Seminar 218, Psychology and Economics (joint with Public): Dmitry Taubinsky - "Policy Design with Frame-Dependent Preferences: A Robust and Practical Approach to Normative Pluralism"
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Abstract: People's choices often depend on the frame in which they are made. For example, marketing can influence how consumers value goods, the immediacy of a choice can influence consideration of intertemporal tradeoffs, and public policy can shape people's preferences. In many cases, such framing effects are not "mistakes"—they reflect equally legitimate but mutually inconsistent normative values. We develop a welfare criterion that admits this normative pluralism yet still provides precise money-metric estimates of policies' welfare effects. The criterion amounts to minimizing (across policies) the maximum money-metric deadweight loss (across frames). It is the unique criterion satisfying a set of natural axioms. We study the criterion's general properties and illustrate its application to a variety of policy design questions, including "sin taxes," provision of commitment opportunities, active-choice versus optimal default regimes, nudges, and the regulation of marketing and advertising.
