Oct 20, 2009

Geneva policymakers: Brilliant choice architects?

I once received a letter from the Geneva State telling me that, as I had failed to choose my health insurance, they were automatically suscribing me to the default plan. I wasn't very happy about that...it was three times more expensive than my plan of choice at 3000 CHF per year instead of 1000!

This made me wonder why the default plan was so expensive. They are thieves I concluded. Well, turns out I was maybe completely wrong. They could be brilliant choice architects, really.

As I read in the amazing book Nudge, by making the default option unattractive (super expensive), the government forces people to choose the more appropriate plans for themsleves. This stirs competition among plan offers and results in active choices, which, assuming choosers know a lot and policymakers are essentially guessing, is an optimal allocation.

1 comment:

Sebastian said...

Well, well....we also know all that Economists are the masters of rationalization.

I highly doubt that the city of Geneva had this in mind when designing the default plan.

This conclusion draws on other policy measures which were clearly designed poorly and have been discussed here before, i.e. public transport and housing.

However, I agree that it is not the job of the town to figure out which is the alternative that suits you best.