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Human Behavior and the Efficiency of the Financial System

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Abstract

Recent literature in empirical finance is surveyed in its relation to underlying behavioral principles, principles which come primarily from psychology, sociology and anthropology. The behavioral principles discussed are: prospect theory, regret and cognitive dissonance, anchoring, mental compartments, overconfidence, over- and under-reaction, representativeness heuristic, the disjunction effect, gambling behavior and speculation, perceived irrelevance of history, magical thinking, quasi-magical thinking, attention anomalies, the availability heuristic, culture and social contagion, and global culture.

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File URL: http://cowles.econ.yale.edu/P/cd/d11b/d1172.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1172.

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Length: 34 pages
Date of creation: Feb 1998
Date of revision:
Publication status: Published in J.B. Taylor and M. Woodford, eds., Handbook of Macroeconomics, Vol. 1C, Part 6, 1999, pp. 1306-1340
Handle: RePEc:cwl:cwldpp:1172

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