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  4. May 2018
  5. Rationalizations and Mistakes: Optimal Policy with Normative Ambiguity

Rationalizations and Mistakes: Optimal Policy with Normative Ambiguity

  • Jacob Goldin
  • Daniel Reck
AEA Papers and Proceedings
vol. 108, May 2018
(pp. 98-102)
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Abstract

Behavior that appears to violate neoclassical assumptions can often be rationalized by incorporating an optimization cost into decision-makers' utility functions. Depending on the setting, these costs may reflect either an actual welfare loss for the decision-maker who incurs them or a convenient (but welfare irrelevant) modeling device. We consider how the resolution of this normative ambiguity shapes optimal policy in a number of contexts, including default options, inertia in health plan selection, take-up of social programs, programs that encourage moving to a new neighborhood, and tax salience.

Citation

Goldin, Jacob, and Daniel Reck. 2018. "Rationalizations and Mistakes: Optimal Policy with Normative Ambiguity." AEA Papers and Proceedings, 108: 98-102. DOI: 10.1257/pandp.20181042

Additional Materials

JEL Classification

  • D11 Consumer Economics: Theory
  • D81 Criteria for Decision-Making under Risk and Uncertainty
  • D90 Micro-Based Behavioral Economics: General
  • H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
  • I13 Health Insurance, Public and Private