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Psychological Bias as a Driver of Financial Regulation

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Author Info
Hirshleifer, David

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Abstract

I 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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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5129.

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Date of creation: 02 Oct 2007
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Handle: RePEc:pra:mprapa:5129

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Related research
Keywords: Investor psychology regulation salience omission bias scapegoating xenophobia fairness reciprocity norms mood availability cascades overconfidence evolutionary psychology memes ideology replicators

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Find related papers by JEL classification:
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

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    Other versions:
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