Welfare Economics with Intransitive Revealed Preferences

Economists use the standard rational model to predict behaviour under a new policy regime and to evaluate the policy according to its impact on the welfare of the people a¤ected. Experimental observation of behaviour casts serious doubt on the predictive accuracy of the standard model, but the more realistic behavioral alternatives often provide a poor basis for normative evaluations. This paper suggests that in one particular case we might be able to do both. We show that agents with standard preferences will nonetheless behave as if they are subject to an endowment e¤ect. By reframing the situation we may still be able to uncover information about true preferences. JEL Classi\u85cation: D