“Talk with your family about [Medicare] Part D over Thanksgiving dinner”: How markets require bounded relationality



Question: What do the following three scenarios have in common?

Scenario A.  Congrats, you’re turning 65 years old!

You’re turning 65 years old.  In the US, if you have worked enough units, you are eligible for Medicare; you must select health insurance by choosing among traditional Medicare and HMO plans.  You also need to choose insurance that will cover  your current or anticipated prescription medications.  Depending on where you live, this could involve comparing around 50 different plans.

You start by consulting the Medicare booklet and wading through the flood of mail from insurance providers.  Despite this information, you’re having difficulties understanding the differences among plans and determining how much plans will charge for your medications.  Moreover, you’re not quite sure which medications that you’ll need in the upcoming year.  Each year after this, you’ll have an almost two-month-long window for making these decisions – a period that is happening now, ending Dec. 7.

If you have a long life, you’ll have plenty of practice working with this market.  How do you select a plan appropriate to your needs right now and then in the future?

Scenario B.  Congrats, you’re getting ready to enter high school!

You are a student at a NYC public middle school.  Since students are not automatically assigned to public high schools, you and your family must choose from among 750 programs and rank order your choices.  (If you are two years old or older, your parents must do the same for public pre-K and kindergarten school programs.)  To learn about your options, you can look at a directory of descriptions of these programs and then research each school online.  If possible, you and your family will also attend information fairs and schools’ open houses and tours, where you might be asked to fill out additional forms or leave your information.

Some schools have different criteria for what kinds of prospective students they prioritize, and most selective programs don’t provide rubrics for how they rank prospective students – information crucial for ascertaining your chances of acceptance.  After you submit up to 12 rank-ordered choices, an algorithm, modelled after a medical residency matching program designed by a economist, will generate a match based on schools’ priorities and your listed options.  And, btw, charter schools and private schools have their own admissions processes and admissions deadlines.

How do you choose and rank public high school programs?  Should you try to maximize your choices by also applying to charter schools and, if you have the financial resources, private schools?

Scenario C.  Congrats, you’re rich!

You have amassed enviable, immense wealth.   But, your mattress is bursting, and you distrust regular banking.  And, for whatever reason, you’re not fond of having the state taking a portion to support the common good, social insurance, military spending, etc.  Thinking ahead, you worry about your family having unfettered access to your financial legacy; relatives might fritter away that wealth!  Also, you have a few relationships that other family members don’t (yet) know about, and you want to make sure that those loved ones are also taken care of after your inevitable passing.  So, what to do?

Answer: Most likely, you’ll need what I call “bounded relationality” to assist you with entering complex markets and making exchanges.   To explain what bounded relationality is, I’ll preview excepts from my advance, online first article “Bounded relationality: how intermediary organizations encourage consumer exchanges with routinized relational work in a social insurance market.”

The bounded relationality concept combines two of my favorite theories: (1) economic sociology’s relational work by Viviana Zelizer, Fred Wherry, and Nina Bandjel* and (2) Herbert Simon’s theory about how organizations compensate for people’s bounded rationality, or difficulties with making decisions.

During several years of my research on organizations that support older adults, I observed workshops and meetings for organizational representatives and professionals, including social workers, on topics such as how to select Medicare insurance plans.

At one of these workshops, a representative from the Centers for Medicare & Medicaid Services, described officials’ hopes that families would discuss prescription plans at family get-togethers: ‘We tried to say, “Talk with your family about [Medicare] Part D over Thanksgiving dinner,” but we don’t know if people did.’   His comment revealed how much the market relies upon relational work, or connections formed and sustained with other persons (Zelizer 2012) and organizations.

Using observations of US governmental, advocacy, and human service organizations’ (GAHSOs) talks, I show how these intermediary organizations endorsed “bounded relationality” when teaching conventions for participating in the market of social insurance.  Unlike conventional consumer goods and services markets, insurance options are difficult to evaluate and exchanges are challenging to switch.  Decisions are also consequential, with suboptimal decisions impacting personal well-being and requiring support or intervention by family members, if they are available.

Read more about bounded relationality after the jump:

For example, at another presentation I observed, the audience listened to this cautionary tale:

A guest speaker described how a Program of All-inclusive Care for the Elderly (PACE) program enrollee ‘was happy’ with her round-the-clock home care. However, after talking to a marketer about a program that did not charge a premium, she switched on the assumption that not cost-sharing—not financially contributing to the cost—was best. As the speaker recounted, ‘She wasn’t happy that she had a spenddown [paying the difference when monthly income that exceeded the Medicaid threshold]. She thought it was a free meal. That’s a reasonable inference for a 90-year-old lady’. After this change, the presenter said, the woman’s ‘24-hour-care drops dead’. Family members in three different states had to care for her. Meanwhile, the speaker’s advocacy organization contacted the new provider to confirm that it did not cover longterm care and then helped the client with her appeal to rejoin the PACE program: ‘We finally got [governmental agency] to switch her back. Her family members were rotating her between three locations, carting her around for weeks. That’s a good example [of why it’s important] to understand “what is the package?”’  This story underscored how families bore the brunt of people’s seemingly penny-wise—but ultimately pound-foolish—decisions and how only expert bounded relationality could unwind such decisions.

My article examines how intermediary organizations enable and encourage the use of both layperson and expert bounded relationality so that consumers can make exchanges:

GAHSOs encouraged incorporating relational work into routines that facilitated exchanges with organizations, particularly providers. Discussions raised how family and friends’ relational work could be routinized into organizations’ procedures; this layperson bounded relationality supported individuals’ decision-making. Presentations also highlighted the availability of expert bounded relationality, in which specialist professionals and advocacy and human service organizations (AHSOs) perform relational work on clients’ behalf. In short, these presentations impressed how bounded relationality supported people’s decision-making when initiating, maintaining or ending exchanges that organizations would recognize and process.

After examining how GAHSOs exhort people to take on consumer roles, including monitoring and reporting fraud, in insurance markets, my article concludes by raising concerns what happens when markets for public goods and the welfare state rely upon bounded relationality to facilitate exchanges:

However, expert bounded relationality is not equally available to all, especially for the most vulnerable. In Indiana, for example, automation and algorithms have replaced skilled social workers who can usher clients through welfare systems (Eubanks, 2018), indicating the withdrawal of expert bounded relationality. For those concerned about inequality, the fact that expert bounded relationality becomes increasingly necessary to make exchanges, and yet is inaccessible to many, raises disquieting questions about markets’ roles in distributing resources.

Want to read more?  Here’s the abstract for my advance, online first publication, which appears in Socio-Economic Review (SER), the flagship journal for Society for the Advancement of Socio-Economics (SASE):

“Bounded relationality: how intermediary organizations encourage consumer

exchanges with routinized relational work in a social insurance market”


Using observations of US governmental, advocacy and human service organizations’ (GAHSOs) talks, I show how these intermediary organizations endorsed ‘bounded relationality’ when teaching conventions about exchanges in the social insurance market. Bounded relationality synthesizes (a) Simon’s argument that organizations’ goals and practices help people compensate for bounded rationality—their cognitive limitations with decision-making—and (b) Zelizer’s relational work, which emphasizes how social relations animate market exchanges. GAHSOs attempted to acculturate older adults and their agents to decision-making routines of information-gathering and processing consumers, savvy information-seekers and watchful monitors. GAHSOs advised routinizing relational work toward making exchanges, including layperson relational work by family members and friends and expert relational work by professionals and advocacy and human service organizations.

Bounded relationality supported people’s decision-making when initiating, maintaining or ending exchanges that organizations would recognize and process. By studying how intermediary actors facilitate bounded relationality, we understand how organizations encourage consumer exchanges.

Key words: economic sociology, markets, exchanges, neoliberalism, organizations, relational work, bounded relationality

If you are interested in reading more but don’t have institutional access to the article, please contact me for a copy.

Thanks for reading, and safe travels for the Thanksgiving holidays!

(For our non US-readers, yes, this is how US markets work.  Much individual, family, and professional and organizational time and effort are spent on selecting and reselecting schools and health insurance.)

*See also Robert Vargas’s excellent ethnographic research on how health navigators help people sign up for health insurance.

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