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The Effect of Affect on Economic and Strategic Decision Making

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  • Benjamin E. Hermalin

    (University of California, Berkeley)

  • Alice M. Isen

    (Cornell University)

Abstract

The standard economic model of decision making assumes a decision maker makes her choices to maximize her utility or happiness. Her current emotional state is not explicitly considered. Yet there is a large psychological literature that shows that current emotional state, in particular positive affect, has a significant effect on decision making. This paper offers a way to incorporate this insight from psychology into economic modeling. Moreover, this paper shows that this simple insight can parsimoniously explain a wide variety of behaviors.

(This abstract was borrowed from another version of this item.)

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File URL: http://128.118.178.162/eps/mhet/papers/9912/9912001.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Method and Hist of Econ Thought with number 9912001.

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Length: 28 pages
Date of creation: 16 Feb 2000
Date of revision:
Handle: RePEc:wpa:wuwpmh:9912001

Note: 28 pages Acrobat.pdf
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Web page: http://128.118.178.162

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  1. Kaufman, Bruce E., 1999. "Emotional arousal as a source of bounded rationality," Journal of Economic Behavior & Organization, Elsevier, vol. 38(2), pages 135-144, February.
  2. Romer, Paul M., 2000. "Thinking and Feeling," Research Papers 1618, Stanford University, Graduate School of Business.
  3. Laibson, David I., 2000. "A Cue-Theory of Consumption," Scholarly Articles 4481496, Harvard University Department of Economics.
  4. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  5. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  6. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  7. Benhabib, Jess & Day, Richard H, 1981. "Rational Choice and Erratic Behaviour," Review of Economic Studies, Wiley Blackwell, vol. 48(3), pages 459-71, July.
  8. Shira B. Lewin, 1996. "Economics and Psychology: Lessons for Our Own Day from the Early Twentieth Century," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1293-1323, September.
  9. Jon Elster, 1998. "Emotions and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 47-74, March.
  10. W. Bentley MacLeod, 1996. "Decision, Contract, and Emotion: Some Economics for a Complex and Confusing World," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 788-810, November.
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Cited by:
  1. Mohanty, Madhu S. & Ullah, Aman, 2012. "Direct and indirect effects of happiness on wage: A simultaneous equations approach," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(2), pages 143-152.
  2. Hakan Berument & Onur Ince & Eray Yucel, 2006. "Success in soccer and economic performance: Evidence from beŞİktaŞ-Turkey," International Review of Economics, Springer, vol. 53(2), pages 260-274, June.
  3. Lucy F. Ackert & Jorge Martinez-Vazquez & Mark Rider, 2004. "Tax Policy Design in The Presence of Social Preferences: Some Experimental Evidence," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0425, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  4. De Figueiredo, John M. & De Figueiredo, Rui J. P. Jr., 2002. "Managerial Decision-Making in Non-Market Environments: A Survey Experiment," Working papers 4246-02, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Konstantinos Drakos, 2009. "Security Economics: A Guide for Data Availability and Needs," Economics of Security Working Paper Series 6, DIW Berlin, German Institute for Economic Research.
  6. James, Harvey S., Jr. & Chymis, Athanasios G., 2004. "Are Happy People Ethical People? Evidence From North America And Europe," Working Papers 26034, University of Missouri Columbia, Department of Agricultural Economics.
  7. Dragone, Davide & Viviani, Michele, 2007. "Cultura Organizzativa e Sostenibilita' della Governance Multistakeholder," AICCON Working Papers 40-2007, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
  8. Kirchsteiger, Georg & Rigotti, Luca & Rustichini, Aldo, 2001. "Your Morals Are Your Moods," Department of Economics, Working Paper Series qt5fh525g8, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  9. Kirchsteiger, Georg & Rigotti, Luca & Rustichini, Aldo, 2006. "Your morals might be your moods," Journal of Economic Behavior & Organization, Elsevier, vol. 59(2), pages 155-172, February.
  10. Lucy F. Ackert & Bryan K. Church & Richard Deaves, 2003. "Emotion and financial markets," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 33-41.
  11. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  12. Stephan Meier & Alois Stutzer, . "Is Volunteering Rewarding in Itself?," IEW - Working Papers 180, Institute for Empirical Research in Economics - University of Zurich.

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