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Self-fulfilling Mistakes: Characterisation and Welfare

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Article
Author/s: 
Patricio S. Dalton, Sayantan Ghosal
The Economic Journal
Issue number: 
Volume 128, Issue 609
Publisher: 
Wiley
Year: 
2018
Journal pages: 
683-709
This article incorporates self-fulfilling mistakes into an otherwise classical decision-making framework. A behavioural agent makes a mistake when he fails to internalise all the consequences of his actions on himself. We show that Sen's axioms α and γ fully characterise choice data consistent with behavioural agents. These two axioms are weaker than Sen's axioms α and β that fully characterise rational agents. We offer a welfare benchmark that can be applied to existing behavioural economics models and show the conditions under which our welfare ranking can be used to infer welfare dominated (i.e. mistaken) choices using choice data alone.
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