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Behavioral decisions and welfare

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Dalton, Patricio S. and Ghosal, Sayantan (2009) Behavioral decisions and welfare. In: Invited Speaker : Queen Mary College, London, 18 May 2009 (Unpublished)

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Abstract

What are the normative implications of behavioral economics? We study a model where the decisions a person makes, consciously or unconsciously, a¤ect her psychological state (reference point, beliefs, expectations, self-image) which, in turn, impacts on her ranking over available decisions in the �rst place. We distinguish between standard decisions where the decision-maker internalizes the feedback from her actions to her psychological state, and behavioral decisions where the psychological state is taken as given (although a decision outcome requires that action and psychological state are mutually consistent). In a behavioral 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 di¤erent and the outcomes of the two decision problems are, typically, distinguishable. We discuss the consequences for public policy of our formal analysis and o¤er normative grounds for subsidized psychological therapies.

Item Type: Conference Item (Paper)
Subjects: H Social Sciences > HM Sociology
Divisions: Faculty of Social Sciences > Economics
Date: 18 May 2009
Status: Not Peer Reviewed
Publication Status: Unpublished
Funder: EST Marie Curie Fellowship, Royal Economic Society Junior Fellowship, Warwick Economics Department, ESRC-DFID
Grant number: RES-167-25-0364
Version or Related Resource: Dalton, Patricio S. and Ghosal, Sayantan (2009). Behavioral decisions and welfare. In: Invited : Singapore Management University. Singapore, 4 Aug 2010.
Conference Paper Type: Paper
Title of Event: Invited Speaker : Queen Mary College
Type of Event: Other
Location of Event: London
Date(s) of Event: 18 May 2009
Related URLs:
URI: http://wrap.warwick.ac.uk/id/eprint/45752

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