How the market responds to dynamically inconsistent preferences
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 individualâ€™s 'selves', competitive markets provide maximal opportunity, and that they do so by facilitating voluntary exchanges between selves.
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Volume (Year): 38 (2012)
Issue (Month): 4 (April)
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- Douglas Bernheim & Antonio Rangel, 2007.
"Beyond Revealed Preference Choice Theoretic Foundations for Behavioral Welfare Economics,"
07-031, Stanford Institute for Economic Policy Research.
- 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.
- 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.
- Sugden, Robert, 2010. "Opportunity As Mutual Advantage," Economics and Philosophy, Cambridge University Press, vol. 26(01), pages 47-68, March.
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- Peter J. Hammond, 2003.
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Social Choice and Welfare,
Springer;The Society for Social Choice and Welfare, vol. 21(2), pages 181-193, October.
- 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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