Behavioral cost-benefit economics: Toward a new normative approach to policy

Berg, Nathan (2002): Behavioral cost-benefit economics: Toward a new normative approach to policy. Published in: In Kantarelis, D. (ed.), Global Business & Economics Review-Anthology (2002): pp. 132-141.

Abstract

This paper addresses the question of whether the findings of behavioral economics imply that techniques used in cost-benefit analysis should be modified. The findings of behavioral economics considered include the status-quo effect, loss-aversion, overconfidence and hyperbolic discounting. These behavioral phenomena do indeed imply that concepts from cost-benefit analysis such as consumer surplus, the Kaldor-Hicks criterion, shadow-price valuation, and time discounting, need to be modified. The most important modifications follow from the status-quo effect, which provides a new reason to reject policy proposals that yield only small percentage benefits relative to costs.

• Item Type: MPRA Paper
• Language: English
• Keywords: Cost-Benefit Analysis, Behavioral Economics, Status-Quo Effect, Loss Aversion, Overconfidence, Hyperbolic Discounting
• Subjects: D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles

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