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Rationalizations and mistakes: optimal policy with normative ambiguity

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  • Goldin, Jacob
  • Reck, Daniel

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.

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  • Goldin, Jacob & Reck, Daniel, 2018. "Rationalizations and mistakes: optimal policy with normative ambiguity," LSE Research Online Documents on Economics 89237, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:89237
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    File URL: http://eprints.lse.ac.uk/89237/
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    References listed on IDEAS

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    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics

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