What You Don't Know May Hurt You: A Revealed Preferences Approach

Abstract

The dominant approach to welfare is based on revealed preferences and thus 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 to be true differs from what is actually true. We find substantial heterogeneity. About 40% of participants see welfare as independent of beliefs; 10% see welfare impact only via beliefs; and 50% exhibit mixed behavior. Our results suggest most people support the idea that welfare goes beyond awareness, which may 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