Predictive Power in Behavioral Welfare Economics

Abstract : When choices appear inconsistent duet obehavioral biases, there is a theoretical debate about whether or not it is necessary to impose the structure of a model in order to provide meaning ful welfare guidance based on such choices. To address this question empirically, we evaluate the predictive power of the “model-free” and non-parametric approach to welfare analysis proposed by Bernheim and Rangel (2009). In two standard choice settings, we show that for most hypothetical demands, this approach does not offer clear welfare guidance. However, we find that for most observed demands, this approach can be used to make tight predictions, even though these demand functions exhibit inconsistencies. For the experimental choices of Manzini and Mariotti (2010), we show that the welfare guidance provided by these predictions is consistent with delaya version, eventhough the guidance provided by revealed preferences Is more ambiguous.
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https://halshs.archives-ouvertes.fr/halshs-01489252
Contributor : Elias Bouacida <>
Submitted on : Thursday, April 6, 2017 - 11:40:36 AM
Last modification on : Tuesday, April 24, 2018 - 5:20:16 PM
Long-term archiving on : Friday, July 7, 2017 - 1:20:18 PM

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Elias Bouacida, Daniel Martin. Predictive Power in Behavioral Welfare Economics. 2017. ⟨halshs-01489252v3⟩

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