Bringing psychology and pluralism into the teaching of welfare economics

Abstract

This paper surveys lessons from psychology and behavioural economics that could readily be incorporated into the economics classroom to provide a pluralistic approach to teaching welfare economics and enhance the ability of economics graduates to make contributions to policy analysis. It focuses particularly on challenges that arise for consumers in today's fast-changing world due to their finite attentive capacities and their need to make sense of incoming stimuli by constructing their own subjective models. Rather than presenting a one-size-fits-all view of choice, the paper examines how the consumer's hard-wired inheritance and social inputs result in choices being made in different ways in different contexts. Consumers use creative thinking and experimentation to develop a sense of identity and what they should consume. The paper considers how this, and inherited basic needs, may limit willingness to make substitutions as market incentives change.