What You Don't Know May Hurt You: Preferences Over Mental And External States

Abstract

The dominant approach to welfare, revealed preference, is restricted to settings where the individual knows their preferences have been fulfilled. We use a choosing-for-others framework to experimentally study welfare when what the individual believes differs from what is actually true. 42% of participants see welfare as independent of beliefs; 22% see welfare as exclusively determined by beliefs; and 29% care about both beliefs and reality. Furthermore, the average participant values accurate beliefs. While there is large heterogeneity, our results suggest most people support the idea that welfare goes beyond beliefs, which can inform media regulation, informational policies, and government communication.

Keywords: Welfare, paternalism, revealed preferences, utilitarianism, mental states, beliefs, information policy, experience machine

JEL Classification: C91, D01, D60, I31, I38