Heuristics and Biases in Thinking About Tax

28 Pages Posted: 12 Nov 2003

See all articles by Edward J. McCaffery

Edward J. McCaffery

USC Gould School of Law

Jonathan Baron

University of Pennsylvania - Department of Psychology

Date Written: December 12, 2003


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.

Suggested Citation

McCaffery, Edward J. and Baron, Jonathan, Heuristics and Biases in Thinking About Tax (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. Available at SSRN: https://ssrn.com/abstract=467440 or http://dx.doi.org/10.2139/ssrn.467440

Edward J. McCaffery (Contact Author)

USC Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States
213-740-2567 (Phone)
213-740-5502 (Fax)

Jonathan Baron

University of Pennsylvania - Department of Psychology ( email )

3815 Walnut Street
Philadelphia, PA 19104-6196
United States
215-898-6918 (Phone)

HOME PAGE: http://www.sas.upenn.edu/~baron

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