Rational Benefit Assessment for an Irrational World: Toward a Behavioral Transfer Test1

W Viscusi and Ted Gayer

Journal of Benefit-Cost Analysis, 2016, vol. 7, issue 1, 69-91

Abstract: Behavioral economists have identified certain biases in decision making that lead people to make decisions that harm themselves, but there is insufficient guidance for estimating benefits in the presence of such behavioral failures. This gap in principles and standards for benefit-cost analysis has led government agencies at times to adopt arbitrary and excessive benefit valuations. This article describes an approach to incorporating behavioral market failures into benefit estimation, first by advocating a behavioral transfer test to use before applying behavioral findings from narrow contexts to broader populations subject to regulation, and then by comparing the outcomes from the self-harming behavior to a policy reference point in which people are assumed to be fully informed and to act fully rationally in their own self-interest. This approach, which is grounded on systematic, well-documented, and context-specific findings of behavioral failings, would reduce instances of agencies assuming that behavioral findings in some contexts provide sufficient rationale for overriding consumer preferences in other contexts. It would also establish a consistent approach to government policy by, for example, creating symmetry between advancing policies that seek to discourage consumption of products for which consumers underestimate the health risks and fostering accurate risk beliefs to address erroneous individual choices based on risk overestimation.

Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:jbcoan:v:7:y:2016:i:01:p:69-91_00

Access Statistics for this article

More articles in Journal of Benefit-Cost Analysis from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().