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How the market responds to dynamically inconsistent preferences

Author

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  • Ben McQuillin

    (School of Economics, University of East Anglia)

  • Robert Sugden

    (School of Economics, University of East Anglia)

Abstract

This paper responds to the 'soft paternalist' argument that the findings of behavioural economics make traditional objections to paternalism incoherent. We show that there is a normatively significant sense in which, even if individuals lack coherent preferences, competitive markets are efficient in providing them with opportunities to get what they want. Extending earlier analysis by Sugden, we model a multi-period 'storage economy' and explore the implications of dynamically inconsistent preferences. We show that, despite apparent conflicts of judgement between an individual’s 'selves', competitive markets provide maximal opportunity, and that they do so by facilitating voluntary exchanges between selves.

Suggested Citation

  • Ben McQuillin & Robert Sugden, 2011. "How the market responds to dynamically inconsistent preferences," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 11-04, School of Economics, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:wcbess:11-04
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    References listed on IDEAS

    as
    1. Robert Sugden, 2004. "The Opportunity Criterion: Consumer Sovereignty Without the Assumption of Coherent Preferences," American Economic Review, American Economic Association, vol. 94(4), pages 1014-1033, September.
    2. B. Douglas Bernheim, 2009. "Behavioral Welfare Economics," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 267-319, 04-05.
    3. Cass R. Sunstein & Richard H. Thaler, 2003. "Libertarian paternalism is not an oxymoron," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 48(Jun).
    4. B. Douglas Bernheim & Antonio Rangel, 2009. "Beyond Revealed Preference: Choice-Theoretic Foundations for Behavioral Welfare Economics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(1), pages 51-104.
    5. Richard H. Thaler & Cass R. Sunstein, 2023. "Libertarian paternalism," Chapters, in: Cass R. Sunstein & Lucia A. Reisch (ed.), Research Handbook on Nudges and Society, chapter 1, pages 10-16, Edward Elgar Publishing.
    6. Sugden, Robert, 2010. "Opportunity As Mutual Advantage," Economics and Philosophy, Cambridge University Press, vol. 26(1), pages 47-68, March.
    7. Peter J. Hammond, 2003. "Equal rights to trade and mediate," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 21(2), pages 181-193, October.
    8. B. Douglas Bernheim & Antonio Rangel, 2007. "Toward Choice-Theoretic Foundations for Behavioral Welfare Economics," American Economic Review, American Economic Association, vol. 97(2), pages 464-470, May.
    9. Robert Sugden, 2007. "The value of opportunities over time when preferences are unstable," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 29(4), pages 665-682, December.
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    Citations

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    Cited by:

    1. Schubert, Christian, 2015. "Opportunity And Preference Learning," Economics and Philosophy, Cambridge University Press, vol. 31(2), pages 275-295, July.
    2. Robert Sugden, 2017. "Characterising competitive equilibrium in terms of opportunity," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 48(3), pages 487-503, March.
    3. Robert Sugden, 2011. "The behavioural economist and the social planner: to whom should behavioural welfare economics be addressed?," Papers on Economics and Evolution 2011-21, Philipps University Marburg, Department of Geography.
    4. Bertrand Crettez & Régis Deloche, 2021. "Time-inconsistent preferences and the minimum legal tobacco consuming age," Rationality and Society, , vol. 33(2), pages 176-195, May.
    5. Schnellenbach, Jan & Schubert, Christian, 2014. "Behavioral public choice: A survey," Freiburg Discussion Papers on Constitutional Economics 14/03, Walter Eucken Institut e.V..
    6. Klump Rainer & Wörsdörfer Manuel, 2015. "Paternalistic Economic Policies: Foundations, Implications and Critical Evaluations," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 66(1), pages 27-60, January.
    7. Christian Schubert, 2021. "Opportunity meets self-constitution," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 68(1), pages 51-65, March.
    8. Robert Sugden, 2015. "Consumers' surplus when individuals lack integrated preferences: A development of some ideas from Dupuit," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 22(6), pages 1042-1063, December.
    9. Schubert Christian & Binder Martin, 2014. "Reconciling Normative and Behavioral Economics: An Application of the “Naturalistic Approach” to the Adaptation Problem," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 234(2-3), pages 350-365, April.
    10. Bruce Lyons & Robert Sugden, 2021. "Transactional fairness and pricing practices in consumer markets," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2021-03, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    11. Mozaffar Qizilbash, 2019. "The market, utilitarianism and the corruption argument," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 66(1), pages 37-55, March.
    12. Bruce Lyons & Robert Sugden, 2020. "Transactional fairness and unfair price discrimination in consumer markets," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2020-07, Centre for Competition Policy, University of East Anglia, Norwich, UK..

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