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We study the public policy implications of a model in which agents do not fully internalize all the conscequences of their actions. Such a model unifies seemingly disconected models with behavioral agents. We evaluate the scope of paternalistic and libertarian-parternalistic policies in light of our model, and propose an alternative policy approach, labeled soft-libertarian, which enables decision makers to internalize the conscequences of their actions. Psychotherapy is one example of a soft-libertarian policy. Moreover, we show that in our behavioral framework, policies that increase the set of opportunities or provide more information to the agent may no longer be individual welfare improving. (JEL codes: D03, D04, D60, I38)
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Dalton et al. (2011) studied this question.
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