TAILIEUCHUNG - Can Limiting Choice Increase Social Welfare? The Elderly and Health Insurance

How important are these issues, and do they carry any ramifications for the newMedicare prescription drug benefit? One of the problems, to which Rubinstein alluded, is that elders may be facing too many options and too much information and thus need to devise “impression manage- ment” techniques in order to compensate for cognitive or physical loss. To investigate this problem, which affects millions of elders throughout the United States, our study brings together Herbert Simon’s work on bounded rationality and research on the elderly’s cognitive ability with more recent studies suggesting that more information and choice could adversely affect decision makers. We provide examples from the many temporary prescription drug. | Can Limiting Choice Increase Social Welfare The Elderly and Health Insurance YANIV HANOCH and THOMAS RICE University of California Los Angeles Herbert Simon s work on bounded rationality has had little impact on health policy discourse despite numerous supportive findings. This is particularly surprising in regard to the elderly a group marked by a decline in higher cognitive functions. Elders cognitive capacity to make decisions will be challenged even further with the introduction of the new Medicare prescription drug benef it program mainly because of the many options available. At the same time a growing body of evidence points to the perils of having too many choices. By combining research from decision science economics and psychology we highlight the potential problems with the expanding health insurance choices facing the elderly and conclude with some policy suggestions to alleviate the problem. Key Words Bounded rationality choice decision making elderly health insurance. In a televised interview Arthur Rubinstein one of the twentieth century s most renowned pianists and then eighty years old was asked how he was able to sustain such a high level of piano playing. He answered that he played fewer pieces of music and practiced more often and to compensate for the loss of mechanical speed he used a sort of impression management technique he played more slowly than usual those segments preceding rapid ones thereby giving the impression that they were faster than they actually were reported in Baltes Staudinger and Lindenberger 1999 . Few people are as musically gifted or even as intuitively insightful as Arthur Rubinstein Address correspondence to Thomas Rice Department of Health Services UCLA School of Public Health 650 S. Young Drive Los Angeles CA 90095-1772 email trice@ . The Milbank Quarterly Vol. 84 No. 1 2006 pp. 37 73 2006 Milbank Memorial Fund. Published by Blackwell Publishing. 37 38 Y. Hanoch and T. Rice was. But even musical geniuses are

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