Taking Absurd Theories Seriously. 3 essays on Rational Choice Theory and Welfare Analysis.
2004/12: Ole J. Røgeberg, The Ragnar Frisch Centre for Economic Research and HERO
(PDF 340 kb)
The effects of public policies on the welfare of different groups in society are in many cases unclear. Economists often study such effects through welfare analyses based on a mathematical model of an individual decision maker. I show for the case of Rational Addiction theory that we have both theoretical and empirical reasons to think that the model fails to reflect the welfare of real people. I argue that the acceptance and standing of the theory is due to a failure to apply relevant criteria when evaluating such welfare analyses, that this failure makes the profession take absurd theories seriously, and that such welfare analyses should therefore be treated with scepticism and great care.ISBN: 82-7756-143-1