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UNIT 8: BEHAVIOURAL INSIGHTS AND NUDGE1. Introduction
2. Behavioural Insights
• Libertarian Paternalism
3. Applications
• Health
• Organ donations
• Saving accounts
• Reducing Spillage In Schiphol Urinals
• Environment
• Tax
• International Development
4. Importance of evaluation
5. Behavioural economics and policy
1. INTRODUCTION
We saw some behavioural biases and paradoxes that BE helps us explain: Think about Framing, context effects, present
bias, or procrastination. How can the firm identify that if costumers have a present bias while it can frame it pricing and
its contrast in a way to have some profits. Depending on if the customer has present bias how and when the firm can
have some profits?
We can use behavioural insights in order to draw some policy implications and change behaviour. How do you feel about
this? How about freedom? It may be thought that you use behavioural bias in order to change the behaviour.
2. BEHAVIORAL INSIGHTS
2.1 LIBERTARIAN PATERNALISM
When we use behavioural insights in order to help people change their behaviour or behave better, we talk about
Libertarian paternalism. The idea that it is both possible and legitimate for private and public institutions to affect
behaviour while also respecting freedom of choice, as well as the implementation of that idea.
Choose architecture means when I want to present a nudge, some choices to choose from, I need to present them with
a kind of list that will influence the outcome. So, how we present a choice influence the outcome. Nudge uses the
choose architecture, because it would present such that people choose what is best for them. If you want to opt in or
opt out from certain list of choices, you have freedom, but behind that default option I have certain outcomes that I
want to reach.
A. Liberal: The same options are available – no coercion. There is always a way to opt for that choice or to opt out from
it.
B. And Paternalism: The choice architect or the choice list that is present decides what is best for you in a way.
Under libertarian paternalism, the government nudges private citizens towards rational choices without in any way
restricting their freedom to do as they wish. They use framing, they use choose architecture in order to help people
make decisions that are best for society.
But the Golden Rule of Libertarian Paternalism is that:
You should not restrict the freedom of individuals and the objective is to help them, to make better decisions for
themselves and society.
• Offer nudges that are most likely to help and least likely to inflict harm
• Help the least sophisticated people while imposing minimal harm on everyone else
” A nudge, as we will use the term, is any aspect of the choice architecture that alters people’s behaviour in a predictable
way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the
, intervention must be easy and cheap to avoid.” -Thaler and Sunstein (2008)-. Here there is a use of choose architecture
that would change the behaviour of people in some predictable way without any coercion, without forbidding people
to choose form one choice or another; and choosing something else should not be expensive to be done.
Why is nudge appealing from a policy implementation point of view? Nudge is a tool that is cost effective. They are
often cheap to implement, as they frequently involve changing the way choices are presented instead of rebuilding
infrastructure or buying new equipment. We can talk about A randomized controlled trial meaning that to some groups
you give the nudge that you are intending to do and to the other you do not give anything (like clinical trial), and then
you compare the results. At the end, it is much cheaper than if you try to do another policy implementation for example
changing the rules or detailed plan that takes time.
PRINCIPLES OF GOOD CHOICE ARCHITECTURE
• Incentives: A thing that motivates or encourages someone to do something. It could be monetary or social
incentives, but they need to be attractive.
• Understand mapping: Meaning that you need to help people understand complex situations by simplifying the list of
choices that you give them. You try to help them breaking down the information and making the choices easier for
them.
• Defaults: Is a principle that it is often use in nudges as it is an easy way of presenting choices.
• Give feedback: Since people do learn from mistakes, you need to give them feedback so they would change their
behaviour.
• Expect error: Take into account when you give the feedback
• Structure of complex choices: You need to simplify; you need to break down the complexity of the choices in order
to help people be pushed to the direction that it is easier to pick up.
The nudge does not have to take all those principles into account together.
3. APPLICATIONS
3.1
If you go to a restaurant where they have a buffet, often, they do have small plates instead of bigger ones. That is a
form of a nudge. Smaller plates push you to eat less and limit food wate.
How it is a form of liberal paternalism or nudge?
A. Liberal: Eat as much as you like as it is a buffet.
B. Paternalism: We give you a small plate, directing in this way your choice, so you eat less which is good for you
or you waste less.
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