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Choice Inconsistencies among the Elderly: Evidence from Plan Choice in the Medicare Part D Program: Comment

Jonathan Ketcham, Nicolai Kuminoff and Christopher A. Powers

American Economic Review, 2016, vol. 106, issue 12, 3932-61

Abstract: Consumers' enrollment decisions in Medicare Part D can be explained by Abaluck and Gruber's (2011) model of utility maximization with psychological biases or by a neoclassical version of their model that precludes such biases. We evaluate these competing hypotheses by applying nonparametric tests of utility maximization and model validation tests to administrative data. We find that 79 percent of enrollment decisions from 2006 to 2010 satisfied basic axioms of consumer theory under the assumption of full information. The validation tests provide evidence against widespread psychological biases. In particular, we find that precluding psychological biases improves the structural model's out-of-sample predictions for consumer behavior.

JEL-codes: C52 D12 I13 I18 J14 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.20131048
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