Deck 22: Behavioral Economic Policy

Question 1

What is the criterion of libertarian paternalism? Does a "nudge policy" meet this criterion?

Answer 1

The criterion of libertarian paternalism requires that a policy do two things: 1. It must leave people free to choose their own actions; this is the libertarian part of the criterion. 2. It must guide people toward making a choice that a paternalistic observer would believe is good for them. Nudge policies generally do meet the criteria of libertarian paternalism, because it is only the choice architecture (the context in which choices are presented) that is being changed. No particular choice is mandated or prohibited; all individuals are free to choose as they see fit. Some (most perhaps) will be influenced by the nudge to make better decisions, and some will not be influenced by the nudge.

Question 2

What is behavioral economic policy?

Answer 2

Behavioral economic policy is policy that is built on the building blocks of behavioral economics: purposeful behavior and enlightened self-interest. Behavioral economic policy takes into consideration predictably irrational behavior.

Question 3

Despite the fact that economists are just starting to incorporate nudges into their recommendations for economic policy, nudges are not a new discovery. Where have nudges been used in the past, and by whom?

Answer 3

Answers:
Firms have used nudges for a long time to alter their customers' behavior. Grocery stores strategically place their merchandise in such a way as to nudge their customers to spend more: they place milk at the back of the store, they place high-profit-margin goods at the checkouts, they put all organic foods in a separate section so customers won't compare prices to non-organic options, etc.

Question 4

Why did the number of late pickups rise when day care centers began to charge parents extra for late pickups? What does this mean for behavioral economic policy?

Question 5

What is a coordinating mechanism? Give a couple of examples.

Question 6

What are the two different kinds of nudges? Explain each and provide an example.

Question 7

What is a shadow price? Why is it advantageous to include shadow prices in economic models?

Question 8

What is economic engineering?

Question 9

What feature of the traditional model directs many traditional economists to support the precept of laissez-faire?

Question 10

What is the incentive compatibility problem? Does the traditional supply/demand model exhibit this problem? Explain.

Question 11

How do traditional economists feel about behavioral economic policy? What are three concerns that these economists have about the use of nudge and push policies?

Question 12

What are the three situations in which a nudge can be useful? Give an example of each from your own life, and describe why a "nudge" may have been helpful.

Question 13

What does it mean to say that some modern economists are doing the work of "reverse engineers"?

Question 14

What is mechanism design and how is it related to behavioral economics?

Question 15

What is choice architecture? What role would this concept play in the formation of behavioral economic policy?

Question 16

What is a push policy and how is it related to a nudge policy? Does a push policy meet the criterion of libertarian paternalism? Why would a push policy be necessary? Give an example of a push policy.

Question 17

Why is choice architecture important? What is it?

Question 18

What is the criterion of libertarian paternalism?

Question 19

Are people from market-oriented societies generally more or less moral? Why is that?

Question 20

What is a nudge?

Question 21

Why are decisions that have many dimensions difficult to make? Can you give an example?

Question 22

What is an informational nudge? Give an example.

Question 23

Why are decisions where costs and benefits are separated by time difficult to make? Can you give an example?

Question 24

Behavioral economists say that desires are affected by one's context; what do traditionalists say?

Question 25

Can default options provide nudges? Why or why not?

Question 26

What is a push policy?

Question 27

If crafting economic policy is difficult, can policy makers be "nudged" in a way that will help them?

Question 28

What is one concern that traditional economists have about behavioral economic policy?

Question 29

In the practical application of behavioral economic policy, who is most likely to decide on what nudges will be used? Who is most likely to implement those nudges?

Question 30

Why are decisions that are made infrequently difficult to make? Can you give an example?

Question 31

Traditional economists say that desires are inherent in people; what do behavioral economists say?

Question 32

Why is the movement from a nudge policy to a push policy problematic in the opinion of many economists?

Question 33

Do nudges meet the criteria of libertarian paternalism?

Question 34

What is an encouragement nudge? Give an example

Question 35

What is a default option nudge? Give an example.

Question 36

Give two examples of the use of the insights of behavioral economics by online retailers.

Question 37

What is conspicuous consumption?

Question 38

If private firms are in the best position to nudge individuals (as employees or customers) to make more beneficial decisions, then why don't they provide these nudges?

Question 39

Traditional economists say that having more makes you happier; what do behavioral economists say?