Introduction

The insights of behavioral economics have directly influenced policy in recent decades, and have started to influence the way in which welfare economics is used to design and evaluate policy. The need to provide guidance for policy design premised on behavioral patterns, and evaluate existing or new policy, has generated a “derived demand” for better descriptive models of behavior as well as better ways to understand relevant normative standpoints. This volume brings together contributions to that challenge, with a focus on behavior with respect to risky choices.

In Chapter 1, Glenn W. Harrison and Don Ross develop a philosophically consistent approach to behavioral welfare economics. They call their approach the Quantitative Intentional Stance (QIS), based on the Intentional Stance (IS) of Dennett (1971, 1987). For Dennett, there are complementary styles of scientific explanation that he calls “stances,” and the one he calls the IS is the stance most generally applicable in cognitive and behavioral science. It also happens to be close to how economists have historically constructed their explanations and models, which makes it an ideal basis for linking the modeling of descriptive behavior toward risk with the modeling of normative evaluations of this behavior. The observer, or normative policy-maker, forms priors about the (risk) preferences and (risk) perceptions of the agent being evaluated, and the choice environment the agent faces, using the best models that her evidence allows. Then the observer forms priors about how those preferences and beliefs should affect choices over risky prospects, and contrasts those expected choices with observed choices. Sometimes the agent makes the choices “expected” by the observer given her priors over preferences, beliefs, and how they should affect choices, and sometimes they are different. The former then constitute welfare gains for the agent, and the latter constitute welfare losses for the agent.¹