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Human Behavior and the Efficiency of the Financial System

Recent literature in empirical finance is surveyed in its relation to underlying behavioral principles, principles which come primarily from psychology, sociology and anthropology. The behavioral principles discussed are: prospect theory, regret and cognitive dissonance, anchoring, mental compartments, overconfidence, over- and under-reaction, representativeness heuristic, the disjunction effect, gambling behavior and speculation, perceived irrelevance of history, magical thinking, quasi-magical thinking, attention anomalies, the availability heuristic, culture and social contagion, and global culture.

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File URL: http://cowles.yale.edu/sites/default/files/files/pub/d11/d1172.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1172.

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Length: 34 pages
Date of creation: Feb 1998
Date of revision:
Publication status: Published in J.B. Taylor and M. Woodford, eds., Handbook of Macroeconomics, Vol. 1C, Part 6, 1999, pp. 1306-1340
Handle: RePEc:cwl:cwldpp:1172
Note: CFP 1025.
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