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Publisher: Department of Economics, University of Warwick
Languages: English
Types: Book
Subjects: QA, HB
If decision-makers (DMs) do not always do what is in their best interest, what do choices reveal about welfare? This paper shows how observed choices can reveal whether the DM is acting in her own best interest. We study a framework that relaxes rationality in a way that is common across a variety of seemingly disconnected positive behavioral models and admits the standard rational choice model as a special case. We model\ud a behavioral DM (boundedly rational) who, in contrast to a standard DM (rational), does not fully internalize all the consequences of her own actions on herself. We provide\ud an axiomatic characterization of choice correspondences consistent with behavioral and standard DMs, propose a choice experiment to infer the divergence between choice and\ud welfare, state an existence result for incomplete preferences and show that the choices of behavioral DMs are, typically, sub-optimal.
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    • 1 (a; p) = f(a0; p0) 2 A
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