Behavioral Decisions and Policy

Abstract

We study the public policy implications of a model in which agents do not fully internalize all the conscequences of their actions. Such a model uni…es seemingly disconected models with behavioral agents. We evaluate the scope of paternalistic and libertarian-parternalistic policies in the light of our model, and propose an alternative type of approach, called soft-libertarian, which guides the decision makers in the internalization of all the conscequences of their actions. Psychotherapy is one example of a soft-libertarian policy. Moreover, we show that in our behavioral framework, policies that increase the set of opportunities or provide more information to the agent may not longer be individual welfare improving. JEL Classi…cation numbers: D03, D60, I30.

Escaping From the Poverty Trap With Social Innovation: A Social Microcredit Programme in Hungary

“…Recalling the four intervention (policy) categories of Dalton and Ghosal (2011), mentioned in the introduction, we can categorise group lending with social collateral as indirect paternalism. Clients are governed towards a situation considered desirable by the actor, with strong incentives.…”

“…Anti-poverty interventions, therefore, should consider this phenomenon. Dalton and Ghosal (2011) distinguishes four possible policy approaches in this respect: direct, indirect and libertarian paternalistic, as well as soft libertarian, which is their proposal. In the first three cases it is supposed that the planner (the planner can be a policy-maker or an actor of an intervention) knows the individual normative preferences of the subject of the intervention.…”

Behavioral Political Economy: A Survey

“…would be strengthened, which may be preferable to being the object of inconspicuous manipulation. (Sugden 2011;Dalton & Ghosal 2011).…”

Too Slow a Change? Deep Habits, Consumption Shifts and Transitory Tax Policy

“…6 Examples of such behavioral assumptions include projection bias considered here, but also hyperbolic discounting, reference-dependent preferences, overconfidence, and limited attention (DellaVigna, 2009). See Bernheim and Rangel (2007) and Dalton and Ghosal (2011) for a general discussion.…”

“…As the model features no uncertainty, any allocation implemented by a given path of taxes/subsidies can also be implemented by (time-varying) quota. Referring toDalton and Ghosal (2011), this implies I take an (in)direct paternalistic approach to policy intervention where I implicitly assume the policymaker has full information regarding preferences and their evolution over time. I thus do not consider a soft-libertarian approach, where policy would take the form of teaching the consumer to internalize the endogenous habit formation process herself.…”