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Choice and individual welfare

Chambers, Christopher P. and Hayashi, Takashi (2012) Choice and individual welfare. Journal of Economic Theory, 147 (5). pp. 1818-1849. ISSN 0022-0531. doi:10.1016/j.jet.2012.01.013.

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We propose an abstract method of systematically assigning a “rational” ranking to non-rationalizable choice data. Our main idea is that any method of ascribing welfare to an individual as a function of choice is subjective, and depends on the economist undertaking the analysis. We provide a simple example of the type of exercise we propose. Namely, we define an individual welfare functional as a mapping from stochastic choice functions into weak orders. A stochastic choice function (or choice distribution) gives the empirical frequency of choices for any possible opportunity set (framing factors may also be incorporated into the model). We require that for any two alternatives x and y, if our individual welfare functional recommends x over y given two distinct choice distributions, then it also recommends x over y for any mixture of the two choice distributions. Together with some mild technical requirements, such an individual welfare functional must weight every opportunity set and assign a utility to each alternative x which is the sum across all opportunity sets of the weighted probability of x being chosen from the set. It therefore requires us to have a “prior view” about how important or representative a choice of x at a given situation is.

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URLURL TypeDescription ItemEarlier version published as Social Science Working Paper 1286
Chambers, Christopher P.0000-0001-8253-0328
Additional Information:© 2012 Elsevier Inc. All rights reserved. Received 24 September 2010; final version received 19 April 2011; accepted 4 December 2011; Available online 28 January 2012. The authors would like to thank the associate editor and an anonymous referee, as well as Colin Camerer, Doug Bernheim, Jeff Ely, Marco Mariotti, Mark Machina, and Matt Rabin for useful comments and discussions. Hayashi thanks Norihito Sakamoto for helpful comments. We are especially grateful to Jerry Green for detailed comments which led to substantial improvements in the paper. Formerly SSWP 1286.
Subject Keywords:Welfare; Individual welfare functional; Behavioral welfare
Issue or Number:5
Classification Code:JEL: D03; D11; D61
Record Number:CaltechAUTHORS:20171103-142725822
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82946
Deposited By: Jacquelyn Bussone
Deposited On:07 Nov 2017 18:24
Last Modified:15 Nov 2021 19:54

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