How Should a Behavioral Economist Do Welfare Economics?
33 Pages Posted: 26 Oct 2002
Date Written: May 2002
Economists use the standard rational model to predict behaviour under a new policy regime and to evaluate the policy according to its impact on the welfare of the people affected. Experimental observation of behaviour casts some doubt on the predictive accuracy of the standard model, but the more realistic behavioral alternatives often provide a poor basis for normative evaluations. This paper suggests that in some cases we can do both. A behavioral trait can be modeled as a cognitive strategy that has evolved to augment a deeper notion of personal welfare. This makes it possible to predict behaviour with greater accuracy and to make normative evaluations of the outcomes of policy.
Keywords: Bargaining, Fairness, Property Rights, Endowment Effect, Framing
JEL Classification: D0
Suggested Citation: Suggested Citation