Working Paper: CEPR ID: DP13232
Authors: Jacob Goldin; Daniel Reck
Abstract: In many settings, decision-makers’ behavior is observed to vary based on seemingly arbitrary factors. Such framing effects cast doubt on the welfare conclusions drawn from revealed preference analysis. We relax the assumptions underlying that approach to accommodate settings in which framing effects are present. Plausible restrictions of varying strength permit either partial- or point-identification of preferences for the decision-makers who choose consistently across frames. Recovering population preferences requires understand- ing the empirical relationship between decision-makers’ preferences and their sensitivity to the frame. We develop tools for studying this relationship and illustrate them with data on automatic enrollment into pension plans.
Keywords: revealed preferences; framing effects; behavioral economics; behavioral welfare analysis
JEL Codes: C10; D60; I30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| framing (Y20) | decision-making preferences (D91) |
| frame monotonicity (J42) | identification of preferences for consistent decisionmakers (D91) |
| frame exogeneity (C51) | observed differences in choices across frames (D91) |
| sensitivity to the frame (Y20) | recovering population preferences (D11) |
| consistent choices across frames (C23) | identification of true preferences (D11) |
| observable differences between consistent and inconsistent groups (C92) | partial identification of preferences of inconsistent decisionmakers (D91) |
| framing effects (D91) | conclusions about population preferences (J11) |
| stronger assumptions (C51) | tighter bounds on identified preferences (D11) |