Psychology and Economics: Evidence from the Field

67 Pages Posted: 18 Sep 2007 Last revised: 3 Sep 2010

See all articles by Stefano DellaVigna

Stefano DellaVigna

University of California, Berkeley; National Bureau of Economic Research (NBER)

Date Written: September 2007

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.

Suggested Citation

DellaVigna, Stefano, Psychology and Economics: Evidence from the Field (September 2007). NBER Working Paper No. w13420, Available at SSRN: https://ssrn.com/abstract=1014797

Stefano DellaVigna (Contact Author)

University of California, Berkeley ( email )

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