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Microeconomics Study Set 31

Business

Quiz 22 :

Behavioral Economic Policy

Quiz 22 :

Behavioral Economic Policy

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What is the criterion of libertarian paternalism? Does a "nudge policy" meet this criterion?
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The criterion of libertarian paternalism requires that a policy do two things: 1. It must leave people free to choose their own actions; this is the libertarian part of the criterion. 2. It must guide people toward making a choice that a paternalistic observer would believe is good for them. Nudge policies generally do meet the criteria of libertarian paternalism, because it is only the choice architecture (the context in which choices are presented) that is being changed. No particular choice is mandated or prohibited; all individuals are free to choose as they see fit. Some (most perhaps) will be influenced by the nudge to make better decisions, and some will not be influenced by the nudge.

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What is behavioral economic policy?
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Behavioral economic policy is policy that is built on the building blocks of behavioral economics: purposeful behavior and enlightened self-interest. Behavioral economic policy takes into consideration predictably irrational behavior.

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Despite the fact that economists are just starting to incorporate nudges into their recommendations for economic policy, nudges are not a new discovery. Where have nudges been used in the past, and by whom?
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Firms have used nudges for a long time to alter their customers' behavior. Grocery stores strategically place their merchandise in such a way as to nudge their customers to spend more: they place milk at the back of the store, they place high-profit-margin goods at the checkouts, they put all organic foods in a separate section so customers won't compare prices to non-organic options, etc.

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Why did the number of late pickups rise when day care centers began to charge parents extra for late pickups? What does this mean for behavioral economic policy?
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What is a coordinating mechanism? Give a couple of examples.
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What are the two different kinds of nudges? Explain each and provide an example.
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What is a shadow price? Why is it advantageous to include shadow prices in economic models?
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What is economic engineering?
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What feature of the traditional model directs many traditional economists to support the precept of laissez-faire?
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What is the incentive compatibility problem? Does the traditional supply/demand model exhibit this problem? Explain.
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How do traditional economists feel about behavioral economic policy? What are three concerns that these economists have about the use of nudge and push policies?
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What are the three situations in which a nudge can be useful? Give an example of each from your own life, and describe why a "nudge" may have been helpful.
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What does it mean to say that some modern economists are doing the work of "reverse engineers"?
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What is mechanism design and how is it related to behavioral economics?
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What is choice architecture? What role would this concept play in the formation of behavioral economic policy?
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What is a push policy and how is it related to a nudge policy? Does a push policy meet the criterion of libertarian paternalism? Why would a push policy be necessary? Give an example of a push policy.
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Why is choice architecture important? What is it?
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What is the criterion of libertarian paternalism?
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Are people from market-oriented societies generally more or less moral? Why is that?
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What is a nudge?
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