Presentation | 04/20/2010 | 02:45 PM
Cost benefit Analysis with Adaptive Preferences

Prof. Dr. Carl Christian von Weizsäcker,
MPI zur Erforschung von Gemeinschaftsgütern, Bonn

In traditional welfare economics preferences of individuals are the measuring rod for the performance of economic policy. Preferences were assumed to be fixed. Can we maintain an individualistic welfare economics, if we realistically assume that preferences are influenced by the goods we consume? Can preferences remain the measuring rod, if there is a feedback from the objects to be measured onto the measuring rod? I present a theory which provides a positive answer, if preferences are “adaptive”. Furthermore I develop the empirical hypothesis that the empirical and experimental results of behavioural economics conform to the assumption of adaptive preferences. It is further shown how normative partial equilibrium analysis (i.e. cost-benefit analysis) can be done under adaptive preferences.