Behavioral cost-benefit economics: Toward a new normative approach to policy

Nathan Berg

MPRA Paper from University Library of Munich, Germany

Abstract: This paper addresses the question of whether the findings of behavioral economics imply that techniques used in cost-benefit analysis should be modified. The findings of behavioral economics considered include the status-quo effect, loss-aversion, overconfidence and hyperbolic discounting. These behavioral phenomena do indeed imply that concepts from cost-benefit analysis such as consumer surplus, the Kaldor-Hicks criterion, shadow-price valuation, and time discounting, need to be modified. The most important modifications follow from the status-quo effect, which provides a new reason to reject policy proposals that yield only small percentage benefits relative to costs.

Keywords: Cost-Benefit Analysis; Behavioral Economics; Status-Quo Effect; Loss Aversion; Overconfidence; Hyperbolic Discounting (search for similar items in EconPapers)
JEL-codes: D03 (search for similar items in EconPapers)
Date: 2002
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Published in In Kantarelis, D. (ed.), Global Business & Economics Review-Anthology (2002): pp. 132-141

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:26370

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