Behavioural decisions and welfare
Dalton, Patricio Santiago and Ghosal, Sayantan (2008) Behavioural decisions and welfare. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.834).
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Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
We study decision problems where (a) preference parameters are de.ned to include psychological/moral considerations and (b) there is a feedback effect from chosen actions to preference parameters. In a standard decision problem the chosen action is required to be optimal when the feedback effect 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 unifes 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.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Decision making, Choice (Psychology), Welfare economics, Externalities (Economics), Mathematical optimization|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Official Date:||5 January 2008|
|Number of Pages:||33|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Royal Society (Great Britain), Fifth Framework Programme (European Commission) (FP5), Royal Economic Society (Great Britain) (RES), University of Warwick|
 Appadurai (2004), "The capacity to aspire: Culture and the Terms of Recognition", in V.Rao and M. Walton (Eds.), Culture and Public Action, IBRD-World Bank, Washington DC.
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