Choice-Theoretic Foundations for Behavioral Welfare Economics

Abstract

Because of the increasing amount of evidence that shows how the standard model of decision-making processes of consumers can provide a positive yet inadequate description about human behavior, behavioral economics has increasingly gained the attention of studies in recent years. Behavioral models that involve welfare analysis are thus being utilized more in more in evaluating policies. In order to rationalize choices and derive welfare relevance from novel arguments, one of the common strategies employed in behavioral economics attempts to include other arguments into the utility function. This approach, however, may cause certain challenges in terms of normative economic analysis. While the standard theory is based on the theory of choice, this chapter aims to explain the efforts in coming up with a unified framework for behavioral welfare economics that can be directly associated with standard theories.

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