Behavioural Decisions and Welfare

Patricio Dalton () and Sayantan Ghosal

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: What are the normative implications of behavioral economics? We study a model where the decisions a person makes, consciously or unconsciously, affect her psychological state (reference point, beliefs, expectations, self-image) which, in turn, impacts on her ranking over available decisions in the first place. We distinguish between standard decisions where the decision-maker internalizes the feedback from her actions to her psychological state, and behavioural decisions where the psychological state is taken as given (although a decision outcome requires that action and psychological state are mutually consistent). In a behavioural decision, the individual imposes an externality on herself. We provide an axiomatic characterization of behavioral decisions. We show that the testable implications of behavioral and standard decisions are different and the outcomes of the two decision problems are, typically, distinguishable. We discuss the consequences for public policy of our formal analysis and over normative grounds for subsidized psychological therapies

Keywords: Behavioural Decisions; Indistinguishabilty; revealed preferences; normative preferences; welfare; paternalism; autonomy; existence (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Behavioural Decisions and Welfare (2008)
Working Paper: Behavioural Decisions and Welfare (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:cge:wacage:06

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