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Persuasion in Finance

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  • Sendhil Mullainathan
  • Andrei Shleifer

Abstract

Persuasion is a fundamental part of social activity, yet it is rarely studied by economists. We compare the traditional economic model, in which persuasion is communication of objectively valuable information, with a behavioral model, in which persuasion is an effort to fit the message into the audience's already held beliefs. We present a simple formalization of the behavioral model, and compare the two models using data on financial advertising in Money and Business Week magazines over the course of the internet bubble. The evidence on the content of the persuasive messages is broadly consistent with the behavioral model of persuasion.

Suggested Citation

  • Sendhil Mullainathan & Andrei Shleifer, 2005. "Persuasion in Finance," NBER Working Papers 11838, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:11838
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    Cited by:

    1. Henrik Cronqvist, 2005. "Advertising and Portfolio Choice," CeRP Working Papers 44, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    2. Hans Gersbach & Volker Hahn, 2011. "Monetary Policy Inclinations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(8), pages 1707-1717, December.
    3. James J. Choi & David Laibson & Brigitte C. Madrian, 2010. "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds," The Review of Financial Studies, Society for Financial Studies, vol. 23(4), pages 1405-1432, April.
    4. Sendhil Mullainathan & Joshua Schwartzstein & Andrei Shleifer, 2008. "Coarse Thinking and Persuasion," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 577-619.
    5. Hirshleifer, David & Teoh, Siew Hong, 2008. "Thought and Behavior Contagion in Capital Markets," MPRA Paper 9164, University Library of Munich, Germany.
    6. Olsen, Robert A., 2008. "Trust as risk and the foundation of investment value," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(6), pages 2189-2200, December.
    7. Gerry Antioch, 2013. "Persuasion is now 30 per cent of US GDP," Economic Roundup, The Treasury, Australian Government, issue 1, pages 1-10, April.
    8. Ante Sterc, 2022. "Limited Consideration in the Investment Fund Choice," CERGE-EI Working Papers wp729, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    9. Sumit Agarwal & Brent W. Ambrose, 2008. "Does it pay to read your junk mail? evidence of the effect of advertising on home equity credit choices," Working Paper Series WP-08-09, Federal Reserve Bank of Chicago.
    10. Bettina Becker & Silke Uebelmesser, 2010. "Health Insurance Competition in Germany - the Role of Advertising," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 130(2), pages 169-194.
    11. Thomas Graeber & Christopher Roth & Constantin Schesch, 2024. "Explanations," ECONtribute Discussion Papers Series 291, University of Bonn and University of Cologne, Germany.
    12. Arjo Klamer, 2011. "Cultural entrepreneurship," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 24(2), pages 141-156, June.
    13. Riccardo Ferretti & Francesca Pancotto & Enrico Rubaltelli, 2016. "A test of the Behavioral versus the Rational model of Persuasion in Financial Advertising," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 16105, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    14. Riccardo Ferretti & Francesca Pancotto & Enrico Rubaltelli, 2016. "A test of the Behavioral versus the Rational model of Persuasion in Financial Advertising," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0059, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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