Experimental demonstration of systematic errors and biases in human choice behavior might seem to undermine the conceptual basis of the individualistic approach to welfare analysis, in which people's interests are inferred from the choices that they are observed to make. This essay argues that...

Observed choices between risky lotteries are difficult to reconcile with expected utility maximization, both because subjects appear to be too risk averse with regard to small gambles for this to be explained by diminishing marginal utility of wealth, as stressed by Rabin (2000), and because...