Heuristics and Biases in Thinking about Tax
Edward J. McCaffery
USC Gould School of Law
University of Pennsylvania - Department of Psychology
December 12, 2003
U of Penn, Inst for Law & Econ Research Paper 03-31; USC Law School, Olin Research Paper No. 03-22; and USC CLEO Research Paper No. C03-23
The principal findings of behavioral economics and cognitive psychology over the past several decades have been to show that human beings deviate from ideal precepts of rationality in many settings, showing inconsistent judgment in the face of framing and other formal manipulations of the presentation of problems. This paper summarizes the findings of original experiments about subjects' perceptions of various aspects of tax-law design. We show that in evaluating tax systems, subjects are vulnerable to a wide range of heuristics and biases, leading to inconsistent judgment and evaluation. The prevalence of these biases suggests that there is room for skillful politicians or facile political systems to manipulate public opinion, and that tax system design will reflect a certain volatility on account of the possibility of eliciting preference reversals through purely formal rhetorical means. More troubling, the findings suggest the possibility of a persistent wedge between observed and optimal public finance systems.
Number of Pages in PDF File: 28working papers series
Date posted: November 12, 2003
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