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Self†fulfilling Mistakes: Characterisation and Welfare

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  • Patricio S. Dalton
  • Sayantan Ghosal

Abstract

This article incorporates self†fulfilling mistakes into an otherwise classical decision†making framework. A behavioural agent makes a mistake when he fails to internalise all the consequences of his actions on himself. We show that Sen's axioms α and γ fully characterise choice data consistent with behavioural agents. These two axioms are weaker than Sen's axioms α and β that fully characterise rational agents. We offer a welfare benchmark that can be applied to existing behavioural economics models and show the conditions under which our welfare ranking can be used to infer welfare dominated (i.e. mistaken) choices using choice data alone.

Suggested Citation

  • Patricio S. Dalton & Sayantan Ghosal, 2018. "Self†fulfilling Mistakes: Characterisation and Welfare," Economic Journal, Royal Economic Society, vol. 128(609), pages 683-709, March.
    • Handle: RePEc:wly:econjl:v:128:y:2018:i:609:p:683-709
    DOI: 10.1111/ecoj.12409
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    Cited by:

    1. Karol Mazur, 2021. "A note on pessimism in education and its economic consequences," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(4), pages 773-783, December.
    2. 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.

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