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Psychology and the Market

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Author Info
Edward L. Glaeser

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Abstract

Prospect theory, loss aversion, mental accounts, hyperbolic discounting, cues, and the endowment effect can all be seen as examples of situationalism -- the view that people isolate decisions and overweight immediate aspects of the situation relative to longer term concerns. But outside of the laboratory, emotionally-powerful situational factors -- frames, social influence, mental accounts -- are almost always endogenous and often the result of self-interested entrepreneurs. As such, laboratory work and, indeed, psychology more generally, gives us little guidance as to market outcomes. Economics provides a stronger basis for understanding the supply of emotionally-relevant situational variables. Paradoxically situationalism actually increases the relative importance of economics.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10203.

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Date of creation: Jan 2004
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Handle: RePEc:nbr:nberwo:10203

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H0 - Public Economics - - General
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  20. Bruce Sacerdote & Edward L. Glaeser, 2001. "Education and Religion," NBER Working Papers 8080, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  27. Alberto Alesina & Edward Glaeser & Bruce Sacerdote, 2001. "Why Doesn't The US Have a European-Style Welfare State?," Harvard Institute of Economic Research Working Papers 1933, Harvard - Institute of Economic Research. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Matthew A. Gentzkow & Jesse M. Shapiro, 2004. "Media, Education, and anti-Americanism in the Muslim World," Microeconomics 0402005, EconWPA. [Downloadable!]
    Other versions:
  2. Edward L. Glaeser & Bryce A. Ward, 2005. "Myths and Realities of American Political Geography," NBER Working Papers 11857, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Christine Jolls & Cass R. Sunstein, 2005. "Debiasing through Law," NBER Working Papers 11738, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Berliant, Marcus, 2009. "Misbehavioral urban economics," MPRA Paper 14140, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  5. Edward L. Glaeser & Cass R. Sunstein, 2007. "Extremism and Social Learning," NBER Working Papers 13687, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Gollier, Christian, 2005. "Optimal Illusions and Decisions under Risk," IDEI Working Papers 340, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
  7. Matthew Gentzkow & Jesse Shapiro, 2005. "Media Bias and Reputation," NBER Working Papers 11664, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Gollier, Christian, 2007. "Optimal expectations with complete markets," IDEI Working Papers 463, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  9. Amanor-Bodu, Vincent, 2008. "On the Development of an Ethical Demand Theory," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6236, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  10. Burnham, Terence C. & Cesarini, David & Wallace, Björn & Johannesson, Magnus & Lichtenstein, Paul, 2007. "Billiards and Brains: Cognitive Ability and Behavior in a p-Beauty Contest," Working Paper Series in Economics and Finance 684, Stockholm School of Economics. [Downloadable!]
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