Self-fulfilling mistakes: characterization and welfare

Dalton, P. S. and Ghosal, S. (2016) Self-fulfilling mistakes: characterization and welfare. Economic Journal, (doi:10.1111/ecoj.12409) (Early Online Publication)

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Abstract

This paper incorporates self-fulfilling mistakes into an otherwise classical decision-making framework. A behavioural agent makes a mistake when he fails to internalize all the consequences of his actions on himself. We show that Sen’s axioms α and γ fully characterize choice data consistent with behavioral agents. These two axioms are weaker than Sen’s axioms α and β that fully characterize 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.

Item Type:Articles
Status:Early Online Publication
Refereed:Yes
Glasgow Author(s) Enlighten ID:Ghosal, Professor Sayantan
Authors: Dalton, P. S., and Ghosal, S.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Economic Journal
Publisher:Wiley
ISSN:0013-0133
ISSN (Online):1468-0297
Published Online:06 August 2016

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