On the Difference Between Social and Private Goods

B.E. Journals of Theoretical Economics, 2013, Vol 13 (1). With S. Ludwig and A. Sandroni.

We document a revealed preference for randomization for “social goods”, while such non-standard behavior is not present for private consumption goods.

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Standard economic models have long been applied to choices over private consumption goods, but have recently been extended to incorporate social situations as well. We challenge the applicability of standard decision theoretic models to social settings. We argue that, in economically relevant social settings, agents may choose to randomize over any of the deterministic outcomes in a way that clashes with standard decision theory axioms that require lotteries not to be valued strictly above the best deterministic outcome. Thus, mainstream economic analysis is unable to fully accommodate such choices. We find little evidence of such deviations in non-social settings.

On the Difference Between Social and Private Goods

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