Optimal defaults with normative ambiguity

Goldin, Jacob and Reck, Daniel ORCID: 0000-0002-5732-4706 (2020) Optimal defaults with normative ambiguity. Review of Economics and Statistics. pp. 1-45. ISSN 0034-6535

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Abstract

Default effects are pervasive, but the reason they arise is often unclear. We study optimal policy when the planner does not know whether an observed default effect reflects a welfare-relevant preference or a mistake. Within a broad class of models, we find that determining optimal policy is impossible without resolving this ambiguity. Depending on the resolution, optimal policy tends in opposite directions: either minimizing the number of non-default choices or inducing active choice. We show how these considerations depend on whether active choosers make mistakes when selecting among non-default options. We illustrate our results using data on pension contribution defaults.

Item Type:	Article
Official URL:	https://www.mitpressjournals.org/loi/rest
Additional Information:	© 2020 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory
Date Deposited:	04 Aug 2020 13:24
Last Modified:	17 Apr 2024 01:15
URI:	http://eprints.lse.ac.uk/id/eprint/105863

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