Bounded Rationality and Socially Optimal Limits on Choice in a Self-Selection Model
AbstractWhen individuals choose from whatever alternatives available to them the one that maximizes their utility then it is always desirable that the government provide them with as many alternatives as possible. Individuals, however, do not always choose what is best for them and their mistakes may be exacerbated by the availability of options. We analyze self-selection models, when individuals know more about themselves than it is possible for governments to know, and show that it may be socially optimal to limit and sometimes to eliminate individual choice. As an example, we apply Luce’s (1959) model of random choice to a work-retirement decision model and show that the optimal provision of choice is positively related to the degree of heterogeneity in the population and that even with very small degrees of non-rationality it may be optimal not to provide individuals any choice.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 868.
Date of creation: 2003
Date of revision:
logit; self-selection; moral-hazard; retirement;
Other versions of this item:
- Eytan Sheshinski, 2000. "Bounded Rationality and Socially Optimal Limits on Choice in a Self-Selection Model," Discussion Paper Series dp330, The Center for the Study of Rationality, Hebrew University, Jerusalem, revised Nov 2002.
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- H1 - Public Economics - - Structure and Scope of Government
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-05-02 (All new papers)
- NEP-DCM-2004-05-02 (Discrete Choice Models)
- NEP-EVO-2004-05-02 (Evolutionary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sheshinski, E. & Diamond, P., 1992.
"Economic Aspects of Optimal Disability Benefits,"
92-5, Massachusetts Institute of Technology (MIT), Department of Economics.
- Diamond, P. A. & Mirrlees, J. A., 1978.
"A model of social insurance with variable retirement,"
Journal of Public Economics,
Elsevier, vol. 10(3), pages 295-336, December.
- P. A. Diamond & J. A. Mirrlees, 1977. "A Model of Social Insurance With Variable Retirement," Working papers 210, Massachusetts Institute of Technology (MIT), Department of Economics.
- Mirrlees, James A., 1987.
"Economic Policy and Nonrational Behavior,"
Department of Economics, Working Paper Series
qt9tw447ws, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Mattsson, Lars-Göran & Voorneveld, Mark & Weibull, Jörgen W., 2004. "Better may be worse: Some monotonicity results and paradoxes in discrete choice," Working Paper Series in Economics and Finance 558, Stockholm School of Economics, revised 21 Apr 2004.
- Manuel Amador & Ivan Werning & George-Marios Angeletos, 2003.
"Commitment Vs. Flexibility,"
NBER Working Papers
10151, National Bureau of Economic Research, Inc.
- Ira N. Gang & Gil S. Epstein, 2002.
"Government and Cities: Contests and the Decentralization of Decision Making,"
Departmental Working Papers
200215, Rutgers University, Department of Economics.
- Epstein, Gil S & Gang, Ira, 2002. "Government and Cities: Contests and the Decentralization of Decision Making," CEPR Discussion Papers 3585, C.E.P.R. Discussion Papers.
- Epstein, Gil S. & Gang, Ira N., 2002. "Government and Cities: Contests and the Decentralization of Decision Making," IZA Discussion Papers 547, Institute for the Study of Labor (IZA).
- Kanbur, Ravi & Pirttila, Jukka & Tuomala, Matti, 2004.
"Non-Welfarist Optimal Taxation And Behavioral Public Economics,"
127150, Cornell University, Department of Applied Economics and Management.
- Ravi Kanbur & Jukka Pirttilä & Matti Tuomala, 2006. "Non-Welfarist Optimal Taxation And Behavioural Public Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 849-868, December.
- Ravi Kanbur & Jukka Pirttilä & Matti Tuomala, 2004. "Non-Welfarist Optimal Taxation and Behavioral Public Economics," CESifo Working Paper Series 1291, CESifo Group Munich.
- Raj Chetty & Adam Looney & Kory Kroft, 2009.
"Salience and taxation: theory and evidence,"
Finance and Economics Discussion Series
2009-11, Board of Governors of the Federal Reserve System (U.S.).
- O'Donoghue, Ted & Rabin, Matthew, 2006.
"Optimal sin taxes,"
Journal of Public Economics,
Elsevier, vol. 90(10-11), pages 1825-1849, November.
- Tyson, Christopher J., 2008.
"Cognitive constraints, contraction consistency, and the satisficing criterion,"
Journal of Economic Theory,
Elsevier, vol. 138(1), pages 51-70, January.
- Tyson, Chris, 2001. "The Foundations of Imperfect Decision Making," Research Papers 1714, Stanford University, Graduate School of Business.
- Christopher J.Tyson, 2005. "Axiomatic Foundations for Satisficing Behavior," Economics Papers 2005-W03, Economics Group, Nuffield College, University of Oxford.
- Christopher J. Tyson, 2007. "Cognitive Constraints, Contraction Consistency, and the Satisficing Criterion," Working Papers 614, Queen Mary, University of London, School of Economics and Finance.
- Saint-Paul, Gilles, 2012.
"Liberté et société post-utilitariste,"
IDEI Working Papers
745, Institut d'Économie Industrielle (IDEI), Toulouse.
- repec:hal:wpaper:halshs-00732424 is not listed on IDEAS
- Christopher Tyson, 2005.
"Axiomatic Foundations for Satisficing Behavior,"
Economics Series Working Papers
2005-W03, University of Oxford, Department of Economics.
- JÃ¶rgen Weibull & Lars-GÃ¶ran Mattsson & Mark Voorneveld, 2007. "Better May be Worse: Some Monotonicity Results and Paradoxes in Discrete Choice Under Uncertainty," Theory and Decision, Springer, vol. 63(2), pages 121-151, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).
If references are entirely missing, you can add them using this form.