Ruining popcorn? The welfare effects of information
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Some information is beneficial; it makes people’s lives go better. Some information is harmful; it makes people’s lives go worse. Some information has no welfare effects at all; people neither gain nor lose from it. Under prevailing executive orders, federal agencies must investigate the welfare effects of information by reference to cost-benefit analysis. Federal agencies have (1) claimed that quantification of benefits is essentially impossible; (2) engaged in “breakeven analysis”; (3) projected various endpoints, such as health benefits or purely economic savings; and (4) relied on private willingness to pay for the relevant information. All of these approaches run into serious objections. With respect to (4), people may lack the information that would permit them to make good decisions about how much to pay for (more) information; they may not know the welfare effects of information. Their tastes and values may shift over time, in part as a result of information. These points suggest the need to take the willingness-to-pay criterion with many grains of salt, and to learn more about the actual effects of information, and of the behavioral changes produced by information, on people’s experienced well-being.
KeywordsBehavioral economics Nudges Willingness to pay Hedonic forecasting errors Welfare effects Information avoidance Present bias Information disclosure
JEL ClassificationsK0 K2 D60 D61 D8
Robert Walmsley University Professor, Harvard University. In some places, this essay draws on Cass R. Sunstein, On Mandatory Labeling, With Special Reference to Genetically Modified Foods, 165 U. Pa. L. Rev. 1043 (2017). I am grateful to Hunt Allcott, Oren Bar-Gill, George Loewenstein, and Tali Sharot for valuable discussions, Ralph Hertwig and W. Kip Viscusi for excellent comments, Andrew Heinrich and Cody Westfall for superb research assistance. Thanks too to audiences at Carnegie-Mellon University, Microsoft, New York University, and Vanderbilt University for terrific suggestions.
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