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Published August 2, 2017 | Published
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Choice and individual welfare

Abstract

We propose an abstract method of systematically assigning a "rational" ranking of outcomes to choice data which may not be rationalizable in any sense. An individual welfare functional maps stochastic choice functions into weak orders. A stochastic choice function gives the empirical frequency of choices for any possible opportunity set (framing factors may also be incorporated into the model); we call such general choice functions "choice distributions." 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 a choice of x from a given opportunity set is.

Additional Information

We would like to thank Colin Camerer, Jeff Ely, and Matt Rabin for helpful discussions and comments. All errors are our own. Published as Chambers, C. P., & Hayashi, T. (2012). Choice and individual welfare. Journal of economic theory, 147(5), 1818-1849.

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