Comparison Friction: Experimental Evidence from Medicare Drug Plans

74 Pages Posted: 21 Sep 2011 Last revised: 26 Sep 2011

See all articles by Jeffrey R. Kling

Jeffrey R. Kling

Government of the United States of America - Congressional Budget Office (CBO); National Bureau of Economic Research (NBER)

Sendhil Mullainathan

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Eldar Shafir

Princeton University

Lee Vermeulen

affiliation not provided to SSRN

Marian Wrobel

Harvard University - Institute for Quantitative Social Science

Date Written: September 2011

Abstract

Consumers need information to compare alternatives for markets to function efficiently. Recognizing this, public policies often pair competition with easy access to comparative information. The implicit assumption is that comparison friction--the wedge between the availability of comparative information and consumers' use of it--is inconsequential because information is readily available and consumers will access this information and make effective choices. We examine the extent of comparison friction in the market for Medicare Part D prescription drug plans in the United States. In a randomized field experiment, an intervention group received a letter with personalized cost information. That information was readily available for free and widely advertised. However, this additional step--providing the information rather than having consumers actively access it--had an impact. Plan switching was 28 percent in the intervention group, versus 17 percent in the comparison group, and the intervention caused an average decline in predicted consumer cost of about $100 per year among letter recipients--roughly 5 percent of the cost in the comparison group. Our results suggest that comparison friction can be large even when the cost of acquiring information is small, and may be relevant for a wide range of public policies that incorporate consumer choice.

Suggested Citation

Kling, Jeffrey and Mullainathan, Sendhil and Shafir, Eldar and Vermeulen, Lee and Wrobel, Marian, Comparison Friction: Experimental Evidence from Medicare Drug Plans (September 2011). NBER Working Paper No. w17410. Available at SSRN: https://ssrn.com/abstract=1931181

Jeffrey Kling (Contact Author)

Government of the United States of America - Congressional Budget Office (CBO) ( email )

Ford House Office Building
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Washington, DC 20515-6925
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National Bureau of Economic Research (NBER)

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Sendhil Mullainathan

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-496-2720 (Phone)
617-495-7730 (Fax)

National Bureau of Economic Research (NBER) ( email )

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617-588-1473 (Phone)
617-876-2742 (Fax)

Eldar Shafir

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

Lee Vermeulen

affiliation not provided to SSRN ( email )

No Address Available

Marian Wrobel

Harvard University - Institute for Quantitative Social Science ( email )

1737 Cambridge St.
Cambridge, MA 02138
United States

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