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Characterizing behavioral decisions with choice data

  • Patricio S. Dalton
  • Sayantan Ghosal

A number of different models with behavioral economics have a reduced form rep- resentation where potentially boundedly rational decision-makers do not necessarily in- ternalize all the consequences of their actions on payo¤ relevant features (which we label as psychological states) of the choice environment. This paper studies the restrictions that such behavioral models impose on choice data and the implications they have for welfare analysis. First, we propose a welfare benchmark that is justi ed using standard axioms of rational choice and can be applied to a number of existing seminal behavioral economics models. Second, we show that Sens axioms and fully characterize choice data consistent with behavioral decision-makers. Third, we show how choice data to infer information about the normative signi cance of psychological states and establish the possibility of identifying welfare dominated choices.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2013_22.

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Date of creation: Nov 2013
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Handle: RePEc:gla:glaewp:2013_22
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