Abstract
ABSTRACT Behavioural economics has taught us that human agents don't always display consistent, context-independent and stable preferences in their choice behaviour. Can we nevertheless do welfare economics in a way that lives up to the anti-paternalist ideal most economists subscribe to? I here discuss Sugden's powerful critique of most previous attempts at doing so, which he dubs the ‘New Consensus’, as appealing to problematic notions of latent preference and inner rational agency. I elaborate on a fundamental rethinking of the normative foundations of anti-paternalist welfare measurement that often remains implicit in the behavioural welfare economics literature Sugden discusses, but which is required to make these accounts minimally plausible. I argue that, if we go along with this rethinking, Bernheim and Rangel's [(2007). Toward choice-theoretic foundations for behavioural welfare economics. American Economic Review, Papers and Proceedings, 97, 464–470. https://doi.org/10.1257/aer.97.2.464; (2009). Beyond revealed preference: Choice-theoretic foundations for behavioural welfare economics. Quarterly Journal of Economics, 124(1), 51–104. https://doi.org/10.1162/qjec.2009.124.1.51] choice-theoretic framework withstands Sugden's criticism. Sugden's own, more radical proposal is thus under-motivated by his critique of the ‘New Consensus’.
Highlights
Elaborate on a fundamental rethinking of the normative foundations of anti-paternalist welfare measurement that often remains implicit in the behavioural welfare economics literature Sugden discusses, but which is required to make these accounts minimally plausible
At least one approach Sugden dismisses as part of the New Consensus withstands Sugden’s critique, namely a choice-theoretic framework developed by Bernheim and Rangel (2007, 2009), under the revised interpretation recently offered by Bernheim (2016)
While Sugden acknowledges the greater permissiveness of this approach, he classifies it as alike enough to the New Consensus to be dismissed on the same basis: ‘ Bernheim and Rangel do not assume that context-independent latent preferences always exist, their approach yields welfare rankings only for those pairs of objects for which revealed preferences, after purification, are context-independent.’ (p. 58) The thought is that this approach features a welfare measure that is context-independent, stable, and consistent, except, and unlike the approaches presented before, for the fact that it is incomplete
Summary
Many welfare economists take as a starting point of their analysis the idea that, when evaluating the effects of institutions, policies and interventions on individuals, they should be deferential to those individuals’ subjective interests, that is, to their own views about what is good for them, or what they want to do or be done to them. Sugden’s critical analysis of the New Consensus serves as motivation for a radically different way of measuring economic welfare, which gives up on the idea of evaluating objects of choice, such as outcomes or lotteries, in terms of an agent’s subjective interests, but rather ranks only option sets. At least one approach Sugden dismisses as part of the New Consensus withstands Sugden’s critique, namely a choice-theoretic framework developed by Bernheim and Rangel (2007, 2009), under the revised interpretation recently offered by Bernheim (2016) This framework, I argue, is a plausible way to implement the anti-paternalist ideal in the face of behavioural anomalies
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