Predictive Power in Behavioral Welfare Economics

45 Pages Posted: 2 Mar 2017 Last revised: 12 Jun 2020

Date Written: June 11, 2020

Abstract

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

Bouacida, Elias and Martin, Daniel, Predictive Power in Behavioral Welfare Economics (June 11, 2020). Available at SSRN: https://ssrn.com/abstract=2924957 or http://dx.doi.org/10.2139/ssrn.2924957

Elias Bouacida

Paris School of Economics, Students ( email )

Paris
France

University of Paris 1, Students ( email )

Paris
France

Daniel Martin (Contact Author)

Northwestern University - Department of Managerial Economics and Decision Sciences (MEDS) ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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