Unintended Consequences: Ambiguity Neglect and Policy Ineffectiveness

When a policymaker introduces a novel policy, she will not know what citizens’ choices will be under the policy, and citizens themselves may have to construct new choice sets. This imparts inherent ambiguity to novel policy implementation: The policymaker does not know the probability that citizens will select actions that align with her policy. Assuming that citizens will follow a fixed approach may expose the policymaker to ambiguity neglect, which can result in unintended consequences. We provide examples and a simple formalization. Our results suggest that before implementing novel policies, policymakers should attempt to elicit preferences from citizens.