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Psychology and Economics

  • Rabin, Matthew

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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Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt8jd5z5j2.

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Date of creation: 01 Jan 1997
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Handle: RePEc:cdl:econwp:qt8jd5z5j2
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