Abstract
I reconsider Bleichrodt, Pinto Prades and Wakker’s (BPW) 2001 paper about eliciting utility measures from stated preference surveys. That paper pioneers a method that is now widely used in behavioural economics to correct individuals’ ‘biases’ and to recover their ‘true preferences’. However, BPW propose this method as way of dealing with inconsistent responses to stated preference surveys, in contrast to more recent applications which aim to help individuals to avoid supposed mistakes in their private choices. I argue that the concepts of true preference and bias are empirically ungrounded, but that BPW’s approach can be interpreted as not invoking those concepts. By ‘regularising’ preferences revealed in actual choice, this approach constructs measures of individual welfare that are broadly aligned with actual preferences and consistent with normative standards of rationality that are appropriate for public decision-making. Public decision-makers’ normative judgements are made explicit, rather than being disguised as apparently empirical claims about true preferences.
Highlights
One of the biggest problems in behavioural economics is to find a method of normative analysis that can be used even when individuals’ revealed preferences contravene the rationality axioms of neoclassical economics
There was general agreement about the basic principles of welfare economics. Those principles rested on the assumption that, with respect to whatever outcomes were the subject of economic analysis, each individual’s preferences were complete, consistent, context-independent, and revealed in choice
If normative analysis in economics is to be reconciled with behavioural findings, something in the previous consensus has to be given up
Summary
One of the biggest problems in behavioural economics is to find a method of normative analysis that can be used even when individuals’ revealed preferences contravene the rationality axioms of neoclassical economics. The debiasing interpretation assimilates BPW’s method to the form of behavioural welfare economics proposed by Camerer et al and Sunstein and Thaler in their 2003 papers. It treats BPW’s method as an attempt to reconstruct individuals’ true preferences by removing the effects of errors that those individuals make when taking decisions for themselves, or when reporting their own preferences. The regularisation interpretation, first discussed by Infante et al (2016), treats BPW’s method as a means of constructing indices of individual welfare that are broadly consistent with individuals’ revealed preferences and that satisfy principles of rationality that are judged to be appropriate for public decisionmaking.. In the following two sections, I consider two alternative interpretations of BPW’s concept of ‘correction’
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