Predictive Power in Behavioral Welfare Economics

When choices are inconsistent due to behavioral biases, there is a theoretical debate about whether the structure of a model is necessary for providing precise welfare guidance based on those choices. To address this question empirically, we use standard data sets from the lab and field to evaluate the predictive power of two “model-free” approaches to behavioral welfare analysis. We find they typically have high predictive power, which means there is little ambiguity about what should be selected from each choice set. We also identify properties of revealed preferences that help to explain the predictive power of these approaches

Predictive Power in Behavioral Welfare Economics

When choices are inconsistent due to behavioral biases, there is a theoretical debate about whether it is necessary to impose the structure of a model in order to provide precise welfare guidance based on those choices. To address this question empirically, we use standard data sets from the lab and field to evaluate the predictive power of two conservative “model-free” approaches to behavioral welfare analysis. We find that for most individuals, these approaches have high predictive power, which means there is little ambiguity about what should be selected from each choice set. We show that the predictive power of these approaches correlates highly with two properties of revealed preferences: the number of direct revealed preference cycles and the fraction of revealed preference cycles that are direct

Identifying Choice Correspondences:A General Method and an Experimental Implementation

We introduce a general method for identifying the sets of best alternatives of decision makers in each choice sets, i.e., their choice correspondences, experimentally. In contrast, most experiments force the choice of a single alternative in each choice set. The method allow decision makers to choose several alternatives, provide a small incentive for each alternative chosen, and then randomly select one for payment. We derive two conditions under which the method may recover the choice correspondence. First, when the incentive to choose several alternative becomes small. Second, we can at least partially identifies the choice correspondence, by obtaining supersets and subsets for each choice set. We illustrate the method with an experiment, in which subjects choose between four paid tasks. In the latter case, we can retrieve the full choice correspondence for 18% of subjects and bind it for another 40%. Using the limit result, we show that 40% of all observed choices can be rationalized by complete, reflexive and transitive preferences in the experiment, i.e., satisfy the Weak Axiom of Revealed Preferences – WARP hereafter. Weakening the classical model, incomplete preferences or just-noticeable difference preferences do not rationalize more choice correspondences. Going beyond, however, we show that complete, reflexive and transitive preferences with menu-dependent choices rationalize 96% of observed choices. Having elicited choice correspondences allows to conclude that indifference is widespread in the experiment. These results pave the way for exploring various behavioral models with a unified method

Rituals of Reason:A Choice-Based Approach to the Acceptability of Lotteries in Allocation Problems

We study revealed preferences towards the use of random procedures in allocation mechanisms. We report the results of an experiment in which subjects vote on a procedure to allocate a reward to half of them. The first possibility is an explicitly random device: the result of a lottery. The second is either an unpredictable procedure they could interpret as meritocratic, or one that is obviously arbitrary. We run all treatments with and without control. We identify an aversion to lotteries and clearly arbitrary procedures across treatments, even though, on aggregate, subjects do not believe any procedure to give them a higher probability of success and there is no correlation between beliefs and outcomes. In line with the literature, we also find evidence of a control premium in most procedures

The acceptability of lotteries in allocation problems:a choice-based approach

We report the results of two experiments on the social acceptability of random devices in allocation mechanisms. A majority of subjects do not opt for a lottery if they can rationalize an alternative mechanism as non-random. It is, however, possible to design a payoff-equivalent mechanism to the lottery that is more acceptable. Our results shed light on the real-world reliance on obscure criteria in allocation problems where lotteries seem to be simpler and more efficient

Decreasing Differences in Expert Advice : Evidence from Chess Players

We study the impact of external advice on the relative performance of chess players. We asked players in chess tournaments to evaluate positions in past games and allowed them to revise their evaluation following advice from a high or a low ability player. While our data confirms the theoretical prediction that high-quality advice has the potential to act as a “great equalizer,” reducing the difference between high and low ability players, this is not what happens in practice. This is in part because our subjects ignore too much of the advice they receive, but also because low ability players pay – either due to overconfidence or intrinsic preference – a higher premium than high ability ones by following their initial idea instead of high-quality advice

Eliciting Choice Correspondences A General Method and an Experimental Implementation

I introduce a general method for identifying choice correspondences experimentally, i.e., the sets of best alternatives of decision makers in each choice sets. Most of the revealed preference literature assumes that decision makers can choose sets. In contrast, most experiments force the choice of a single alternative in each choice set. In this paper, I allow decision makers to choose several alternatives, provide a small incentive for each alternative chosen, and then randomly select one for payment. I derive the conditions under which the method at least partially identifies the choice correspondence, by obtaining supersets and subsets for each choice set. I illustrate the method with an experiment, in which subjects chose between four paid tasks. I can retrieve the full choice correspondence for 26% of subjects and bind it for another 46%. Subjects chose sets of size 2 or larger 60% of the time, whereas only 3% of them always chose singletons. I then show that 46% of all observed choices can be rationalized by complete, reflexive and transitive preferences in my experiment, i.e., satisfy the Weak Axiom of Revealed Preferences – WARP hereafter. Weakening the classical model, incomplete preferences or just-noticeable difference preferences do not rationalize more choice correspondences. Going beyond WARP, however, I show that complete, reflexive and transitive preferences with menu-dependent choices rationalize 93% of observed choices. Having elicited choice correspondences allows me to conclude that indifference is widespread in the experiment. These results pave the way for exploring various behavioral models with a unified method

Choix, préférences et bien-être

Revealed preferences link choices, preferences, and welfare when choices appear consistent. The first chapter assesses how much structure is necessary to impose on a model to provide precise welfare guidance based on inconsistent choices. We use data sets from the lab and field to evaluate the predictive power of two conservative “model-free” approaches of behavioral welfare analysis. We find that for most individuals, these approaches have high predictive power, which means there is little ambiguity about what should be selected from each choice set. We show that the predictive power of these approaches correlates highly with two properties of revealed preferences. The second chapter introduces a method for eliciting the set of best alternatives of decision makers, in line with the theory on revealed preferences, but at odds with the current practice. We allow decision makers to choose several alternatives, provide an incentive for each alternative chosen, and then randomly select one for payment. We derive the conditions under which we partially or fully identify the set of best alternatives. The third chapter applies the method in an experiment. We fully identify the set of best alternatives for 18% of subjects and partially identify it for another 40%. We show that complete, reflexive, and transitive preferences rationalize 40% of observed choices in the experiment. Going beyond, we show that allowing for menu-dependent choices while keeping classical preferences rationalize 96% of observed choices. Besides, eliciting sets allows us to conclude that indifference is significant in the experiment, and underestimate by the classical method.Les préférences révélées lient choix, préférences et bien-être lorsque les choix apparaissent cohérents. Le premier chapitre s’intéresse à la force des hypothèses nécessaire pour obtenir des indications précises sur le bien-être quand les choix sont incohérents. Il utilise les données d’expériences en laboratoire et sur le terrain pour évaluer le pouvoir prédictif de deux approches utilisant peu d’hypothèses. Ces approches ont un pouvoir prédictif élevé pour une majorité d’individus, elles fournissent donc des indications précises sur le bien-être. Le pouvoir prédictif de ces approches est fortement corrélé à deux propriétés des préférences révélées. Le deuxième chapitre introduit une méthode pour obtenir l’ensemble des meilleures alternatives d’un individu, en cohérence avec théorie des préférences révélées, mais en contradiction avec les pratiques expérimentales. Les individus sont incités à choisir plusieurs alternatives à l’aide d’un petit paiement additionnel, mais sont rémunérés à la in par une seule, tirée au hasard. Les conditions pour que les meilleures alternatives soient partiellement ou complètement identifiées sont données. Le troisième chapitre applique cette méthode dans une expérience. Les meilleures alternatives sont complètement identifiées pour 18% des sujets et partiellement pour 40%. Les préférences complètes, réflexives et transitives rationalisent 40% des choix observés dans l’expérience. Permettre que les choix dépendant de l’ensemble de choix, tout en conservant les préférences classiques, rationalise 96% des choix observés. Enfin, on observe une quantité significative d’indifférence, bien supérieure à ce qui est obtenu traditionnellement

Predictive Power in Behavioral Welfare Economics

When choices are inconsistent due to behavioral biases, there is a theoretical debate about whether it is necessary to impose the structure of a model in order to provide precise welfare guidance based on those choices. To address this question empirically, we use standard data sets from the lab and field to evaluate the predictive power of two conservative “model-free” approaches to behavioral welfare analysis. We find that for most individuals, these approaches have high predictive power, which means there is little ambiguity about what should be selected from each choice set. We show that the predictive power of these approaches correlates highly with two properties of revealed preferences: the number of direct revealed preference cycles and the fraction of revealed preference cycles that are direct

Predictive Power in Behavioral Welfare Economics

When choices are inconsistent due to behavioral biases, there is a theoretical debate about whether it is necessary to impose the structure of a model in order to provide precise welfare guidance based on those choices. To address this question empirically, we use standard data sets from the lab and field to evaluate the predictive power of two conservative “model-free” approaches to behavioral welfare analysis. We find that for most individuals, these approaches have high predictive power, which means there is little ambiguity about what should be selected from each choice set. We show that the predictive power of these approaches correlates highly with two properties of revealed preferences: the number of direct revealed preference cycles and the fraction of revealed preference cycles that are direct