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American Economic Review Vol. 106 No. 12 2016

Choice Inconsistencies among the Elderly: Evidence from Plan Choice in the Medicare Part D Program: Comment

Jonathan D. Ketcham1; Nicolai V. Kuminoff2; Christopher A. Powers3

1 Department of Marketing, Arizona State University, Box 874106, Tempe, AZ 85287 (e-mail: ) · 2 Department of Economics, Arizona State University, Tempe, AZ 85287, and NBER (e-mail: ) · 3 US Department of Health and Human Services, Centers for Medicare and Medicaid Services, Office of Enterprise Data and Analytics, 7500 Security Boulevard, Mailstop B2-29-04, Baltimore, MD 21244 (e-mail: )

Abstract

Consumers' enrollment decisions in Medicare Part D can be explained by Abaluck and Gruber’s (2011) model of utility maximization with psychological biases or by a neoclassical version of their model that precludes such biases. We evaluate these competing hypotheses by applying nonparametric tests of utility maximization and model validation tests to administrative data. We find that 79 percent of enrollment decisions from 2006 to 2010 satisfied basic axioms of consumer theory under the assumption of full information. The validation tests provide evidence against widespread psychological biases. In particular, we find that precluding psychological biases improves the structural model's out-of-sample predictions for consumer behavior.

DOI
10.1257/aer.20131048
Volume
106
Issue
12
Pages
3932-3961
Language
en
Sources
bibtex:phds-export.bib crossref openalex

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