Abstract
Consumers' enrollment decisions in Medicare Part D can be explained by Abaluck and Gruber's (2011) model of utility maximization with psychological biases or by a neoclassical version of their model that precludes such biases. We evaluate these competing hypotheses by applying nonparametric tests of utility maximization and model validation tests to administrative data. We find that 79 percent of enrollment decisions from 2006 to 2010 satisfied basic axioms of consumer theory under the assumption of full information. The validation tests provide evidence against widespread psychological biases. In particular, we find that precluding psychological biases improves the structural model's out-of-sample predictions for consumer behavior.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 3932-3961 |
| Number of pages | 30 |
| Journal | American Economic Review |
| Volume | 106 |
| Issue number | 12 |
| DOIs | |
| State | Published - Dec 1 2016 |
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ASJC Scopus subject areas
- Economics and Econometrics
Cite this
Choice inconsistencies among the elderly : Evidence from plan choice in the Medicare part D program: Comment. / Ketcham, Jonathan; Kuminoff, Nicolai; Powers, Christopher A.
In: American Economic Review, Vol. 106, No. 12, 01.12.2016, p. 3932-3961.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Choice inconsistencies among the elderly
T2 - Evidence from plan choice in the Medicare part D program: Comment
AU - Ketcham, Jonathan
AU - Kuminoff, Nicolai
AU - Powers, Christopher A.
PY - 2016/12/1
Y1 - 2016/12/1
N2 - Consumers' enrollment decisions in Medicare Part D can be explained by Abaluck and Gruber's (2011) model of utility maximization with psychological biases or by a neoclassical version of their model that precludes such biases. We evaluate these competing hypotheses by applying nonparametric tests of utility maximization and model validation tests to administrative data. We find that 79 percent of enrollment decisions from 2006 to 2010 satisfied basic axioms of consumer theory under the assumption of full information. The validation tests provide evidence against widespread psychological biases. In particular, we find that precluding psychological biases improves the structural model's out-of-sample predictions for consumer behavior.
AB - Consumers' enrollment decisions in Medicare Part D can be explained by Abaluck and Gruber's (2011) model of utility maximization with psychological biases or by a neoclassical version of their model that precludes such biases. We evaluate these competing hypotheses by applying nonparametric tests of utility maximization and model validation tests to administrative data. We find that 79 percent of enrollment decisions from 2006 to 2010 satisfied basic axioms of consumer theory under the assumption of full information. The validation tests provide evidence against widespread psychological biases. In particular, we find that precluding psychological biases improves the structural model's out-of-sample predictions for consumer behavior.
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U2 - 10.1257/aer.20131048
DO - 10.1257/aer.20131048
M3 - Article
VL - 106
SP - 3932
EP - 3961
JO - American Economic Review
JF - American Economic Review
SN - 0002-8282
IS - 12
ER -