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Rationalizations and mistakes: optimal policy with normative ambiguity

Jacob Goldin and Daniel Reck

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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: J1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp, nep-hea and nep-upt
Date: 2018-05-01
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Published in AEA Papers and Proceedings, 1, May, 2018, 108, pp. 98-102. ISSN: 2574-0768

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