Behavioral Economics Questions and
Answers (Final) Rated A+
Behavioral Economic Policy - ANSWER-Policies *DESIGNED* to *ACCOUNT* for
*PREDICTABLE IRRATIONALITY*.
Typically include *ECONOMIC ENGINEERING*.
Behavioral Economics - ANSWER-Using *OBSERVATIONS* to better *MODEL
BEHAVIOR* of *ECONOMIC AGENTS*.
Behavioral Economics Policy Examples - ANSWER-Ex 1: *CAP AND TRADE* program
-> defined a *MARKET* with a *GOAL* of *REDUCING POLLUTION* (made the
*SHADOW PRICE* of pollution a *REAL* price).
Ex 2: in a *DAY CARE* market, parents *PICKING UP* kids *LATE* represented a
significant *COST*. Most tried *CHARGING* a *LATE FEE* for late pick-ups. As a
result, *MORE* parents *PICKED UP* kids *LATE*. *PRIOR* to late free, *LARGE
SHADOW PRICE* of late pick-ups.
Behavioral Models - ANSWER-*INHERENTLY CONTEXTUAL*.
Increase *COMPLEXITY* of *MODELING BEHAVIOR* because a *NEW MODEL* is
*NEEDED* for each situation.
*RELIES* heavily on *EXPERIMENTAL ECONOMICS*.
Changes Involving Time - ANSWER-If *COSTS/BENEFITS* are *SEPARATED* by
*TIME*, *NUDGES* can be *BENEFICIAL*.
Complicated Choices - ANSWER-Ex: *STUDENT LOANS* (*FORCE* students to
*MEET* with *FINANCIAL ADVISOR*).
Consumers of Libertarian Paternalistic Policy - ANSWER-1. *FEW POLICIES* are
actually *LIBERTARIAN PATERNALISTIC*.
2. *DESIGNING POLICIES* is *COMPLICATED*.
3. *GOVERNMENT* may *NOT KNOW* what's *BETTER* (could make *SITUATION
WORSE*).
Default Effect - ANSWER-*DEPARTURE* from rationality.
In the face of *COMPLEX CHOICES* that *REQUIRE* a lot of *DATA*, people tend to
*CHOOSE* a *DEFAULT OPTION*.
This *TRANSLATES* to *MEAN CHOOSING* is *COSTLY* -> *LAZY*.
Ex: choosing one out of many *ICE CREAM* flavors.
Departures from Rationality - ANSWER-1. *PRE-COMMITMENT* strategy.
2. *DEFAULT* effect.
3. *FRAMING*.
Answers (Final) Rated A+
Behavioral Economic Policy - ANSWER-Policies *DESIGNED* to *ACCOUNT* for
*PREDICTABLE IRRATIONALITY*.
Typically include *ECONOMIC ENGINEERING*.
Behavioral Economics - ANSWER-Using *OBSERVATIONS* to better *MODEL
BEHAVIOR* of *ECONOMIC AGENTS*.
Behavioral Economics Policy Examples - ANSWER-Ex 1: *CAP AND TRADE* program
-> defined a *MARKET* with a *GOAL* of *REDUCING POLLUTION* (made the
*SHADOW PRICE* of pollution a *REAL* price).
Ex 2: in a *DAY CARE* market, parents *PICKING UP* kids *LATE* represented a
significant *COST*. Most tried *CHARGING* a *LATE FEE* for late pick-ups. As a
result, *MORE* parents *PICKED UP* kids *LATE*. *PRIOR* to late free, *LARGE
SHADOW PRICE* of late pick-ups.
Behavioral Models - ANSWER-*INHERENTLY CONTEXTUAL*.
Increase *COMPLEXITY* of *MODELING BEHAVIOR* because a *NEW MODEL* is
*NEEDED* for each situation.
*RELIES* heavily on *EXPERIMENTAL ECONOMICS*.
Changes Involving Time - ANSWER-If *COSTS/BENEFITS* are *SEPARATED* by
*TIME*, *NUDGES* can be *BENEFICIAL*.
Complicated Choices - ANSWER-Ex: *STUDENT LOANS* (*FORCE* students to
*MEET* with *FINANCIAL ADVISOR*).
Consumers of Libertarian Paternalistic Policy - ANSWER-1. *FEW POLICIES* are
actually *LIBERTARIAN PATERNALISTIC*.
2. *DESIGNING POLICIES* is *COMPLICATED*.
3. *GOVERNMENT* may *NOT KNOW* what's *BETTER* (could make *SITUATION
WORSE*).
Default Effect - ANSWER-*DEPARTURE* from rationality.
In the face of *COMPLEX CHOICES* that *REQUIRE* a lot of *DATA*, people tend to
*CHOOSE* a *DEFAULT OPTION*.
This *TRANSLATES* to *MEAN CHOOSING* is *COSTLY* -> *LAZY*.
Ex: choosing one out of many *ICE CREAM* flavors.
Departures from Rationality - ANSWER-1. *PRE-COMMITMENT* strategy.
2. *DEFAULT* effect.
3. *FRAMING*.
