2.4.2 (HL)—Behavioural economics in action

Choice architecture is the way options are organized. Defaults apply unless a person opts out; restricted choices remove some options; mandated choices require an active selection rather than allowing no decision.

Nudge theory uses predictable behavioural responses—such as inertia, salience or framing—to steer choices while normally preserving freedom to choose. The architecture changes the decision context rather than the underlying prices or available information alone.

Identify the target behaviour, the architecture used and whether alternatives remain available; then evaluate effectiveness, transparency, autonomy and distributional effects.

Automatic pension enrolment with an opt-out default can raise participation because inertia favours staying enrolled. Requiring every employee to select yes or no is a mandated choice instead.

A nudge is not automatically a restriction or mandate, and a default does not eliminate choice. Bias definitions belong to Objective 2.4.1; this card focuses on applying behavioural insights.