Rationalizations and Mistakes: Optimal Policy with Normative Ambiguity

Jacob Goldin and Daniel Reck

AEA Papers and Proceedings, 2018, vol. 108, 98-102

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.

JEL-codes: D11 D81 D90 H24 I13 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/pandp.20181042
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