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Indecisiveness in behavioral welfare economics

By Michael Mandler


Suppose an agent is modeled by a ‘behavioral welfare relation’that aggregates the di¤erent preferences that the agent reveals when choosing at di¤erent times or frames: x is better than y if the agent never chooses y when x is available and sometimes chooses x. In many behavioral applications, the options that are ranked superior to an alternative by this relation will be supported by multiple supporting price vectors. As a consequence, in a society of such agents the set of Pareto optimal allocations can be large and even have the same dimension as the set of all allocations. A policymaker will then not be able to use Pareto optimality to discriminate locally among allocations. A small distortion, for example, will call for no policy response

Topics: behavioral welfare economics, incomplete preferences, Pareto optimality
Year: 2008
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