Behavioural Economics in Action (DP IB Economics)
Revision Note
Choice Architecture
Choice architecture refers to the 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 veg on their plate
Supermarkets placing more profitable products at eye level on the shelves
Choice architecture aims to simplify the decision making process
E.g. Restaurants present information about food options in a particular format to encourage individuals to make a particular choice - often bundling items together
E.g. Tesco replaced confectionary usually found at the checkout till with healthier options so as to encourage people to make better food choices
Types of Choice Architecture
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Default Choice |
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Restricted Choice |
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Mandated Choices |
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An Evaluation of Choice Architecture
When evaluating Choice Architecture, it is useful to consider the advantages and disadvantages
The Advantages and Disadvantages of Choice Architecture
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Nudge Theory
Nudge theory is the practice of influencing choices that economic agents make, using small prompts to influence their behaviour
Richard Thaler coined the phrase ‘nudge theory’ and argued that firms should use nudges in a responsible way to guide and influence decision making
Examples of Nudges
Save My Exams Choice Architecture nudges users to select the £5 a month option
The choice architecture above ‘nudges’ individuals towards selecting the monthly plan above the other plans available
Source: Transport for London
The baby on board badge is supplied by Transport for London to expectant mothers to wear when using public transport
Other commuters should see the badge and accommodate for the expectant mother by giving their seat to her
Dr David Halpern, from the UK Behavioural Insights team suggested the following EAST framework to nudge decision making
Easy – Simplify or make it straight forward
Attractive – Gain people's attention e.g 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
An Evaluation of Nudge Theory
Consumer nudges are designed to guide people towards certain decisions or actions while still allowing them to have freedom of choice
These interventions are typically based on behavioural economics principles and aim to nudge individuals towards decisions that are considered beneficial for themselves and society as a whole
Consumer nudges should be designed with transparency, respect for individual autonomy, and clear societal benefits in mind
Ethical considerations should be taken into account to ensure that interventions are not manipulative or coercive
An Evaluation of Using Nudge to Influence Behaviour
The advantages and disadvantages of using nudge to influence behaviour
The Advantages
Cost effective
Relatively low-cost compared to other marketing measures
Preserves freedom of choice
Steers individuals towards certain choices while still allowing them to retain their freedom of choice
Improved public health
Nudges can be used effectively to encourage healthier behaviours such as exercising, eating nutritious food, or quitting smoking
Better decision making
Helps individuals make better decisions by simplifying complex information, providing reminders, or structuring choices
Environmental sustainability
By influencing individual choices in a subtle way, firms/governments can contribute to broader environmental goals without imposing strict regulations
The Disadvantages
Ethical concerns
Some critics argue that nudges can be manipulative, as they rely on influencing behaviour without individuals being fully aware of the intervention
This raises ethical concerns about autonomy, consent, and the potential for abuse by governments
Lack of transparency
Nudges often operate behind the scenes, making it difficult for individuals to understand or question the influences shaping their choices
Unintended consequences
As citizens become used to firms/government's using nudge, they may well begin looking for it and actively work against the nudges e.g. In the UK more people now look for automatic inclusion in organ donor databases and quickly select the non-default option
Variable success rates
Nudges may not be equally effective for all individuals due to differences in cognitive biases, cultural backgrounds, or personal circumstances
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