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Psychology and Economics: Evidence from the Field

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Author Info
Stefano DellaVigna
Abstract

The research in Psychology and Economics (a.k.a. Behavioral Economics) suggests that individuals deviate from the standard model in three respects: (i) non-standard preferences; (ii) non-standard beliefs; and (iii) non-standard decision-making. In this paper, I survey the empirical evidence from the field on these three classes of deviations. The evidence covers a number of applications, from consumption to finance, from crime to voting, from giving to labor supply. In the class of non-standard preferences, I discuss time preferences (self-control problems), risk preferences (reference dependence), and social preferences. On non-standard beliefs, I present evidence on overconfidence, on the law of small numbers, and on projection bias. Regarding non-standard decision-making, I cover limited attention, menu effects, persuasion and social pressure, and emotions. I also present evidence on how rational actors -- firms, employers, CEOs, investors, and politicians -- respond to the non-standard behavior described in the survey. I then summarize five common empirical methodologies used in Psychology and Economics. Finally, I briefly discuss under what conditions experience and market interactions limit the impact of the non-standard features.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13420.

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Date of creation: Sep 2007
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Handle: RePEc:nbr:nberwo:13420

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Find related papers by JEL classification:
A1 - General Economics and Teaching - - General Economics
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
D00 - Microeconomics - - General - - - General
D64 - Microeconomics - - Welfare Economics - - - Altruism
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
G1 - Financial Economics - - General Financial Markets
M3 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising

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  1. Armstrong, Mark & Chen, Yongmin, 2007. "Inattentive Consumers and Product Quality," MPRA Paper 4797, University Library of Munich, Germany. [Downloadable!]
  2. Paul De Grauwe, 2008. "Animal Spirits and Monetary Policy," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  3. Ruta Aidis & Tomasz Mickiewicz* & Arnis Sauka, 2008. "Why Are Optimistic Entrepreneurs Successful? An Application Of The Regulatory Focus Theory," William Davidson Institute Working Papers Series wp914, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  4. Paul De Grauwe, 2008. "DSGE-Modelling - when agents are imperfectly informed," Working Paper Series 897, European Central Bank. [Downloadable!]
  5. Uschi Backes-Gellner & Donata Bessey & Kerstin Pull & Simone Tuor, 2008. "What Behavioural Economics Teaches Personnel Economics," Working Papers 0077, University of Zurich, Institute for Strategy and Business Economics (ISU). [Downloadable!]
  6. Paul De Grauwe, 2008. "Macroeconomic Modeling when Agents are Imperfectly Informed," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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