Behavioural economics has made its way into two main forms of real-life applications:
- Choice architecture.
- Nudge theory.
Choice architecture
Definition
Choice Architecture
The way in which options are showcased to decision-makers where there is emphasis on the design and environment to influence decisions.
Choice architecture focused on the following question:
How choices are presented to people?
Choice architecture differentiates between three different types of choices:
- Default choice.
- Restricted choices.
- Mandated choices.
Default Choice
Default choices are the pre-selected choices that apply if no action is taken. It is the decision made for individuals by default because people:
- Often have no interest or are not bothered in changing the choice already selected, even if it may not be the best.
- Sometimes, don't want to be the ones holding the responsibility of making the choice.
- In the UK, automatic enrollment into workplace pension schemes has increased participation rates from 55% to over 90%.
- This illustrates how default choices can nudge individuals toward decisions that benefit their long-term well-being.
Restricted Choices
Restricted choices are choices made in environments where the number of available options has been limited, where these choices:
