Behavioural Economic Policies | A-Level Economics Model Paragraph (AQA, Edexcel, OCR)
Please note: This is not required for Edexcel but could be used as evaluation for traditional government interventions.
The government or businesses can use their knowledge of bounded rationality to design more creative policies to prevent agents from over-consuming demerit goods like vapes. They can make use of choice architecture, nudges (like framing), and different forms of restricted choice.
Choice Architecture involves changing the environment in which people make choices, without removing options. For example, placing colourful fizzy drink cans at eye level next to boring water bottles positioned lower down would lead consumers to choose the more visible sugary drinks. Instead, governments could require shops to place healthier options at eye level and demerit goods elsewhere. For example, vapes or lottery tickets are often behind the till and shops also require ID for people to buy energy drinks if they look under 16. This works because humans rely on mental shortcuts and often choose the most convenient or visible option rather than thoroughly evaluating all alternatives.
Nudges work by framing information in a certain way to guide decision-making without restricting choice. For example, initially no one bought yoghurt in meal deals, but now many consumers do because retailers reframed it as "high protein yoghurt" rather than just "yoghurt." Similarly, the government could enforce that vape packaging displays prominent health warnings or show graphic images of health consequences, nudging consumers away from purchasing, similarly to how they state that 'smoking kills' on tobacco packages.
Restricted Choice helps to reduce confusion and computational weakness by limiting the number of options available. When faced with too many choices, consumers experience choice overload and may make poor decisions or avoid choosing altogether. There are different forms of choice policies that governments can use depending on the scenario. For example, if schools only offer healthy meal options in their canteens, this forces students to choose their favourite of the healthy options which they can get used to over time. Mandated choice requires specific behaviours by law, such as helmet laws for motorcycle riders, where there is no choice but to comply. Default choice sets a predetermined option that people are automatically enrolled in unless they actively choose otherwise, such as organ donation being the default when applying for a driving license, where applicants must actively opt-out if they don't want to participate. Each approach is useful for different scenarios depending on how much choice the government wants to preserve while still guiding behaviour towards better outcomes.
These behavioural interventions can be more effective than traditional economic policies like taxation or regulation because they work with human psychology rather than against it. However, critics argue that such policies are paternalistic and manipulative, and that they treat adults as though they cannot make rational decisions for themselves.