Behavioural Economics

• Traditional economics assumes individuals are rational and act with complete self-interest.
• Behavioural economics challenges this assumption and introduces concepts like bounded rationality and bounded self-control.
• Altruism and perceptions of fairness can also influence decision-making.
• Behavioural biases, such as heuristics and anchoring, can affect decision-making.
• Availability bias leads people to give more weight to recent events or information.
• Social norms can influence behavior even when it goes against rationality.
• Policies can be designed to account for these biases, using choice architecture.
• Default choices, limited choices, and mandated choices can influence decision-making.
• Nudges, or subtle pushes towards certain decisions, are a popular policy tool in behavioral economics.

Behavioural economics challenges the traditional assumption that individuals are rational and self-interested. Instead, it recognizes that people have bounded rationality, limited self-control, and are influenced by altruism and perceptions of fairness. Various biases, such as heuristics, anchoring, availability bias, and social norms, affect decision-making. Understanding these biases allows policymakers to design effective policies. Choice architecture, including default choices, limited options, and mandated choices, can influence decision-making. Nudges, subtle pushes towards certain decisions, are widely used in policy-making. Framing, the way information is presented, also influences decision-making. Overall, behavioural economics provides insights into human decision-making and can be used to design policies that align with people’s biases and preferences.