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Psychology and Economics

  • Matthew Rabin

Because psychology systematically explores human judgment, behavior, and well-being, it can teach us important lessons about how humans differ from the way they are traditionally described by economists. This essay discusses a selection of psychological findings relevant to economics. While standard economics assumes that each person maximizes stable and coherent preferences given rationally-formed probabilistic beliefs, psychological research teaches us about ways to describe preferences more realistically, about biases in belief-formation, and about ways it is misleading to conceptualize people as attempting to maximize stable, coherent, and accurately perceived preferences.

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File URL: http://www.e-jel.org/archive/mar1998/Rabin.pdf
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Article provided by American Economic Association in its journal Journal of Economic Literature.

Volume (Year): 36 (1998)
Issue (Month): 1 (March)
Pages: 11-46

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Handle: RePEc:aea:jeclit:v:36:y:1998:i:1:p:11-46
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