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Microeconomics and Psychology

35 Pages Posted: 25 Jul 2011  

Gregory J. DeAngelo

West Virginia University - Department of Economics

Steven Beckman

University of Colorado at Denver

Lanxin Chen

affiliation not provided to SSRN

James W. Smith

University of Colorado at Denver

Xieting Zhang

affiliation not provided to SSRN

Date Written: July 23, 2011

Abstract

Psychologists, such as the Nobel Prize winner Daniel Kahneman, challenge the major assumptions of microeconomics: the rational pursuit of self-interest given unchanging tastes. These issues are explored through a questionnaire that may be distributed in class. How many of your students behave as the psychologists predict? Should economists adapt their theories of the market to reflect their findings? Prospect theory, changes in reference points, fairness, framing effects, loss aversion, the ultimatum game, herding, context dependence, the dictator game, preference reversals and the structure of the human brain are all illustrated through simple questions. The body of the paper connects the questions to the literature and introduces the debates between economists and psychologists.

Keywords: Psychology, Rationality, Behavior, Loss Aversion

JEL Classification: D03, C91

Suggested Citation

DeAngelo, Gregory J. and Beckman, Steven and Chen, Lanxin and Smith, James W. and Zhang, Xieting, Microeconomics and Psychology (July 23, 2011). Available at SSRN: https://ssrn.com/abstract=1893788 or http://dx.doi.org/10.2139/ssrn.1893788

Gregory Joseph DeAngelo (Contact Author)

West Virginia University - Department of Economics ( email )

Morgantown, WV 26506
United States

Steven Beckman

University of Colorado at Denver ( email )

Box 173364
1250 14th Street
Denver, CO 80217
United States

Lanxin Chen

affiliation not provided to SSRN ( email )

James W. Smith

University of Colorado at Denver ( email )

Box 173364
1250 14th Street
Denver, CO 80217
United States

Xieting Zhang

affiliation not provided to SSRN ( email )

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