ABSTRACT
Chapter 1 sets out the economic and social problems that are discussed in this book. Many economists recognize that there are situations in which competitive markets generate unsatisfactory outcomes (market failures) and government intervention can lead to better outcomes. Public economics typically lists four market failures that may justify government intervention in markets: imperfect competition (or natural monopoly), externalities, public goods, and asymmetric information. Recent research in behavioral economics highlights a fifth possible market failure—individuals may make mistakes in pursuing their own well-being. Systematic errors constitute a behavioral market failure, which brings us to the realm of behavioral public economics. What makes people better off is not the satisfaction of revealed preferences, but true preferences which may not always be observed through choice.
