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Psychological Bias as a Driver of Financial Regulation

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  • David Hirshleifer

Abstract

"I propose here the psychological attraction theory of financial regulation - that regulation is the result of psychological biases on the part of political participants - voters, politicians, bureaucrats, and media commentators; and of regulatory ideologies that exploit these biases. Some key elements of the psychological attraction approach are: salience and vividness, omission bias, scapegoating and xenophobia, fairness and reciprocity norms, overconfidence, and mood effects. This approach further emphasises emergent effects that arise from the interactions of individuals with psychological biases. For example, availability cascades and ideological replicators have powerful effects on regulatory outcomes." Copyright (c) 2008 The Author Journal compilation (c) 2008 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by European Financial Management Association in its journal European Financial Management.

Volume (Year): 14 (2008)
Issue (Month): 5 ()
Pages: 856-874

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Handle: RePEc:bla:eufman:v:14:y:2008:i:5:p:856-874

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  1. Summers, L.H. & Summers, V.P., 1989. "When Financial Markets Work Too Well : A Cautious Case For A Securities Transactions Tax," Papers t12, Columbia - Center for Futures Markets.
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Citations

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Cited by:
  1. Gérard Charreaux, 2009. "Droit et gouvernance:l’apport du courant comportemental," Working Papers FARGO 1091001, Université de Bourgogne - Crego EA 7317/Fargo (Research center in Finance,organizational ARchitecture and GOvernance).
  2. Hirshleifer, David & Teoh, Siew Hong, 2009. "The Psychological Attraction Approach to Accounting and Disclosure Policy," MPRA Paper 14046, University Library of Munich, Germany.
  3. Hirshleifer, David & Teoh, Siew Hong, 2008. "Thought and Behavior Contagion in Capital Markets," MPRA Paper 9142, University Library of Munich, Germany.
  4. Nofsinger, John R., 2012. "Household behavior and boom/bust cycles," Journal of Financial Stability, Elsevier, vol. 8(3), pages 161-173.
  5. Agarwal, Sumit & Amromin, Gene & Ben-David, Itzhak & Chomsisengphet, Souphala & Evanoff, Douglas D., 2008. "The Effects of Mandated Financial Counseling on Household Mortgage Decisions: Evidence from a Natural Experiment," Working Paper Series 2008-20, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  6. Gehring, Kai, 2012. "Benefit or burden? Unraveling the effect of economic freedom on subjective well-being," Working Papers 0531, University of Heidelberg, Department of Economics.

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