Behavioural Decisions and Welfare

Patricio Dalton () and Sayantan Ghosal

No 269783, Economic Research Papers from University of Warwick - Department of Economics

Abstract: We study decision problems where (a) preference parameters are deÖned to include psychological/moral considerations and (b) there is a feedback e§ect from chosen actions to preference parameters. In a standard decision problem the chosen action is required to be optimal when the feedback e§ect from actions to preference parameters is fully taken into account. In a behavioural decision problem the chosen action is optimal taking preference parameters as given although chosen actions and preference parameters are required to be mutually consistent. Our framework uniÖes seemingly disconnected papers in the literature. We characterize the conditions under which behavioural and standard decisions problems are indistinguishable: in smooth settings, the two decision problems are generically distinguishable. We show that in general, revealed preferences cannot be used for making welfare judgements and we characterize the conditions under which they can inform welfare analysis. We provide an existence result for the case of incomplete preferences. We suggest novel implications for policy and welfare analysis.

Keywords: Health Economics and Policy; Institutional and Behavioral Economics (search for similar items in EconPapers)
Pages: 33
Date: 2008-01-05
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Related works:
Working Paper: Behavioural Decisions and Welfare (2010)
Working Paper: Behavioural Decisions and Welfare (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwarer:269783

DOI: 10.22004/ag.econ.269783

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