ECONOMICS PROJECT 1

2024-2025

Ronsher khanna
11-B
Strawberry Fields High School
 ACKNOWLEDGEMENT
I would like to convey my sincere gratitude to all
those who contributed to the success of this
commerce project.
I am profoundly thankful to my instructor, Ms.
Sumita Verma, for her valuable guidance,
unwavering support, and insightful suggestions
during the course of the project. Her expertise and
encouragement have been instrumental in the
development of this work.
 PROJECT QUESTION
How Behavioural Economics Shapes you as a Consumer: Have you ever
walked into a store for just one thing and walked out with a bag full of
stuff? Or been drawn to a product because of a catchy jingle? In this
project, you will explore how businesses use behavioural economics to
nudge you towards certain choices.
Guidelines for the project and content: - Please ensure that the following
pointers are definitely covered in the project. You are encouraged to go
beyond these as well.
• Introduction of the concept
• What is behavioural economics and how does it differ from traditional
economics?
• Explain key concepts of behavioural economics with real-world
examples.
• Demonstrate how businesses use these concepts and provide
consumer awareness tips.
• How do businesses use behavioural economics in marketing and
advertising?
• Creativity and effectiveness of consumer awareness strategies.
• Develop strategies to be a more informed and conscious consumer.
 INTRODUCING THE CONCEPT
Behavioural economics combines ideas from various disciplines in an
engaging way.
The combination of psychology and economics assists us in
comprehending how individuals make decisions. their daily routines.
Although traditional economic theories frequently portray individuals are
considered to be completely rational decision-makers who make their
decisions based only on this rationale Based on logic and the information
at hand, behavioural economics questions this concept. Our choices are
frequently swayed by both emotions and cognitive processes as indicated
by the research.prejudices, interactions among people, and the
environment in which decisions are made.
The Importance of Behavioral Economics-
Understanding behavioural economics is not just an academic exercise; it
has real-world implications for consumers, businesses, and policymakers.
Here are a few key points that highlight its significance:

1. Understanding Real-World Decision-Making

Traditional economic models assume that people always make decisions

that maximize their utility, or self-interest, by carefully weighing costs and
benefits. But in reality, people don’t always act this way. Behavioral
economics helps bridge the gap between idealized models of human
behavior and how people actually behave. It takes into account the
cognitive biases, emotions, social influences, and limited information that
often shape our decisions.

For example, people may choose immediate rewards over long-term

benefits (a phenomenon called hyperbolic discounting), or they may
become overconfident in their ability to predict outcomes, even in
uncertain situations. Behavioral economics provides tools to understand
these patterns.

2. Improving Public Policy and Social Programs

Behavioral economics has had a profound impact on public policy.
Governments and organizations can use its principles to design policies
that "nudge" people toward better decisions without restricting their
freedom of choice. This approach is known as "libertarian paternalism."

3. Addressing Market Failures

Behavioral economics can help identify and address market failures

where people’s decisions do not lead to optimal outcomes, either for
themselves or society at large. For instance, people might fail to save
enough for retirement, invest in unhealthy food choices, or ignore
important but complex financial decisions like insurance.

By understanding how and why these errors happen, behavioral

economics can guide interventions that help people make better
decisions—such as simplifying complex financial products or offering
clearer information about risks.

4. Improving Financial Decisions

People often make poor financial decisions, such as overspending,

accumulating debt, or failing to save for the future. Traditional economic
theory assumes that people will always seek to maximize their wealth,
but in practice, we often see individuals making decisions that conflict
with their long-term financial well-being.

5. Enhancing Marketing and Business Strategies

Businesses can benefit greatly from behavioral economics by using it to

understand consumer behavior and design better marketing strategies,
products, and services. Since consumer choices are often influenced by
emotional, social, and psychological factors, companies can use this
knowledge to:

 Price Sensitivity: Setting prices strategically by using principles like

anchoring (setting an initial high price to make a subsequent lower
price seem like a bargain).
 Product Positioning: Structuring options and advertisements in
ways that appeal to human biases, such as presenting product
bundles or framing deals to make them seem more appealing.
  Customer Loyalty: Businesses can use loss aversion by framing
loyalty rewards in a way that makes customers feel like they’d lose
out on valuable benefits if they don’t continue purchasing,
increasing retention.

6. Understanding Consumer and Investor Behavior

Behavioral economics helps explain why markets and consumer

behaviors often deviate from predictions made by traditional models. For
example:

 Herd Behavior: People often make decisions based on what others

are doing, leading to bubbles in financial markets (e.g., stock
market booms and crashes).
 Overconfidence Bias: Investors may believe they know more than
they actually do, leading to riskier investment strategies.

By understanding these patterns, policymakers, businesses, and

individuals can better anticipate behavior, leading to more stable financial
systems and smarter investment strategies.
 WHAT IS BEHAVIOURAL ECONOMICS AND
HOW DOES IT DIFFER FROM TRADITIONAL
ECONOMICS ?
1) Assumptions about Human Behavior:

 Traditional Economics: Assumes that people are rational actors who

always make decisions that maximize their personal utility (well-
being). This is known as the rational agent model.
 Behavioral Economics: Argues that people are not always rational.
Cognitive biases, emotions, and social pressures often influence
decision-making. Individuals are seen as having bounded rationality,
meaning they make decisions that are "good enough" rather than
perfect.

2) Decision-Making Models:

 Traditional Economics: Uses the concept of utility maximization,

where individuals carefully evaluate all available options, weigh the
costs and benefits, and choose the option that gives them the
highest utility. It assumes that individuals have access to all the
necessary information and can process it efficiently.
 Behavioral Economics: Incorporates psychological insights and
cognitive limitations into decision-making. It recognizes that people
often use heuristics or mental shortcuts to make quick decisions,
but these shortcuts can lead to biases and suboptimal outcomes.
For example, people may rely on anchoring (focusing too much on
an initial piece of information) or availability bias (relying on easily
available information) rather than thorough analysis.

3) Focus on Rationality vs. Psychological Influences:

 Traditional Economics: Focuses on rationality and assumes that all

individuals are self-interested, objective decision-makers. Economic
models in traditional economics often assume a predictable and
optimal outcome from individual choices.
  Behavioral Economics: Focuses on the irrationality of human
decision-making, highlighting how emotions, cognitive biases, and
social context affect choices. It challenges the idea that people
always act in their best interest. Behavioral economics
acknowledges that people might make decisions that are
inconsistent with their long-term goals (e.g., choosing instant
gratification over long-term rewards).

4) Modeling of Markets:

 Traditional Economics: Assumes that markets are efficient and that

individuals make rational choices based on perfect information. In
this view, supply and demand, price mechanisms, and competition
naturally lead to optimal outcomes for society.
 Behavioral Economics: Argues that markets are often inefficient
because individuals don't always act rationally. Market outcomes
can be skewed by factors such as herd behavior, loss aversion, and
status quo bias, which may result in bubbles, crashes, and other
market failures.

5) Policy Implications:

 Traditional Economics: Policies are often based on the assumption

that individuals will respond rationally to incentives. For example,
taxes on cigarettes or alcohol are intended to deter consumption by
raising prices, based on the assumption that people will make
decisions based on cost-benefit analysis.
 Behavioral Economics: Suggests that individuals may not respond as
expected to traditional incentives due to biases or irrational
behavior. Instead, it advocates for "nudging"—the idea that small,
subtle changes in the way choices are presented (such as
automatically enrolling employees in retirement plans) can lead to
better decisions without restricting freedom. Nudges leverage
psychological insights to improve decision-making in areas like
health, savings, and education.
 KEY CONCEPTS OF BEHAVIORAL
ECONOMICS
1. Bounded Rationality

Imagine you're making a decision, like choosing a new phone. You don't
have all the time in the world to research every model, read reviews, or
consider every feature. So, you pick the one that seems good enough
based on a few key factors, like a friend's recommendation or the fact it’s
on sale. Bounded rationality is about how our brains are limited in how
much information we can process at once, so we often settle for a choice
that's just “good enough” instead of perfectly rational.

 Human touch: Think of it like trying to pick the best restaurant for
dinner when you're starving. You don’t want to spend hours
reading Yelp reviews, so you pick the first place that seems decent.

2. Loss Aversion

Ever felt like losing $20 hurts more than gaining $20 feels good? That’s
loss aversion. People tend to feel losses much more intensely than gains,
which often makes us hold on to things longer than we should—like
keeping a bad investment because the idea of losing money feels worse
than the potential of getting a small gain elsewhere.

 Human touch: Imagine holding on to a shirt you don’t wear

anymore just because you paid a lot for it. You can’t bear to part
with it, even though you’ll never wear it again, because you feel like
losing that money would sting too much.

3. Nudging

Have you ever walked into a store, and without even thinking, you picked
up the item right in front of you? That’s a nudge at work! Nudging is
when small changes in how choices are presented can influence our
decisions without restricting our freedom. It’s like when grocery stores
place fruits at the front of the store to encourage healthy eating. You
might still buy what you want, but the healthier choice is the first thing
you see.

 Human touch: It’s like how a friend encourages you to eat healthier
by offering a salad first when you’re hungry, even if they know you
might still reach for the fries later.

4. Mental Accounting

We often treat money differently based on where it comes from or what

it’s meant for. This is called mental accounting. For example, you might
spend a $100 gift card more freely than you would $100 from your
paycheck, even though both are worth the same.

 Human touch: It’s like when you win $50 in a raffle and immediately
think, "Great, I can spend this on something fun!" But if you found
$50 in your wallet, you'd probably think twice before spending it. It
feels like “found money,” so it’s easier to part with.

5. Anchoring

Anchoring happens when you base your decision on the first piece of
information you encounter, even if it's irrelevant. For example, if a jacket
is marked down from $300 to $150, you might think it’s a great deal—just
because of the "anchor" of the original price. The $300 tag makes $150
seem like a bargain, even if $150 is still a lot to pay for a jacket.

 Human touch: Think about how when you’re shopping for a car, the
first one you see is priced at $40,000. Then, when you look at
others for $30,000, they seem like a steal—even though they might
still be outside your budget.

6. Framing Effect

Framing is about how the way a choice is presented can change how we
feel about it. The framing effect means that people are more likely to
make certain decisions depending on how the options are framed, even if
they’re exactly the same.
  Human touch: Imagine you’re deciding whether to eat a sandwich
that’s described as "80% lean" vs. "20% fat." Even though both are
the same, you’re more likely to pick the "80% lean" option because
it sounds healthier, even though the difference is just how it’s
framed.

7. Hyperbolic Discounting

We humans tend to prefer smaller, immediate rewards over bigger,

delayed rewards. That’s called hyperbolic discounting. It's why you might
opt for a sugary snack now instead of saving your appetite for a healthy
dinner, even though you know the dinner will make you feel better in the
long run.

 Human touch: It’s like putting off doing your taxes for the last
minute because the instant gratification of scrolling through social
media or watching TV just feels so much easier than the long-term
benefits of getting it done early.

8. Endowment Effect

The endowment effect is when we overvalue what we own just because

we own it. You might think your old bike is worth more than it actually is
because it’s yours, even though the same model can be bought for less
elsewhere. We get attached to things and treat them as more valuable
simply because they're ours.

 Human touch: Imagine trying to sell your car. You probably think it’s
worth more than the market value because of all the memories
you’ve made with it—even though the buyer just sees a used car.
HOW BUSINESS USE THESE CONCEPTS AND
PROVIDE CONSUMER AWARENESS TIPS
1. Nudging You Toward Purchases Businesses often use nudges to
guide you toward buying their products or services. These are small
changes in the environment that can subtly influence your choices,
without taking away your freedom to choose.

 Example: When you walk into a store, the most tempting and high-
margin items are often placed right at eye level. In supermarkets,
healthy food might be placed near the entrance, but sugary snacks
are often placed near the checkout counter. This placement nudges
you into impulse buys, even if you didn’t plan on purchasing that
bag of chips.
 How businesses use it: They know that the easier it is for you to see
something, the more likely you are to buy it. Online stores use
similar tricks, like showing you "popular" or "bestselling" items to
steer you toward certain products.

2. Anchoring Prices to Make You Feel Like You're Getting a Deal

Businesses often use anchoring to make you feel like you're getting
a great deal. They show you a higher price first, then offer a
“discounted” price, which makes the second price seem much more
reasonable—even if it’s still higher than you originally planned to
spend.

 Example: A coat priced at $200 with a “discounted” price of $120

makes you feel like you’re saving $80. But if you had seen the coat
at $120 from the start, you might have thought it was overpriced.
The initial higher price acts as an anchor, influencing your
perception of the deal.
 How businesses use it: Think about when you go to a car dealership
and see a "Premium Package" for $40,000. Then, they show you a
"Standard" model for $30,000, making it seem like a much better
deal—even though the “Standard” model might still be above your
budget.
3. Creating a Sense of Urgency (Scarcity) Scarcity is a powerful tool
businesses use to encourage people to make decisions quickly.
When something is limited or “only available for a short time,” it
triggers a fear of missing out (FOMO), which can lead to impulsive
decisions.

 Example: You see an online deal that says “Only 3 left in stock!” or
“Limited-time offer: 50% off today only!” This pushes you to make a
purchase because you don’t want to miss out.
 How businesses use it: Flash sales, countdown timers, and “low
stock” alerts are all designed to make you act fast and buy without
thinking too long. It’s a psychological trick that takes advantage of
our tendency to fear missing out.

4. Using Social Proof to Make You Follow the Crowd Businesses know
that social proof—the idea that we tend to follow the behavior of
others—can be a powerful motivator. If a product is seen as
popular or recommended by others, it increases our likelihood of
buying it.

 Example: When you see a restaurant with a long line outside, you
might think, “It must be good if so many people are waiting!”
Similarly, online stores show customer reviews and ratings to
encourage you to buy.
 How businesses use it: They use testimonials, star ratings, and the
“best seller” tag to make you think that because others have
chosen it, it’s a good decision. The more people “like” a product,
the more we tend to trust it.

5. Offering Rewards and Loyalty Programs Loyalty programs take

advantage of our natural inclination to stick with what we know,
often using mental accounting to make you feel like you’re getting
something extra. For example, if a store gives you points for every
dollar you spend, you might be more likely to return to redeem
those points, even if the products aren't necessarily the best deal.

 Example: You’re at your favorite coffee shop, and after buying 9

coffees, you get the 10th free. You might be willing to buy coffee
 more often just to get that “free” one, even if you could get a better
deal somewhere else.
 How businesses use it: By offering loyalty points, exclusive deals, or
rewards for repeat purchases, businesses keep you coming back.
You’re psychologically invested in “earning” that reward, even
though the total cost might not be the lowest in the market.

HOW DO BUSINESS USE BEHAVIOURAL

ECONOMICS IN MARKETING AND
ADVERTISING
1. Loss Aversion Companies often highlight what you might miss out on to
encourage you to buy. For instance, a marketing campaign might say
you’ll lose a great deal if you don’t act quickly, playing on that fear of loss
to drive urgency.

2. Scarcity and Urgency You’ve probably seen ads that say something like
“only a few left!” or “sale ends tonight!” This creates a sense of urgency,
making you feel like you need to act fast to avoid missing out.

3. Anchoring Effect Retailers frequently display the original price next to

the sale price to create a reference point. For example, if a jacket was
originally $100 but is now $70, that original price makes the discount feel
like a better deal—even if you could find similar jackets for less
elsewhere.

4. Social Proof Many brands showcase customer testimonials and reviews

to build trust. When you see that others have had positive experiences, it
can make you more likely to buy the product yourself.

5. Framing Marketers often frame their messages to highlight the

positives. For example, saying a snack is “90% fat-free” sounds better
than saying it “contains 10% fat.” It’s all about how the information is
presented to make it more appealing.
 CREATIVITY AND EFFECTIVENESS OF
CONSUMER AWARENESS STRATEGIES
1. Storytelling and Real-Life Testimonials

Creativity: Storytelling humanizes complex issues, making them easier to

understand and more relatable. By sharing real-life experiences, brands
can create an emotional connection with their audience, which helps
consumers recognize the impact of their purchasing choices on both their
lives and the world around them.

 Example: Many fair trade or sustainable fashion brands use real-life

stories of workers in developing countries, explaining how their
purchases are directly improving lives. For example, a company
selling eco-friendly products might share stories of artisans who
create their goods or about the positive environmental changes
from reducing plastic use.
 Effectiveness: This strategy builds empathy, engages consumers
emotionally, and motivates them to make more conscious choices.
It shifts from just telling consumers what to do to helping them
understand why it matters.
 Tip: When considering a purchase, look for brands that share their
social responsibility efforts, and ask yourself how your own
purchasing choices fit into the bigger picture.

2. Interactive Digital Tools (Calculators and Simulations)

Creativity: Leveraging interactive tools like calculators, quizzes, and

simulations helps consumers visualize the impact of their choices in a
personal, actionable way. These tools can help them see how their
purchases align with their values—whether it’s in terms of sustainability,
energy efficiency, or health.

 Example: Many energy companies provide carbon footprint

calculators that let consumers see how much energy they’re using
and how much they could save by switching to greener options.
Similarly, brands promoting healthy food may have a "nutrition
 value" calculator where you input your diet goals to compare
different products.
 Effectiveness: Interactive tools increase engagement, allowing
consumers to actively participate in their decision-making. The
instant feedback provided by these tools can be eye-opening,
leading to more informed choices. These tools turn abstract
concepts into tangible data.
 Tip: Use online tools to track your spending habits, carbon
footprint, or health goals. This can empower you to make
adjustments to improve your personal or financial wellbeing.

3. Social Media Campaigns & Influencers

Creativity: Social media offers a creative platform for spreading consumer

awareness in ways that feel organic and engaging. Brands partner with
influencers, celebrities, and activists who align with their values to reach
a broader and more diverse audience.

 Example: Campaigns like #MeatlessMonday and #PlasticFreeJuly

use social media influencers to raise awareness about the
environmental impact of meat consumption and plastic waste.
These campaigns encourage consumers to take small actions, such
as choosing plant-based meals or reducing plastic use, by
highlighting their personal and environmental benefits.
 Effectiveness: Social media campaigns create a sense of community
around shared values. When consumers see influencers or peers
adopting these practices, they feel more motivated to join in. These
campaigns also benefit from the viral nature of social media,
spreading awareness quickly.
 Tip: Follow and engage with influencers or social media accounts
that promote consumer awareness. This will expose you to new
ideas and practices that can help you make better, more ethical
decisions.

 4. Transparency and Certifications (Eco Labels, Fair Trade)

Creativity: Clear and easily recognizable certifications or eco labels offer
consumers simple, trustworthy ways to make informed decisions about the
products they buy. These badges of honor help consumers quickly identify
products that meet certain ethical, environmental, or health standards.

 Example: Labels like Fair Trade Certified, Organic, Rainforest Alliance,

and Energy Star make it easy for consumers to know that the products
they’re buying are more sustainable, ethically sourced, or healthier.
These labels often come with detailed information about the specific
criteria the product meets.
 Effectiveness: Certifications provide immediate credibility and trust.
Consumers can make quick, informed decisions without needing to do
extensive research, and the simplicity of these labels helps to build
consumer confidence.
 Tip: Familiarize yourself with common certification logos and what they
stand for. They’ll help you make more ethical and eco-friendly choices
without having to dive into complex product details.

5. Gamification

Creativity: Gamifying consumer awareness strategies makes learning about

responsible consumption fun and engaging. It taps into people’s natural desire
for rewards, progress, and competition.

 Example: Brands like Nike and Adidas use apps that reward users with
points for reaching health goals, such as walking or running a certain
number of steps. These apps encourage consumers to adopt healthier
habits, and those points can sometimes be redeemed for discounts or
rewards.
 Effectiveness: Gamification turns the sometimes overwhelming process
of making mindful consumer decisions into an enjoyable, bite-sized
challenge. It boosts motivation, turning sustainable practices into daily
habits.
 Tip: Look for apps or brands that use gamification to help you make
better choices, like tracking your carbon footprint or encouraging
healthier behaviors. This can add an element of fun to your goals while
keeping you motivated.
 STRATEGIES TO BE MORE INFORMED AND
CONSCIOUS CONSUMER
2. Prioritize Sustainable and Ethical Choices

When you prioritize sustainability and ethics, your purchases can make a
positive impact on the environment and society.

 Strategy: Support brands that focus on ethical production, use

sustainable materials, and work with local communities. Look for
certifications such as Fair Trade, B Corp, or GOTS (Global Organic
Textile Standard) for clothes, or Rainforest Alliance for food
products.
 Tip: Opt for reusable products over disposable ones, and choose
items that are made to last longer. While they might cost more
upfront, they save you money and reduce waste in the long run.

3. Evaluate Your Consumption Habits

Being conscious about your consumption is a crucial part of becoming a

more informed consumer. It’s easy to get caught up in the constant cycle
of “more, more, more,” but often less is more.

 Strategy: Take a look at the habits that drive your purchases. Do

you really need a new gadget, or is your current one still working?
Are you buying just because something is on sale? Do you often find
yourself throwing things away that could still be used?
 Tip: Practice mindful consumption by thinking before you buy. Ask
yourself questions like: “Do I truly need this?” or “How will this
purchase impact the environment?”

4. Buy Less, Buy Better

One of the most powerful ways to be an informed and conscious

consumer is to buy fewer but better quality items. The idea is to focus on
longevity rather than quantity.
  Strategy: Focus on buying items that are high-quality, durable, and
versatile. Rather than buying several cheap products, invest in a few
high-quality items that will last longer and perform better over time.
 Tip: Look for items that have a timeless design or are built to withstand
wear and tear. For instance, buying a high-quality leather jacket might
be a better investment than constantly buying cheap, fast-fashion
pieces.

5. Support Local and Small Businesses

When you buy from local businesses or small entrepreneurs, your money often
has a more positive impact on your community compared to larger
corporations.

 Strategy: Choose to shop locally or support small businesses, particularly

those that focus on local sourcing, handcraft, or community initiatives.
Small businesses tend to have more transparent practices and are often
more accountable to their customers.
 Tip: Visit local farmers' markets, craft fairs, and independent stores.
These businesses often offer products with lower environmental
footprints and more personalized service.

6. Limit Single-Use Plastic and Packaging

Plastic waste is one of the most pressing environmental issues today. As a

conscious consumer, it's essential to minimize your reliance on single-use
plastics and excessive packaging.

 Strategy: Whenever possible, choose products with minimal packaging,

or better yet, no packaging at all. You can bring your own reusable bags,
containers, and cups to reduce the need for disposable plastic. For food,
opt for products packaged in glass, paper, or compostable materials.
 Tip: Consider switching to a zero-waste lifestyle by purchasing in bulk or
using refill stations for products like shampoo, detergent, or cleaning
supplies.
THANK YOU