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Behavioural Economics - Coggle Diagram
Behavioural Economics
Choice Architecture
Choice architecture refers to the way choices are presented to consumers. They can help avoid consumers avoiding irrational decisions. E.g opt out organ donations
Framing -
the way in which consumers are influenced by the context of how a choice is presented. E.g a monthly payment sounds more reasonable than a yearly payment
Nudges -
a way of changing consumer behaviour without taking away their freedom of choice. E.g nudging consumers to buy healthier foods
Restricted Choice -
the choice is restricted but still there, for example junk food
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Information
Symmetric Information -
both consumers and producers have perfect information to make their decision and leads to an efficient allocation of resources
Imperfect Information -
where information is missing, so an informed decision can not be made which leads to a misallocation of resource
Asymmetric Information -
where there is unequal knowledge between the consumers and producers e.g a fault in a car the consumer isn't aware off
Principle Agent Problem -
where the agent is inclined to act on their own interest rather than the princibles
Biases
Social Norms -
the behaviour of other people affects how consumers act.
social pressures encourage consumers to do things they otherwise wouldn't do
Anchoring -
bias based on the tendency for humans to act on the 1st piece of information they are given
e.g a car may be a higher price and then its price gets lowered, consumers will feel they are getting a good deal
Availability Bias -
a form of bias towards events that were more recent, personal or memorable as these are overestimated