This paper examines the measurement of social welfare, poverty and inequality taking into account reference-dependence, loss aversion and diminishing sensitivity — aspects emphasized in Prospect Theory — to social welfare measurement. We suggest a new notion of equivalent income, the income...

This paper examines the measurement of social welfare, poverty and inequality taking into account features that have been found to be important welfare determinants in behavioural economics. Most notably, we incorporate reference-dependence, loss aversion and diminishing sensitivity — aspects...