Koen Decancq (Antwerp): “Non-parametric well-being comparisons”

Abstract: We study the problem of making interpersonal well-being comparisons when individuals have heterogeneous – possibly incomplete – preferences. We present a robust – also incomplete – criterion for well-being comparisons that states that one individual is better off than another one if the intersection between the extended upper contour set of the better off individual and the extended lower contour set of the worse off individual is empty. We implement the criterion in the consumption-health space using an online survey with 2,260 respondents in the United States to investigate how incomplete the resulting interpersonal well-being comparison actually is. To chart the contour sets of the respondents, we propose a new “adaptive bisectional dichotomous choice” (ABDC) procedure that is based on a limited number of dichotomous choices and some mild non-parametric assumptions on the preferences. While the ABDC procedure does not reject that the preferences of a large majority of the respondents satisfy these assumptions, it has sufficient power to reject several standard parametric assumptions such as linearity or Cobb-Douglas preferences for an overwhelming number of respondents. Finally, we find that about one fifth of all pairs of respondents can be ranked in a robust way with the proposed criterion. A more complete version of the criterion is able to rank more than 60% of all pairs.

Koen Decancq is an Associate Professor at the University of Antwerp and is currently Ludwig M. Lachmann Research Fellow at the Centre for Philosophy of Natural and Social Science.