Behavioral Welfare Economics

Abstract

A growing body of normative work explores whether and how deference to people’s choices might be reconciled with behavioral findings about human error. This work has strong implications for economic analysis of law, cost–benefit analysis, and regulatory policy. In light of behavioral findings, regulators should adopt a working presumption in favor of respect for people’s self-regarding choices, but only if those choices are adequately informed and sufficiently free from behavioral biases. The working presumption should itself be rebuttable on welfare grounds, with an understanding that the ends that people choose might make their lives go less well. For example, people might die prematurely or suffer from serious illness, and what they receive in return might not (on any plausible account of welfare) be nearly enough. The underlying reason might involve a lack of information or a behavioral bias, identifiable or not, in which case intervention can fit with the working presumption, but the real problem might involve philosophical questions about the proper understanding of welfare, and about what it means for people to have a good life.

Responsibility utility and the difference between preference and desirance: implications for welfare evaluation

“…3 Where welfare analysis seeks to estimate the benefits delivered by having chosen a good, status-quo welfare analysis should perform well (if we ignore cognitive biases as discussed in Weimer 2017), because the appropriate measure is a preference ordering and the appropriate data is incentive-compatible choice. The debate on the validity of choice data in these circumstances is beyond the scope of the current discussion (see Bernheim 2016;Sunstein 2020;Weimer 2017). 4 Procedural utility predicts that choiceless utility might differ depending on whether an outcome is delivered by natural forces or by a dictator (Frey et al 2004).…”

“…Both approaches imply that the utility that informs choices can differ from the utility that informs welfare. However, in Kahneman et al (1997) dissociations between choices (decision utility) and welfare (experienced utility) are the result of cognitive biases that lead agents to make decisions that do not maximise welfare (see also Sunstein 2007Sunstein , 2020Weimer 2017). Cognitive biases play no role in the current analysis.…”

Nudge/sludge symmetry: on the relationship between nudge and sludge and the resulting ontological, normative and transparency implications

“…10 Furthermore, choice architects are often biased themselves (Rebonato, 2014), and as citizens who themselves can be nudged, they can also reap the benefits of Pareto nudges. Finally, this framework of Pareto and rent-seeking 9 Benefit is taken here to broadly mean welfare, which follows the general treatment of nudges in the literature (Allcott & Kessler, 2019;Sunstein, 2020) and in how Beggs (2016) deploys these terms.…”

‘Come on, man!’ On errors, choice, and Hayekian behavioral economics

“…I also aimed to put Hayekian behavioral economics in an appealing light, though it does not, in fact, reflect my own view. I would not give decisive authority to individual choices, even under epistemically favorable conditions; human welfare is the criterion, not respect for choices, though the two are of course related (Sunstein, 2020a). If we respect choices, we will often and even generally promote welfare, but in important cases, respect for choices will undermine welfare, and welfare is authoritative (Conly, 2013;Sunstein, 2020a).…”

“…I would not give decisive authority to individual choices, even under epistemically favorable conditions; human welfare is the criterion, not respect for choices, though the two are of course related (Sunstein, 2020a). If we respect choices, we will often and even generally promote welfare, but in important cases, respect for choices will undermine welfare, and welfare is authoritative (Conly, 2013;Sunstein, 2020a). The task of specifying 'welfare' is, of course, contentious and takes us into contested philosophical waters.…”