Behavioral Welfare Economics and Risk Preferences: A Bayesian Approach

Xiaoxue Sherry Gao (), Glenn Harrison and Rusty Tchernis
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Xiaoxue Sherry Gao: University of Massachusetts Amherst

No 13580, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We propose the use of Bayesian estimation of risk preferences of individuals for applications of behavioral welfare economics to evaluate observed choices that involve risk. Bayesian estimation provides more systematic control of the use of informative priors over inferences about risk preferences for each individual in a sample. We demonstrate that these methods make a difference to the rigorous normative evaluation of decisions in a case study of insurance purchases. We also show that hierarchical Bayesian methods can be used to infer welfare reliably and efficiently even with significantly reduced demands on the number of choices that each subject has to make. Finally, we illustrate the natural use of Bayesian methods in the adaptive evaluation of welfare.

Keywords: behavioral welfare economics; Bayesian Analysis; risk preferences; insurance (search for similar items in EconPapers)
JEL-codes: C11 D6 D81 G40 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2020-08
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-ias, nep-ore and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Behavioral welfare economics and risk preferences: a Bayesian approach (2023)
Working Paper: Behavioral Welfare Economics and Risk Preferences: A Bayesian Approach (2020)
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