Economics Notes: Behavioural Economics
1. What is Behavioural Economics?
Combines economics and psychology to understand decision-making.
Challenges the idea that individuals are always rational.
2. Key Concepts
Bounded Rationality: Limited cognitive ability and information
Heuristics: Mental shortcuts (can lead to bias)
Anchoring: Relying too heavily on first piece of info
Framing: Choices influenced by how they are presented
Loss Aversion: Losses feel worse than equivalent gains
Time Inconsistency: Preference for immediate rewards over future ones
3. Nudges
Subtle policy tools that influence behaviour without restricting choice
Example: Opt-out organ donation
4. Applications
Pension savings
Healthy eating
Energy conservation
Tax compliance
5. Criticisms
Hard to predict behaviour
Can be seen as manipulative
Limited long-term impact
End of Notes
