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Psychology and Economics

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  • Rabin, Matthew

Abstract

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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Suggested Citation

  • Rabin, Matthew, 1997. "Psychology and Economics," Department of Economics, Working Paper Series qt8jd5z5j2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  • Handle: RePEc:cdl:econwp:qt8jd5z5j2
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