Attention, Psychological Bias, and Social Interactions (Presentation Slides, for Finance Theory Group Wharton Summer School)

Abstract

Many of the psychological biases studied in behavioral finance derive from limited cognitive processing power. I will discuss a general framework for modeling limited attention and economic decisions, and applications to financial issues. I will then turn to how limited attention and other psychological factors bias the transmission of information and behaviors between financial decision makers. I will describe applications of these ideas to the evolution of agents’ beliefs, trading or project decisions, asset pricing and return anomalies, and consumption/saving decisions.

Keywords: limited attention, behavioral finance, behavioral economics, social influence, transmission bias, anomalies, consumption, saving, investing

JEL Classification: G02, G14, G11, D03, D14, D84, D85, D91