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We suggest that credit card companies be required to post all their rules and fees in an online database much like the Mortgage File.
Economists agree about the right way to think about insurance. The most important principle is to get protection against rare but significant mishaps that can lead to financial ruin.
“Don’t insure the small stuff” is really good advice, but people do not seem to follow it. In fact, people sometimes fail to insure the big stuff!
It is important to understand how deductibles work, because choosing the wrong deductible is the single most common mistake consumers make in purchasing any kind of insurance.
If you are offered a deductible so large that paying it would cause a serious financial hardship, we give you permission to choose a lower one. But in general, people choose a deductible that is too low. In fact, we have a name for this mistake: deductible aversion.
To make your life happier, especially if your spouse is likely to blame you on the rare occasions when you would have been better off having bought the policy, we recommend setting up a special mental account that we call an On My Own Account.
On the rare occasions when such choices turn out to be unlucky, just deduct the cost from your On My Own balance.
The firm gave its employees total freedom of choice, and a well-functioning interface in which to compare options, but a majority of employees selected a plan that was unequivocally worse than at least one of the options they had rejected. Furthermore, these poor choices were costly.
Many employers try to encourage employees to choose the high-deductible (HD) plan by making contributions to the HSA for any employee who does so.
The existence of these accounts deepens the mystery as to why high-deductible plans get so little take-up, even in cases when they are a certain money saver.
We suggest that the family adopt the following mental accounting plan: Whenever a medical expense is incurred, until they reach their deductible, they pay for it using the debit card that comes with their HSA.
The usual argument for high deductibles is to mitigate what economists call “moral hazard,” which is the idea that if patients face no costs of medical care, they will spend too much. They want consumers to have “skin in the game.”
The question is whether they cut back on the right things. Unfortunately, the evidence suggests that they do not.
The evidence suggests that when patients have to pay for some or all of the cost of their medications, they are as likely to cut back on high-value drugs such as insulin or beta-blockers as they are to cut back on nearly useless drugs such as those for the common cold.
One useful fact: you are about three times more likely to be a patient in need of an organ than to be an organ donor.
This is a case in which the philosopher John Rawls’s notion of the veil of ignorance can be usefully applied. Everyone is a Potential Donor but could also, at some point in their life, be a Patient or member of a Family. We should design a policy that is best before anyone learns what role(s) they might play.
We favor the policy of prompted choice because there is no evidence that a viable alternative system would save more lives (and hence is superior in terms of the interests of Patients), and because we think it does the best job of respecting the rights and interests of Potential Donors and Families.
People do not think that kidneys should be allocated strictly (or even partially) on the basis of willingness (and ability) to pay. It may be fine for luxury goods to be limited to the rich, but most people believe that life-saving operations should not be.
The most aggressive approach is called routine removal. In this regime, the state owns the rights to the body parts of people who are dead, and their organs can be removed without asking anyone’s permission.
Some countries have adopted the opt-out policy that is usually called presumed consent (or deemed consent). In a strict application of this policy, all citizens are presumed to be consenting donors unless they explicitly register as unwilling donors.
How strongly do we want to infer someone’s preferences from their failure to take some action? Especially when opt-out rates are quite low, two equally plausible explanations for inaction are lack of salience (they didn’t know they had a choice) and sludge (opting out is costly).
Under presumed consent, the problem, as we see it, is that it is actually a Families consent policy, and Families have very little information about donors’ wishes.
Some people believe that in cases in which the health of third parties is at stake, a stronger nudge, or even a mandate, may be justified. We believe that too!
If an opt-in approach is “unadorned”—if it is not supplemented in some way—then it really is not very good from the standpoint of capturing the true preferences of Potential Donors.
We call our preferred design prompted choice because it enhances explicit consent with a concerted effort to nudge willing donors into becoming registered donors. A primary function of prompted choice is overcoming procrastination, inertia, and limited attention.
There is another option, which is to require everyone to declare whether they want to be an organ donor.
If it is merely prompted, then people can simply choose not to answer.* That is a plus because the failure to register is not a no to donation. It is no decision. This allows us to ask the family at death.
If we force a yes or no to donation then we eliminate one of the best aspects of an opt-in choice architecture, which allows two pathways to a yes.
Families or close friends are always consulted before organs are used, and if no one can be reached, no surgery is performed. Given these rules and customs, it is less than obvious how a presumed consent policy actually saves lives.
A benefit of the opt-in architecture is an additional opportunity for a yes—if an individual doesn’t register, the family will be asked for permission.
By contrast, under presumed consent, especially in the absence of a registered donors list, there is only one chance to say yes, and it comes from Families.
Gradually the planet is getting hotter and the climate is getting more volatile, with a host of harmful effects on public health and welfare. People in poor countries are especially vulnerable, but those in wealthy countries are also at serious risk.
1. Present bias. As we have seen, people tend to be much more concerned with now as opposed to later.
2. Salience. People can see smog, and they really don’t like it. Dirty air and water are both visible and scary.
By contrast, greenhouse gases are invisible in the air. If you can’t even see them, you might not worry about them.
3. No specific villain. For some threats, there is an identifiable perpetrator—a wrongdoer whose terrible deeds capture public attention.
Climate change is faceless. It is a product of the actions of countless people—effectively all of us, over a very long time.
4. Probabilistic harms. It’s easy to see that some actions cause harms—as, for example, when one person hits another, or when a company dumps toxic materials into a local lake. The harms caused by climate change are often probabilistic, which makes it harder to reach consensus.
5. Loss aversion.
Efforts to reduce greenhouse gas emissions require the imposition of immediate losses. If everyone has to pay some new “climate tax,” loss aversion kicks in.
First, people do not get clear feedback on the environmental consequences of their actions. If your use of energy produces air or water pollution or results in carbon emissions, you might not be aware of that fact, at least not on a continuing basis.
Second, and most fundamentally, there is the problem of free riding. Progress on climate change depends on the actions of many nations and their citizens.
Why should we spend a lot of money and help the rest of the world if other nations are continuing with business as usual, and thereby harming us?
When a tragedy of the commons is involved, the standard remedy is coercion, agreed to by all.
Roughly speaking, people are conditional cooperators. They are willing to contribute to the public good as long as others are doing so as well, but if others are free riding, contributions gradually dry up.
As the difficult debate that ultimately led to the Paris Agreement shows, this is where things get tricky. Each country has its own point of view. Who’s going to contribute how much to the public good pot?
cooperation in repeated public goods games can be increased if players are allowed to punish noncooperators at their own expense.
It turns out that the introduction of an option that no Econ would use greatly increases cooperation. In fact, with these rules in place, cooperation increases as the game is repeated—just the opposite of what is observed under the normal rules.
The key to the Climate Club idea, however, is that countries that do not agree to join and follow the rules would be subject to punishment by club members (perhaps via some kind of tariff).
Under the Paris Agreement, most of the world’s nations are in something akin to a Climate Club. The signatories have agreed to “nationally determined contributions,” which, it is hoped, will become increasingly ambitious over time.
