Active choosing or default rules? A revealed preference approach

Abstract

When should a policymaker require active choosing or use a default rule to get people to make better choices? Are default rules unjustly manipulative, even if their use improves people’s welfare? This study addresses these questions by evaluating choice architecture in the limited attention with status quo bias model (Dean et al., 2017). We first show that an axiom that justifies default rules in terms of non-manipulation is inherently incompatible with another axiom that requires that revealed preferences be respected. Furthermore, we propose that there exists a welfarist justification for the argument that a policymaker should not set a worse alternative for a person as the default option, even if he or she gets better off. Based on these results, we define act-consequentialism and libertarian paternalism as evaluations of choice architecture and discuss their policy implications for policymakers.