Welfare and the Act of Choosing

B. Douglas Bernheim, Kristy Kim and Dmitry Taubinsky

No 32200, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The standard revealed-preference approach to welfare economics encounters fundamental difficulties when the act of choosing directly affects welfare through emotions such as guilt, pride, and anxiety. We address this problem by developing an approach that redefines consumption bundles in terms of the sensations they produce, and measures welfare by blending choice-based methods with self-reported well-being techniques. In applications to classic social preferences paradigms, our approach shows that standard revealed-preference methods, including those that exploit choices over menus, mismeasure welfare because preferences depend on choice sets, while self-reported happiness and satisfaction are not sufficient statistics for welfare.

JEL-codes: D60 D91 (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-dcm, nep-hap and nep-hpe
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