Behavioural economics uses psychology to explain why people do not always choose rationally.
Behavioural economics: people are not robots
Psychology meets economics
Daniel Kahneman won the Nobel prize in 2002 for showing how people misjudge risk.
Defaults matter
When UK employers had to enrol workers in pensions automatically from 2012, far more people saved.
Short-term thinking
People put off saving and healthy choices, even when they plan to do them.
The points to remember
- Classical models assume rational choice; real people use habits and shortcuts.
- A nudge steers choices without forcing them.
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Endless growth from finite resources cannot last, so economists look at the circular economy.
Linear economy
- Take, make, throw away.
- Resources used once.
- Waste and pollution grow.
Circular economy
- Reuse, repair, recycle.
- Materials kept in use.
- Germany's bottle deposits return most bottles for reuse.
The points to remember
- The economy, society and the environment are interdependent.
- Circular = keep materials in use.
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Higher Level Paper 2 asked this in November 2022, for 2 marks; it can appear at Standard Level.
The government wants manufacturers to move towards a circular economy.
Define the term circular economy.
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