Anomalies or Expected Behaviors? Understanding Stated Preferences and Welfare Implications in Light of Contemporary Behavioral Theory

The stated preference literature contains an expansive body of research on behavioral anomalies, typically understood as response patterns that are inconsistent with standard neoclassical choice theory. While the literature often implies that anomalous behaviors are distinct to stated preferences, widespread evidence of similar patterns across real-world settings raises the potential for an alternative interpretation. We argue that these anomalies might actually reflect behaviors that are to be expected once deviations from the standard economic model and behavioral reactions to the choice architecture in stated preference surveys are considered. The article reviews and organizes the evidence of so-called “anomalous” stated preference behaviors within the context of behavioral science to provide guidance for applied welfare economics. We coordinate evidence on these anomalies using a typology grounded in behavioral science, which groups non-standard behaviors into: non-standard preferences, non-standard beliefs, and non-standard decision-making. We apply this typology to organize the evidence, clarify nomenclature, and understand the implications of non-standard behaviors in stated preference studies for applied welfare analysis. Observing the systematic and common nature of these behaviors in actual and hypothetical settings, we outline possibilities to overcome associated challenges for applied welfare analysis, by adapting new frameworks for welfare analysis proposed within behavioral science.