2010 Graduate Student News:
Mitch Hoffman on "Information and the Internet: Evidence from the Field"
Mitchell Hoffman is a PhD candidate
Evidence shows that people often have limited information needed to make many decisions that should be of interest to economic policymakers.
For example, parents choosing schools for their children may not know which schools are highly ranked and which are ranked lower (Hastings and Weinstein, 2008). Seniors may not know the difference between different drug plans (Kling et al., 2008). Workers are often uninformed about how they should save for retirement (Bernheim and Garrett, 2003). Low-income people can be in the dark about different features of the tax code, such as the Earned Income Tax Credit (Chetty and Saez, 2009). Using natural or field experiments, many studies show that providing information can often significantly improve economic outcomes for citizens.
A key question in examining evidence from these studies is whether or not citizens’ behavior prior to information intervention is “rational”. For example, people may be unaware that reliable and useful information is available; a parent may not know how to research which schools are better than others. Sometimes people are aware that information is available and valuable, but they lack time and/or money to acquire the information. Both of these situations are consistent with rational behavior. In other instances, people systematically undervalue information. Past studies have provided important evidence about how information shapes behavior. However, teasing apart the reasons people underpay for information is difficult.
In my research, I combine elements of the lab and the field to directly test whether even experts undervalue information. I have found that, on the whole, subjects significantly underpay for information, relative to the rational benchmark, in all tasks. Thus, parents—again as the example— may not seek to acquire information about schools if this information is systematically undervalued.