Behavioral Decisions and Welfare (Replaced by CentER DP 2010-143)

P.S. Dalton, S. Ghosal

Research output: Working paperDiscussion paperOther research output

Abstract

What are the normative implications of behavioral economics? We study a model where the decisions a person makes, consciously or unconsciously, affect her psycholog- ical state (reference point, beliefs, expectations, self-image) which, in turn, impacts on her ranking over available decisions in the first place. We distinguish between stan- dard 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.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages37
Volume2010-22
Publication statusPublished - 2010

Publication series

NameCentER Discussion Paper
Volume2010-22

Fingerprint

Psychological
Axiomatic characterization
Reference point
Decision maker
Self-image
Therapy
Ranking
Public policy
Externalities

Keywords

  • Behavioral Decisions
  • Welfare
  • Revealed Preferences
  • Normative Preferences

Cite this

Dalton, P. S., & Ghosal, S. (2010). Behavioral Decisions and Welfare (Replaced by CentER DP 2010-143). (CentER Discussion Paper; Vol. 2010-22). Tilburg: Microeconomics.
Dalton, P.S. ; Ghosal, S. / Behavioral Decisions and Welfare (Replaced by CentER DP 2010-143). Tilburg : Microeconomics, 2010. (CentER Discussion Paper).
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Dalton, PS & Ghosal, S 2010 'Behavioral Decisions and Welfare (Replaced by CentER DP 2010-143)' CentER Discussion Paper, vol. 2010-22, Microeconomics, Tilburg.

Behavioral Decisions and Welfare (Replaced by CentER DP 2010-143). / Dalton, P.S.; Ghosal, S.

Tilburg : Microeconomics, 2010. (CentER Discussion Paper; Vol. 2010-22).

Research output: Working paperDiscussion paperOther research output

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Dalton PS, Ghosal S. Behavioral Decisions and Welfare (Replaced by CentER DP 2010-143). Tilburg: Microeconomics. 2010. (CentER Discussion Paper).