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Behavioral Welfare Economics

Theories from Behavioral Economics are playing increasingly important roles in economic policy analysis and policy making, where evaluation (welfare analysis) is essential. Conceptual concerns arise because standard welfare economics defers to choice. Does this deference still make sense if choices exhibit inconsistencies or reflect cognitive biases? Behavioral Welfare Economics is critical because it provides foundations for drawing normative conclusions in these settings.

My work in this area has focused on the development and application of a framework for conducting behavioral welfare analysis. The antecedents of the framework are detectable in papers such as “Addiction and Cue-Triggered Decision Processes” (AER 2004, with Antonio Rangel). The framework’s first formal articulation appears in “Beyond Revealed Preference” (QJE 2009, with Antonio Rangel), but it has since evolved. I am currently working on a book that sets forth the entire framework, starting with philosophical foundations and proceeding through applications. I hope to complete that project by mid-2022. Meanwhile, the best summaries of the framework appear in “In Defense of Behavioral Welfare Economics” (JEM, forthcoming), Section 1 of “Behavioral Public Economics” (Handbook of Behavioral Economics, 2018, with Dmitry Taubinsky), and “The Good, the Bad, and Ugly: A Unified Approach to Behavioral Weflare Economics” (JBCA, 2016). Links to these and other papers appear below.

I've also recorded two lectures, each roughly one hour in length, on Behavioral Welfare Economics. Links to these videos appear in the right-hand column below. In addition, I've included a video lecture on "Choice and Welfare," which I prepared for a first-year PhD class in Microeconomics. It overlaps a bit with the first of the two lectures on Behavioral Welfare Economics, but also covers some additional issues that provide important background, particularly regarding philosophical foundations. 


Addiction and Cue-Triggered Decision Processes

We propose a model of addiction based on three premises: (i) use among addicts is frequently a mistake; (ii) experience sensitizes an individual to environmental cues that trigger mistaken usage; (iii) addicts understand and manage their susceptibilities. We argue that these premises find support in evidence from psychology, neuroscience, and clinical practice. The model is tractable and generates a plausible mapping between behavior and the characteristics of the user, substance, and environment.

Beyond Revealed Preference: Choice-Theoretic Foundations for Behavioral Welfare Economics

We propose a broad generalization of standard choice-theoretic welfare economics that encompasses a wide variety of nonstandard behavioral models. Our approach exploits the coherent aspects of choice that those positive models typically attempt to capture. It replaces the standard revealed preference relation with an unambiguous choice relation: roughly, x is (strictly) unambiguously chosen over y (written xP* y) iff y is never chosen when x is available.


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