go with whatever Pleases them the Most. |
| How does Behavioural Economic challenge the ‘Total Self Control’ Theory | -Individuals have Limits on Self Control - Bounded Self-Control.
-Consumer has Limited Control to Quit Smoking, even if Smoking doesn’t Maximise Utility [Addiction] |
| What are the Different Biases an Individual will be faced by in Behaviour Economics? | -Rule of Thumb: Simple Tools helping to make a Decision
-Anchoring: Placing lots of Emphasis on One Piece of Information
-Availability Bias: Decisions made on the Chances of an Event to happen, based on how Easy to remember such Event - After an Earthquake, Overestimations may happen of Earthquake happening soon.
-Social Norms: Decisions influenced by the Group they are In.
-Habitual Behaviour: Doing the Same thing Continuously - going to the same Shop despite Rational Theory.
-Altruism: People want to act Fairly and treat people Better. People don’t act Purely on Self Interest. |
| What is a Choice Architecture? | -Individual’s Choice is Swayed via Adapting the Way the Choice is Presented.
-Simply, how the Choices are Presented to Individuals |
| How can Choice Architecture be Done? | -Default Option: People will go with the Default Option, making them Act in a Certain way.
-Framing: Using the Importance of Context to present Information. £1 a Day vs £7 a Week
-Nudges: Alternatives become Easier to Choose than others WITHOUT removing Freedom of Choice eg Smoking in certain Areas
-Restricted Choice: When Choices are Restricted
-Mandated Choice: When Choices must be Made - Opt In or Out of Organ Donation |
