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Welfare economics and bounded rationality: the case for model-based approaches

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  • Paola Manzini
  • Marco Mariotti

Abstract

In this paper, we examine the problems facing a policy maker who observes inconsistent choices made by agents who are boundedly rational. We contrast a model-less and a model-based approach to welfare economics. We make the case for the model-based approach and examine its advantages as well as some problematic issues associated with it.

Suggested Citation

  • Paola Manzini & Marco Mariotti, 2014. "Welfare economics and bounded rationality: the case for model-based approaches," Journal of Economic Methodology, Taylor & Francis Journals, vol. 21(4), pages 343-360, December.
    • Handle: RePEc:taf:jecmet:v:21:y:2014:i:4:p:343-360
    DOI: 10.1080/1350178X.2014.965909
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    Cited by:

    1. Cuhadaroglu, Tugce, 2015. "Choosing on Influence," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-59, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Franz Dietrich & Antonios Staras & Robert Sugden, 2021. "Savage’s response to Allais as Broomean reasoning," Journal of Economic Methodology, Taylor & Francis Journals, vol. 28(2), pages 143-164, April.
    3. Tugce Cuhadaroglu, 2015. "Choosing on Influence," Discussion Paper Series, School of Economics and Finance 201504, School of Economics and Finance, University of St Andrews.
    4. Yukinori Iwata, 2018. "Salience and limited attention," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 50(1), pages 123-146, January.
    5. Francesco Cerigioni, 2021. "Dual Decision Processes: Retrieving Preferences When Some Choices Are Automatic," Journal of Political Economy, University of Chicago Press, vol. 129(6), pages 1667-1704.
    6. Franz Dietrich & Antonios Staras & Robert Sugden, 2021. "Savage’s response to Allais as Broomean reasoning," Journal of Economic Methodology, Taylor & Francis Journals, vol. 28(2), pages 143-164, April.
    7. Dalton, Patricio & Ghosal, Sayantan, 2018. "Self-fulfilling mistakes : Characterization and welfare," Other publications TiSEM 4ea1a236-5307-4b4b-b268-e, Tilburg University, School of Economics and Management.
    8. E. Cettolin & P. S. Dalton & W. J. Kop & W. Zhang, 2020. "Cortisol meets GARP: the effect of stress on economic rationality," Experimental Economics, Springer;Economic Science Association, vol. 23(2), pages 554-574, June.
    9. Glenn W. Harrison, 2019. "The behavioral welfare economics of insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 44(2), pages 137-175, September.
    10. Elias Bouacida & Daniel Martin, 2017. "Predictive Power in Behavioral Welfare Economics," PSE Working Papers halshs-01489252, HAL.
    11. Francesco Cerigioni, 2016. "Dual decision processes: Retrieving preferences when some choices are intuitive," Economics Working Papers 1550, Department of Economics and Business, Universitat Pompeu Fabra.
    12. Horan, Sean & Sprumont, Yves, 2016. "Welfare criteria from choice: An axiomatic analysis," Games and Economic Behavior, Elsevier, vol. 99(C), pages 56-70.
    13. Caliari, Daniele, 2023. "Behavioural welfare analysis and revealed preference: Theory and experimental evidence," Discussion Papers, Research Unit: Economics of Change SP II 2023-303, WZB Berlin Social Science Center.
    14. Glenn W. Harrison & Jia Min Ng, 2018. "Welfare effects of insurance contract non-performance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 43(1), pages 39-76, May.
    15. Glenn W. Harrison & Jia Min Ng, 2016. "Evaluating The Expected Welfare Gain From Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(1), pages 91-120, January.
    16. Moscati, Ivan, 2021. "On the recent philosophy of decision theory," LSE Research Online Documents on Economics 115039, London School of Economics and Political Science, LSE Library.
    17. Cuhadaroglu, Tugce, 2015. "Choosing on Influence," SIRE Discussion Papers 2015-59, Scottish Institute for Research in Economics (SIRE).
    18. Jean-Michel Benkert, 2022. "Bilateral Trade with Loss-Averse Agents," Diskussionsschriften dp2203, Universitaet Bern, Departement Volkswirtschaft.
    19. Mattauch, Linus & Hepburn, Cameron, 2016. "Climate policy when preferences are endogenous – and sometimes they are," INET Oxford Working Papers 2016-04, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.

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