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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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References

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  1. Douglas Bernheim & Antonio Rangel, 2007. "Beyond Revealed Preference Choice Theoretic Foundations for Behavioral Welfare Economics," Discussion Papers 07-031, Stanford Institute for Economic Policy Research.
  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. Cass R. Sunstein & Richard H. Thaler, 2003. "Libertarian paternalism is not an oxymoron," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, issue Jun.
  5. Peter J. Hammond, 2003. "Equal rights to trade and mediate," Social Choice and Welfare, Springer, vol. 21(2), pages 181-193, October.
  6. 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.
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Cited by:
  1. 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, Max Planck Institute of Economics, Evolutionary Economics Group.
  2. Christian Schubert, 2012. "Opportunity and Preference Learning," Papers on Economics and Evolution 2012-08, Max Planck Institute of Economics, Evolutionary Economics Group.

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