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Optimal Defaults with Normative Ambiguity

Author

Listed:
  • Jacob Goldin

    (Stanford Law School and NBER)

  • Daniel Reck

    (London School of Economics)

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 nondefault choices or inducing active choice. We show how these considerations depend on whether active choosers make mistakes when selecting among nondefault options. We illustrate our results using data on pension contribution defaults.

Suggested Citation

  • Jacob Goldin & Daniel Reck, 2022. "Optimal Defaults with Normative Ambiguity," The Review of Economics and Statistics, MIT Press, vol. 104(1), pages 17-33, March.
    • Handle: RePEc:tpr:restat:v:104:y:2022:i:1:p:17-33
    DOI: 10.1162/rest_a_00945
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    Citations

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    Cited by:

    1. Daniel Reck & Arthur Seibold, 2022. "The Welfare Economics of Reference Dependence," CESifo Working Paper Series 9999, CESifo.
    2. Bernheim, B. Douglas & Mueller-Gastell, Jonas, 2024. "Optimal default options," Journal of Public Economics, Elsevier, vol. 237(C).
    3. Daniel Reck & Arthur Seibold, 2023. "The Welfare Economics of Reference Dependence," CRC TR 224 Discussion Paper Series crctr224_2023_450, University of Bonn and University of Mannheim, Germany.
    4. Martyna Kobus & Radoslaw Kurek & Thomas Parker, 2024. "Ranking Policies Under Loss Aversion and Inequality Aversion," Working Papers 59, Institute of Economics, Polish Academy of Sciences.
    5. de Bresser, Jochem & Knoef, Marike, 2025. "Different defaults affect different groups differently," Journal of Economic Behavior & Organization, Elsevier, vol. 231(C).
    6. Sulka, Tomasz, 2023. "Planning and saving for retirement," European Economic Review, Elsevier, vol. 160(C).
    7. Høgholm Jørgensen, Thomas & Egholt Søgaard, Jakob, 2024. "The division of parental leave: Empirical evidence and policy design," Journal of Public Economics, Elsevier, vol. 238(C).
    8. Mira Fischer & Philipp Lergetporer & Katharina Werner, 2024. "Do Narratives about Psychological Mechanisms Affect Public Support for Behavioral Policies?," Rationality and Competition Discussion Paper Series 505, CRC TRR 190 Rationality and Competition.

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