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UEC 22306 | Economics of Consumption, Welfare and Society | College aantekeningen/samenvatting $5.39   Add to cart

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UEC 22306 | Economics of Consumption, Welfare and Society | College aantekeningen/samenvatting

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This document contains all important points from the lectures of Economics of Consumption, Welfare and Society. This summary/notes gave me an 8.

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  • April 21, 2021
  • 38
  • 2019/2020
  • Class notes
  • J. van beek
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UEC-22306
Economics of Consumption,
Welfare & Society
Lecture #1 – Tuesday, March 17th 2020
Behavioral economic application to policy issues
Psychology, Behavioral Economics, and Public Policy (Amir et al., 2005)
Behavioral economics applied: Suggestions for policy making (Antonides,
2011)
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NOTE: ik heb ook het eerste en tweede artikel van Amir et al. (2005) en Antonides (2011) hier in
verwerkt

Behavioral economics vs. Economic psychology
 Behavioral economics
o Economists using insights from psychology
 Economic psychology
o Psychologists using insights from economy
 Different starting point, similar work

Trends in behavioral economics
 1950 – 1975: satisficing and bounded rationality (Simon), consumer expectations:
optimism/pessimism (Katona)
 1975 – 1995: heuristics and biases, decision making under risk (Kahneman, Tversky, Slovic,
Thaler)
 Institutionalization: IAREP, SABE, Journal of Economic Psychology, Journal of Behavioral and
Experimental Economics, Journal of Behavioral Finance
 1995 – now: applications in marketing, finance, law, policy

Thaler
 Thaler received a Nobel prize for his limited rationality theory:
o Mental accounting
o Endowment effect
 Social preferences:
o Fairness (people are not fully selfish)
 Lack of self-control:
o Planner / doer model (long-term planning / short-term doing)
o Nudging

Nudging
 Nudging is a part of behavioral economics

,  A nudge alters people’s behavior in a certain desired direction without significantly changing
their economic incentives
 Nudging changes the choice architecture
o Making small changes to the choices that are presented to make a certain choice
easier than the other
 It enables people to make better choices and decisions



What is behavioral economics?
 “... the combination of psychology and economics that investigates what happens in markets
in which some of the agents display human limitations and complications”
 It improves the explanation of behavior by investigating differences with the standard
economic model:
o Bounded rationality
o Bounded willpower
o Bounded selfishness

Applications to policy
 Problem:
o Reaching suboptimal outcomes & acting against own objectives
o “people often don’t know what’s best for themselves”
 Idea of policy making:
o To help people make better decisions

Traditional classification policies




Behavioral economics and policy
 Policy is traditionally based on economics, but not (or less) on psychology or behavioral
science
o “psychologists may play a larger role in public policy by helping economics develop
more valid assumptions and intuitions for the science that would underlie policy in
the future”
 Behavorial economics makes it possible to develop a different kind of policy

Science vs. Policy?
 A scientist can’t always deliver what the policy maker demands. There are two common
problems the scientist gives:
o “it depends”
 Trade-off between accurate but vague answers that offer no clear
recommendations and inaccurate, yet precise answers resulting in a clear
policy
o “there is nothing more practical than a good theory”
 Translating general theoretical principles into specific policies
o Simple stimuli and rich reality
 Selecting stimuli that reflect the situation that they will be applied to

,Convincing policy makers
1. The first approach is the grassroots approach
o Starting at a local level instead of a national level
 For example, start in your municipality and see if it is effective and will
spread
2. The second approach is to influence policy via economics
o Using established paths to inform policy makers - attempting to modify economics
to be more descriptively accurate, and from there influencing policy
 The prospect theory is a prime example
3. A third approach involves influencing policy via law
o Using a different field as a bridge for existing gaps
4. The final and most challenging approach is doing research on policy
o Pilot testing of policy experiments

Policy instruments
Behavioral economics applied: Suggestions for policy making (Antonides,
2011)
 Five types of policy instruments:
1. Teaching
2. Learning
3. Communication
4. Changing the choice context (choice architecture)
5. Rules and laws

Policy instruments
1. Teaching
 Teaching implies educating people in decision-making skills
o Finding information, weighting alternatives
 Making people aware of possible heuristics, biases and motivations
o Analogical reasoning, taking outsider’s view, statistical decision aids, understanding
biases
 Problems: requires motivation, can be counterproductive

Policy instruments
2. Learning
 Conditioning
o Incentives (e.g. lower taxes, subsidies)
 Social learning (e.g. imitation, role models)
 Insight learning (e.g. reasoning, creativity)
 Problems: limited or costly learning opportunities, wrong type of feedback (e.g. short term),
crowding out intrinsic motivation (e.g. blood donations -> if you’d reward people with
money, they would donate blood for money and not for a good cause)

Policy instruments
3. Communicating
 Changing cognitive or affective determinants of behavior (e.g. by using role models)
 Focusing on target behavior (e.g. agenda setting)

,  Universities for example can tell their students that the majority drinks less, thus reducing
undesirable behavior
 Problems: needs attention (if people don’t notice your campaign you need to undertake
action) and information processing


Policy instruments
4. Changing the choice context
 Using heuristics and biases to the advantage of decision makers
o Choice architecture
 Problem: opposite interests (between consumers and companies)

Policy instruments
5. Rules and laws
 Limiting, prohibiting, reducing undesired behavior or circumstances (e.g. smoking ban)
 Facilitating, increasing desired behavior of circumstances (e.g. saving and tax incentives)
 Problems: restricted freedom, inequity, paternalism, costs, maintenance



Lecture #2 – Thursday March 19th 2020
Happiness and well-being
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Utility
 Utility is the satisfaction one receives from an (economic) act
o Utility is immeasurable
o Utility is related to your income

Wide range of definitions and nuances
 Happiness: momentary feeling of joy and pleasure
o In psychology it is seen as positive and negative effects
 Satisfaction of life: overall contentment with life
 Wellbeing: the state of being comfortable, healthy or happy
 Welfare: the health, happiness and fortunes of a person or group

Measurement
 How can happiness be measured?
o By observation (objective)
 The degree a life meets explicit standards of the good life as assessed by an
impartial outsider
 Psychological and physical (stress levels, smiling)
o By questioning (subjective)
 Self-appraisals based on implicit criteria
 Ask people on a scale from 1 to 10 how satisfied they are with their life

Subjective well-being
 Subjective well-being is about:

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