Predictive Power in Behavioral Welfare Economics
45 Pages Posted: 2 Mar 2017 Last revised: 12 Jun 2020
Date Written: June 11, 2020
When choices are inconsistent due to behavioral biases, there is a theoretical debate about whether the structure of a model is necessary for providing precise welfare guidance based on those choices. To address this question empirically, we use standard data sets from the lab and field to evaluate the predictive power of two "model-free" approaches to behavioral welfare analysis. We find they typically have high predictive power, which means there is little ambiguity about what should be selected from each choice set. We also identify properties of revealed preferences that help to explain the predictive power of these approaches.
Keywords: Welfare economics, behavioral economics, predictive power, revealed preferences
JEL Classification: I30, C91, D12
Suggested Citation: Suggested Citation