Choice, Rationality and Welfare Measurement

For the past century, economists have used the hypothesis that individual choice is based on rationality in their calculations of individual and collective welfare. The central ideas are that actual market choice reveal underlying preferences, and with a good set of observations on choice these preference can be discovered and then used for business or policy analysis. However, much recent work in both economics and psychology has revealed systematic and persistent irrationality in choice behavior -- destroying the cornerstone of economic analysis. In this project, Jerry R. Green and Daniel Hojman are developing methods to use data on seemingly irrational choice to place bounds on meaningful welfare measures and provide operational content to choice behavior as actually observed.