Post by Sapphire Capital on Jul 11, 2008 21:34:49 GMT 4
How are Preferences Revealed?
JOHN BESHEARS
Harvard University - Department of Economics
JAMES J. CHOI
Yale School of Management; National Bureau of Economic Research (NBER)
DAVID LAIBSON
Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
BRIGITTE C. MADRIAN
Harvard University - John F. Kennedy School of Government; National Bureau of Economic Research (NBER)
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April 4, 2008
Yale ICF Working Paper No. 08-15
Abstract:
Revealed preferences are tastes that rationalize an economic agent's observed actions. Normative preferences represent the agent's actual interests. It sometimes makes sense to assume that revealed preferences are identical to normative preferences. But there are many cases where this assumption is violated. We identify five factors that increase the likelihood of a disparity between revealed preferences and normative preferences: passive choice, complexity, limited personal experience, third-party marketing, and intertemporal choice. We then discuss six approaches that jointly contribute to the identification of normative preferences: structural estimation, active decisions, asymptotic choice, aggregated revealed preferences, reported preferences, and informed preferences. Each of these approaches uses consumer behavior to infer some property of normative preferences without equating revealed and normative preferences. We illustrate these issues with evidence from savings and investment outcomes.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1125043_code223089.pdf?abstractid=1125043&mirid=3
JOHN BESHEARS
Harvard University - Department of Economics
JAMES J. CHOI
Yale School of Management; National Bureau of Economic Research (NBER)
DAVID LAIBSON
Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
BRIGITTE C. MADRIAN
Harvard University - John F. Kennedy School of Government; National Bureau of Economic Research (NBER)
--------------------------------------------------------------------------------
April 4, 2008
Yale ICF Working Paper No. 08-15
Abstract:
Revealed preferences are tastes that rationalize an economic agent's observed actions. Normative preferences represent the agent's actual interests. It sometimes makes sense to assume that revealed preferences are identical to normative preferences. But there are many cases where this assumption is violated. We identify five factors that increase the likelihood of a disparity between revealed preferences and normative preferences: passive choice, complexity, limited personal experience, third-party marketing, and intertemporal choice. We then discuss six approaches that jointly contribute to the identification of normative preferences: structural estimation, active decisions, asymptotic choice, aggregated revealed preferences, reported preferences, and informed preferences. Each of these approaches uses consumer behavior to infer some property of normative preferences without equating revealed and normative preferences. We illustrate these issues with evidence from savings and investment outcomes.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1125043_code223089.pdf?abstractid=1125043&mirid=3