Year: 2007
Type: report
Abstract: The research in Psychology and Economics (a.k.a.Behavioral Economics) suggests that individuals deviate from the standard model in three respects: (i) non-standard preferences; (ii) non-standard beliefs; and (iii) non-standard decision-making.In this paper, I survey the empirical evidence from the field on these three classes of deviations.The evidence covers a number of applications, from consumption to finance, from crime to voting, from giving to labor supply.In the class of non-standard preferences, I discuss time preferences (self-control problems), risk preferences (reference dependence), and social preferences.On non-standard beliefs, I present evidence on overconfidence, on the law of small numbers, and on projection bias.Regarding non-standard decision-making, I cover limited attention, menu effects, persuasion and social pressure, and emotions.I also present evidence on how rational actors --firms, employers, CEOs, investors, and politicians --respond to the non-standard behavior described in the survey.I then summarize five common empirical methodologies used in Psychology and Economics.Finally, I briefly discuss under what conditions experience and market interactions limit the impact of the non-standard features.
DOI: 10.3386/w13420
Author: Stefano DellaVigna
Language: English
Subfield: General Decision Sciences
Field: Decision Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2343630645