Panel: Evidence about Structuring and Informing Citizen Decisions Involving Inter-Temporal Choice and Risk

Saturday, November 10, 2012: 3:30 PM-5:00 PM
Hopkins (Sheraton Baltimore City Center Hotel)

*Names in bold indicate Presenter

Organizers:  Robert Letzler, U.S. Government Accountability Office
Moderators:  Omar Robles, Bureau of Labor Statistics
Chairs:  Jillian Berk, Mathematica Policy Research

These papers explore how policies interact with individual decision making to affect outcomes in situations involving risk and inter-temporal tradeoffs. Citizens are attractive decision makers because they are well informed about their own situations, preferences, and options. However, the literature finds that citizens sometimes make questionable choices involving tradeoffs over time and under risk. We contribute to that literature. It finds citizens’ decisions are sensitive to the structure and presentation (framing) of the choices they face. Policies that inform, encourage, or structure decisions are often the most feasible ways to improve aspects of risk management or individual finance. Thus, policy makers can benefit from an understanding of how people make decisions and when flawed consumer decisions are likely to cause market failures. Such an understanding can help policy makers provide information and structure decisions to improve individual choices. This panel features three papers that provide evidence about these questions. The papers all look at consumer choice involving inter-temporal tradeoffs and risk. Rabinovici looks at building owners’ decisions about whether to mitigate the consequences of an earthquake. She explores the mechanisms through which a mandatory building assessment and risk disclosure policy increased the proportion of property owners who retrofitted high-risk buildings to improve seismic safety. The other two papers consider the risk of a surprise event that leaves the decision maker too financially strapped or busy to carry out their plans. Carter, Skiba, and Sydnor test a potential policy intervention in the payday-loan market and investigate how low-income consumers make payday loan decisions. Letzler and Tasoff explore whether people can make the right decision in the present when that decision requires the decision maker to predict whether they will take a future action such as claiming a tax credit, redeeming a mail-in rebate, or transferring a balance to a low interest rate card.

The Difference a Day Makes: The Impact of Payday Loan Length On Probability of Repayment
Susan Carter1, Paige Skiba1 and Justin Sydnor2, (1)Vanderbilt University, (2)University of Wisconsin - Madison

Everyone Believes In Redemption: Overoptimism and Nudges
Robert Letzler, U.S. Government Accountability Office and Joshua Tasoff, Claremont Graduate University

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