Daniel H. Reck

The Analysis of Survey Data with Framing Effects

A well-known difficulty in survey research is that respondents’ answers to questions can depend on arbitrary features of a survey’s design, such as the wording of questions or the ordering of answe...

Optimal Defaults with Normative Ambiguity

A large and growing literature shows that decision-makers are more likely to select options presented to them as the default. We study the optimal choice of defaults. Our model assumes that decision-makers behave as if there is some cost to selecting any option that is not the default. These “as-if�? opt-out costs may or may not be normative -- i.e., they may or may not enter into the planner’s social welfare function. The model parameterizes the degree to which as if costs are normative, and in doing so nests a large number of models of default effects from the literature. With this model, we characterize the optimal default. Our results suggest that in many situations, determining the optimal policy will not be possible without judgments concerning the normative relevance of behavioral frictions. When as-if costs are not normative, optimal policies tend to encourage active choices. When as-if costs are normative, the optimal policy tends to minimize opt-outs. We apply this framework to study default contributions to pension plans, and find that the optimal policy differs dramatically based on the share of opt-out costs that are normative.

Who Sold During the Crash of 2008-9? Evidence from Tax-Return Data on Daily Sales of Stock

We examine individual stock sales from 2008 to 2009 using population tax return data. The share of sales by the top 0.1 percent of income recipients and other top income groups rose sharply following the Lehman Brothers bankruptcy and remained elevated throughout the financial crisis. Sales by top income and older age groups were relatively more responsive to increased stock market volatility. Volatility-driven sales were not concentrated in any one sector, but mutual fund sales responded more strongly to increased volatility than stock sales. Additional analysis suggests that gross sales in tax return data are informative about unobserved net sales.

Diminishing Marginal Utility Revisited

How quickly does marginal utility diminish? It depends on the dimension along which we consider concavity of the utility function. This paper estimates the distribution of heterogeneous curvature parameters in individuals’ utility functions from hypothetical choice data, while carefully accounting for survey response error. Types of curvature examined include relative risk aversion, intertemporal substitution, the altruism elasticity, and a new measure of how much more a dollar means to a poor family than to a rich family, called inequality aversion. The estimated distribution varies depending on the type of curvature we consider, with median values of curvature parameters ranging from 0.6 to 13.2. We estimate differences for different ways of asking about the same parameter for inequality aversion and risk aversion. Utility functions are most concave for situations involving altruism, followed by risk aversion, inequality aversion, and intertemporal substitution. Heterogeneity of curvature in the population also varies: altruism is the most heterogeneous, followed by risk aversion, intertemporal substitution, and inequality aversion. Nonetheless, curvature parameters are highly correlated (rho>0.8) across individuals for different means of examining the same parameter, and modestly correlated across dimensions in some cases, including inequality aversion and risk aversion (0.3), altruism and risk aversion (0.3), and altruism and inequality aversion (0.14).