TY - UNPB
T1 - Behavioral Decisions and Welfare (Replaced by CentER DP 2010-143)
AU - Dalton, P.S.
AU - Ghosal, S.
N1 - Pagination: 37
PY - 2010
Y1 - 2010
N2 - 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.
AB - 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.
KW - Behavioral Decisions
KW - Welfare
KW - Revealed Preferences
KW - Normative Preferences
M3 - Discussion paper
VL - 2010-22
T3 - CentER Discussion Paper
BT - Behavioral Decisions and Welfare (Replaced by CentER DP 2010-143)
PB - Microeconomics
CY - Tilburg
ER -