The Neuroeconomics of Financial Decisions and the Stochastic Discount Factor

Abstract

This essay argues that neuroeconomic research on financial decisions should attempt to focus on standard models that relate to the behavior being studied. It particular, it argues that a key organizing concept for such research should be the stochastic discount factor. Focusing on such models will help to focus the research as well as suggest profitable extensions of the research. The improved models will help us to better understand and craft legal rules and institutions.