Goldin, J. & D. ReckOptimal defaults with normative ambiguity

Recommended reading

Jacob Goldin & Daniel Reck

Release date:
January 2017

SSRN Social Science Research Network

A large and growing literature suggests that decision-makers are more likely to select options presented to them as the default. In this paper the authors study the optimal choice of defaults. Their model assumes that decision-makers behave as if there is some cost to selecting an option that is not the default. These "as if" costs may or may not be normative - i.e., they may or may not enter into the social welfare function. The model parameterizes the degree to which "as if" costs are normative, and in doing so nests a large number of behavioral models of default effects that have been studied in the literature. Many positive models differ only with respect to the normative relevance of the as-if costs. Revealed preference empirical analysis can identify information about preferences and as-if costs, but such approaches cannot identify whether a particular type of cost is normative. With this model, the authors characterize the optimal default. They also study rules of thumb that have been proposed for selecting which option to make the default - such as minimizing opt-outs or forcing active choice. Their results suggest that in many situations, determining the optimal policy will not be possible without judgments concerning the normative relevance of behavioral frictions.

Link zur Publikation