Self‐Fulfilling Mistakes: Characterisation and Welfare

27 Pages Posted: 5 Mar 2018

See all articles by Patricio S. Dalton

Patricio S. Dalton

Tilburg University - Center for Economic Research (CentER)

Sayantan Ghosal

University of Glasgow - Adam Smith Business School

Date Written: March 2018

Abstract

This article incorporates self‐fulfilling mistakes into an otherwise classical decision‐making framework. A behavioural agent makes a mistake when he fails to internalise all the consequences of his actions on himself. We show that Sen's axioms α and γ fully characterise choice data consistent with behavioural agents. These two axioms are weaker than Sen's axioms α and β that fully characterise rational agents. We offer a welfare benchmark that can be applied to existing behavioural economics models and show the conditions under which our welfare ranking can be used to infer welfare dominated (i.e. mistaken) choices using choice data alone.

Suggested Citation

Dalton, Patricio S. and Ghosal, Sayantan, Self‐Fulfilling Mistakes: Characterisation and Welfare (March 2018). The Economic Journal, Vol. 128, Issue 609, pp. 683-709, 2018. Available at SSRN: https://ssrn.com/abstract=3133428 or http://dx.doi.org/10.1111/ecoj.12409

Patricio S. Dalton (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Sayantan Ghosal

University of Glasgow - Adam Smith Business School ( email )

Glasgow, Scotland
United Kingdom

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