Psychological Bias as a Driver of Financial Regulation
AbstractI 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 emphasizes 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.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 5129.
Date of creation: 02 Oct 2007
Date of revision:
Investor psychology; regulation; salience; omission bias; scapegoating; xenophobia; fairness; reciprocity; norms; mood; availability cascades; overconfidence; evolutionary psychology; memes; ideology; replicators;
Other versions of this item:
- David Hirshleifer, 2008. "Psychological Bias as a Driver of Financial Regulation," European Financial Management, European Financial Management Association, vol. 14(5), pages 856-874.
- G0 - Financial Economics - - General
- H0 - Public Economics - - General
- H10 - Public Economics - - Structure and Scope of Government - - - General
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-06 (All new papers)
- NEP-CBE-2007-10-06 (Cognitive & Behavioural Economics)
- NEP-REG-2007-10-06 (Regulation)
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