In a groundbreaking advancement at the intersection of economics and human development theory, recent research has proposed a novel framework that integrates behavioral economics with the capability approach, resulting in what is being termed "capabilitarian behavioral economics." This innovative perspective not only challenges conventional behavioral economic models but also seeks to enrich them by centering human capabilities—defined as the real freedoms individuals have to achieve valuable functionings—as the core unit of analysis. Authored by Paco Garces-Velastegui and published in the International Review of Economics in 2024, this paper aims to recalibrate the way economists understand human behavior by emphasizing multidimensional well-being over narrow utility maximization.
Traditional behavioral economics has made impressive strides by incorporating psychological realism into economic models, accounting for cognitive biases, heuristics, and other deviations from classical rationality. However, critiques of behavioral economics often point to its limited normative foundation, primarily focused on correcting biases to improve decision-making under the assumption that individuals seek to maximize subjective utility. The capability approach, originally developed by economist and philosopher Amartya Sen, broadens the evaluative space by prioritizing what people are actually able to do and be, rather than reducing well-being to utility or resources alone. Garces-Velastegui’s synthesis asserts that behavioral interventions should be assessed not only by their effects on choice architecture but also by their capacity to expand or restrict people’s capabilities.
One of the core technical contributions of this research lies in the formal modeling of capabilities within a behavioral framework. Unlike utility, which is often modeled as a scalar and ordinal function over commodity bundles or chosen actions, capabilities are represented as multidimensional vectors capturing various functionings—such as health, education, social participation, and autonomy—that individuals deem valuable. The challenge is translated into designing behavioral economic models that accommodate these multidimensional vectors while preserving testability and empirical applicability. Garces-Velastegui approaches this by proposing a capability-informed utility function, which internally weighs choices not just by immediate preferences but also by their impact on expanding constituencies of freedoms.
The implications of this paradigm shift are substantial, especially in policy design. Behavioral policies informed by capabilitarian economics would steer away from paternalistic nudges that reinforce certain behaviors based solely on efficiency criteria. Instead, they would advocate for interventions that enhance agency and opportunity sets, making welfare enhancement intrinsically tied to expanding capabilities. This may require reconsidering the often criticized “libertarian paternalism” framework and embracing a more pluralistic ethical foundation that accounts for diverse individual aspirations, power asymmetries, and contextual factors influencing capability development.
Technically, integrating the capability approach into behavioral economics necessitates overcoming methodological obstacles. Traditional revealed preference approaches struggle with nondichotomous outcomes and incomplete preferences over complex capability sets. To address this, Garces-Velastegui advances an axiomatic foundation that redefines rationality norms within capability spaces, allowing for incompleteness and context sensitivity. This results in models that better reflect real-world decision-making where individuals’ preferences may depend on socially embedded values and dynamic aspirations, challenging the static assumptions of classical economic agents.
Furthermore, the paper explores the role of cognitive biases and bounded rationality not as mere obstacles to be corrected but as phenomena that must be understood through the lens of capability restrictions. For example, poverty-induced scarcity may impair cognitive bandwidth, limiting an individual’s capability to make long-term beneficial decisions, thus creating a feedback loop between capability deprivation and suboptimal behavior patterns. This reframing transforms behavioral shortcomings into indicators of structural capability constraints, highlighting the ethical imperative for policy interventions that address underlying capability deficits, rather than only symptomatic behavioral anomalies.
The multi-dimensionality inherent to the capability approach also invites richer empirical strategies. Data collection and econometric techniques must be adapted to capture heterogeneous and interdependent dimensions of functionings. The paper suggests utilizing mixed-method approaches that combine quantitative surveys with ethnographic insights to map local entitlements and aspiration structures. This enriched data environment provides a fertile ground for testing behavioral hypotheses within realistic capability contexts, enabling policymakers to tailor interventions commensurate with lived realities rather than abstracted utility functions.
Incorporating the capability approach also has ramifications for measuring economic development and welfare beyond traditional GDP-centric metrics. Behavioral economics infused with the capability framework advocates for composite indices reflecting individuals’ opportunities to lead lives they value, highlighting disparities obscured by aggregate income statistics. Such indices could incorporate psychological well-being, social inclusion, and empowerment measures, providing a more nuanced evaluation of policy efficacy and societal progress over time.
Moreover, the article critiques current applications of behavioral economics that often inadvertently reinforce inequalities by failing to address differential capability endowments. Nudges designed for middle-class populations may not translate effectively for marginalized groups whose capabilities are constrained by systemic barriers. Capabilitarian behavioral economics thus calls for a more equity-sensitive approach, integrating social justice perspectives into behavioral policy design. This enhances both fairness and efficiency by recognizing that expanding capabilities is essential for enabling meaningful choice.
Garces-Velastegui also conceptualizes a framework for interdisciplinary collaboration, urging economists to dialogue with philosophers, sociologists, and psychologists to enrich models of human behavior with ethical and contextual complexity. This confluence is necessary to navigate the intricate terrains of freedom, agency, and social norms that define capabilities but evade purely economic quantification. The paper suggests that such dialogue can mitigate reductionism and foster conceptual sophistication critical for addressing contemporary challenges like climate change, health disparities, and technological disruptions.
Importantly, the paper discusses the potential for capabilitarian behavioral economics to revolutionize education and health policy design. By emphasizing capabilities, interventions can transcend rote behavioral change and foster environments where individuals can develop skills, resilience, and autonomy. In education, this implies curricula and pedagogies designed not solely for knowledge acquisition but for cultivating diverse functionings aligned with personal and societal values. Similarly, health interventions must account for patients’ capability sets, empowering them to manage their conditions within broader life contexts.
The research also forecasts significant implications for welfare economics and ethical theory. By centering capabilities, welfare analyses can better account for justice, empowerment, and participatory dimensions frequently neglected by utility-based approaches. The paper encourages a reevaluation of welfare criteria, suggesting that societal assessments should focus on collective capability enhancements rather than aggregate utility sums, aligning with a broader human development agenda.
Finally, Garces-Velastegui’s work ignites a call to action for policymakers, scholars, and practitioners. Incorporating capabilities into behavioral economics not only improves descriptive accuracy but also promotes a transformative normative agenda oriented toward human flourishing. The melding of these two intellectual traditions offers a powerful toolkit to tackle entrenched societal challenges, guiding interventions that respect dignity, promote agency, and enable truly meaningful economic decisions.
This pioneering study represents a significant step in redefining behavioral economics through the lens of human capabilities. By questioning established assumptions and proposing a rigorous theoretical and empirical foundation for capabilitarian behavioral economics, it opens new pathways for research and policy reforms. As behavioral science continues to evolve, integrating ethical insights about freedom and opportunity promises richer, more equitable understandings of human behavior in complex social environments.
Subject of Research: Integration of behavioral economics and the capability approach to develop a framework called "capabilitarian behavioral economics," focusing on how behavioral economics can learn from and incorporate the multidimensional concept of capabilities.
Article Title: A capabilitarian behavioral economics: what behavioral economics can learn from the capability approach.
Article References:
Garces-Velastegui, P. A capabilitarian behavioral economics: what behavioral economics can learn from the capability approach. International Review of Economics 71, 667–690 (2024). https://doi.org/10.1007/s12232-024-00457-8
Image Credits: AI Generated
