Active Choosing or Default Rules? The Policymaker's Dilemma

Abstract

For policymakers, the idea of active choosing has a great deal of appeal, not least because it avoids the charge of paternalism. In many contexts, however, an insistence on active choosing is a form of paternalism, not an alternative to it. The reason is that people might choose not to choose. People are often aware that when the area is complex, difficult, and unfamiliar, active choosing may impose high costs on choosers, who might ultimately err and thus suffer serious harm. In such cases, there is a strong argument for a default rule rather than for active choosing. But if the area is one that choosers understand well, if people’s situations are diverse, and if policymakers lack the information that would enable them to devise accurate defaults, then active choosing would be best. A simple framework, based on the costs of decisions and the costs of errors, can provide solutions in a wide range of situations in which policymakers are deciding between active choosing and default rules.

Keywords: active choosing, default rules, paternalism, behavioral economics

JEL Classification: D02, D03, D73, D87, D91, K00, K20