Libertarian Paternalism, Information Sharing, and Financial Decision-Making

38 Pages Posted: 13 Mar 2010

See all articles by Bruce I. Carlin

Bruce I. Carlin

University of California, Los Angeles (UCLA) - Anderson School of Management

Simon Gervais

Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Gustavo Manso

University of California, Berkeley - Haas School of Business

Date Written: March 7, 2010

Abstract

We develop a theoretical model to study the welfare effects of libertarian paternalism on information acquisition, social learning, and financial decision-making. Individuals in our model are permitted to appreciate and use the information content in the default options set by a social planner. We show that in some circumstances the presence of default options can decrease welfare by slowing information propagation in the economy. An extension of the model shows that partial information disclosures by the social planner can increase individuals' incentives for gathering and sharing information, but that this does not affect the set of circumstances in which the absence of default options is optimal. Our analysis also considers a setting in which individuals can sell their information to others. We show that default options cause the quality (and price) of advice to decrease, which may lower social welfare. Finally, we study the effects of procrastination and excessive trust in the social planner on our analysis.

Keywords: Libertarian Paternalism, Default Options, Household Finance, Social Learning, Communication

JEL Classification: D11, D14, D62, D83, G28, G23, H10

Suggested Citation

Carlin, Bruce I. and Gervais, Simon and Manso, Gustavo, Libertarian Paternalism, Information Sharing, and Financial Decision-Making (March 7, 2010). Available at SSRN: https://ssrn.com/abstract=1570158 or http://dx.doi.org/10.2139/ssrn.1570158

Bruce I. Carlin

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Simon Gervais (Contact Author)

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Box 90120
Durham, NC 27708-0120
United States
919-660-7683 (Phone)
919-883-5078 (Fax)

HOME PAGE: http://www.fuqua.duke.edu/faculty_research/faculty_directory/gervais/

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Gustavo Manso

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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