Events at CERGE-EI

Daniel Reck

University of Michigan, Ann Arbor, USA

Authors: Jacob Goldin and Daniel H. Reck

Abstract: Behavioral economics has documented numerous settings in which behavior varies according to seemingly arbitrary features of the decision-making environment such as which option is the default, the order in which options are presented, or which features of the options are made salient. Optimal policy design requires accounting for the preferences of decision-makers whose choices are sensitive to such factors, but traditional revealed preference analysis breaks down in that setting. We consider binary choice problems in which preference-irrelevant "frames" affect the behavior decision-makers in monotonic directions and develop an empirical framework for identifying decision-makers' ordinal preferences. Our basic insight is that preference identification in such settings hinges upon understanding the empirical relationship between decision-makers’ preferences and their propensity to choose consistently. By recasting the behavioral preference recovery problem in these terms, we show how familiar insights from the program evaluation literature can be fruitfully adapted to this new setting. We illustrate our proposed techniques by applying them to data from a range of recent empirical studies.

Keywords: preference identification, framing, defaults, behavioral economics, welfare analysis

JEL Classification: C10, D60, I30

Full Text:  “Preference Identification Under Inconsistent Choice”