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How the market responds to dynamically inconsistent preferences

  • Ben McQuillin

    (School of Economics, University of East Anglia)

  • Robert Sugden

    (School of Economics, University of East Anglia)

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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Paper provided by School of Economics, University of East Anglia, Norwich, UK. in its series Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) with number 11-04.

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Date of creation: 01 Feb 2011
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Handle: RePEc:uea:wcbess:11-04
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Order Information: Postal: Helen Chapman, School of Economics, University of East Anglia, Norwich Research Park, Norwich, NR4 7TJ, UK
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  1. Peter J. Hammond, 2003. "Equal rights to trade and mediate," Social Choice and Welfare, Springer, vol. 21(2), pages 181-193, October.
  2. Cass R. Sunstein & Richard H. Thaler, 2003. "Libertarian paternalism is not an oxymoron," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 48(Jun).
  3. 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.
  4. Sugden, Robert, 2010. "Opportunity As Mutual Advantage," Economics and Philosophy, Cambridge University Press, vol. 26(01), pages 47-68, March.
  5. 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.
  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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