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How the market responds to dynamically inconsistent preferences

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  • Ben McQuillin
  • Robert Sugden

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Abstract

This paper responds to the 'soft paternalist' argument that the findings of behavioural economics make traditional objections to paternalism incoherent. We show that there is a normatively significant sense in which, even if individuals lack coherent preferences, competitive markets are efficient in providing them with opportunities to get what they want. Extending earlier analysis by Sugden, we model a multi-period 'storage economy' and explore the implications of dynamically inconsistent preferences. We show that, despite apparent conflicts of judgement between an individual’s 'selves', competitive markets provide maximal opportunity, and that they do so by facilitating voluntary exchanges between selves.

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File URL: http://hdl.handle.net/10.1007/s00355-011-0628-0
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Bibliographic Info

Article provided by Springer in its journal Social Choice and Welfare.

Volume (Year): 38 (2012)
Issue (Month): 4 (April)
Pages: 617-634

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Handle: RePEc:spr:sochwe:v:38:y:2012:i:4:p:617-634

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  1. Peter J. Hammond, 2003. "Equal rights to trade and mediate," Social Choice and Welfare, Springer, vol. 21(2), pages 181-193, October.
  2. Robert Sugden, 2004. "The Opportunity Criterion: Consumer Sovereignty Without the Assumption of Coherent Preferences," American Economic Review, American Economic Association, vol. 94(4), pages 1014-1033, September.
  3. Sugden, Robert, 2010. "Opportunity As Mutual Advantage," Economics and Philosophy, Cambridge University Press, vol. 26(01), pages 47-68, March.
  4. Robert Sugden, 2007. "The value of opportunities over time when preferences are unstable," Social Choice and Welfare, Springer, vol. 29(4), pages 665-682, December.
  5. B. Douglas Bernheim & Antonio Rangel, 2008. "Beyond Revealed Preference: Choice Theoretic Foundations for Behavioral Welfare Economics," NBER Working Papers 13737, National Bureau of Economic Research, Inc.
  6. Cass R. Sunstein & Richard H. Thaler, 2003. "Libertarian paternalism is not an oxymoron," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 48(Jun).
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Cited by:
  1. Robert Sugden, 2014. "Characterising competitive equilibrium in terms of opportunity," Working Papers 14-02, Chapman University, Economic Science Institute.
  2. Robert Sugden, 2011. "The behavioural economist and the social planner: to whom should behavioural welfare economics be addressed?," Papers on Economics and Evolution 2011-21, Philipps University Marburg, Department of Geography.
  3. Christian Schubert, 2012. "Opportunity and Preference Learning," Papers on Economics and Evolution 2012-08, Philipps University Marburg, Department of Geography.
  4. Christian Schubert & Martin Binder, 2014. "Reconciling Normative and Behavioral Economics: An Application of the “Naturalistic Approach” to the Adaptation Problem," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 234(2-3), pages 350-365, April.
  5. Schnellenbach, Jan & Schubert, Christian, 2014. "Behavioral public choice: A survey," Freiburg Discussion Papers on Constitutional Economics 14/03, Walter Eucken Institut e.V..

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