DOCSLIB.ORG

Issue: Behavioral Economics Behavioral Economics

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Issue: Behavioral Economics Behavioral Economics Issue: Behavioral Economics Behavioral Economics By: Victoria Finkle Pub. Date: May 9, 2016 Access Date: October 1, 2021 DOI: 10.1177/237455680210.n1 Source URL: http://businessresearcher.sagepub.com/sbr-1775-99729-2729522/20160509/behavioral-economics ©2021 SAGE Publishing, Inc. All Rights Reserved. ©2021 SAGE Publishing, Inc. All Rights Reserved. Will a better understanding of behavior improve economic models? Executive Summary No longer a fledgling challenge to traditional theories, behavioral economics is a growing field of study incorporating how human psychology affects economic decisions. Economists have long held that humans are perfectly rational actors who know how to maximize their own happiness. Supporters of behavioral economics say this is simplistic, and that humans are anything but rational. They argue that a greater understanding of human motivations and incentives can improve economic models and spur better policy in government and business. Behavioral economics, they say, can influence everything from what people eat for lunch to how much they save for retirement to how companies engage with their customers. But critics respond that behaviorial economics has limitations and that efforts to influence behavior, sometimes known as nudges, aren’t as powerful as the field’s cheerleaders hope. Among the questions under debate: Will behavioral economics replace traditional economics? Should business or government “nudge” people toward certain behaviors? Can behavioral economics make managers and firms more effective? Overview HSBC gives London train travelers a “nudge” to keep their New Year’s resolutions. Behavioral economics provides the basis for interventions, known as nudges, to improve endeavors such as corporate marketing. (Stuart C. Wilson/Getty Images for HSBC) When Bruce Palmer decided he wanted to lose weight, he made sure he had some skin in the game. He had recently heard about stickK, a company developed by Yale University behavioral economists Dean Karlan and Ian Ayers in 2008, which helps people stick to their goals. 1 Participants put up money as an incentive to stay on track, with the proceeds going to either a friend (or frenemy), a charity—or an “anti-charity” if they fail. Palmer lost 40 pounds in 2013 using stickK, and when surgery and some health complications forced him to stop his workouts temporarily, he returned to the company again in January 2016 to battle some of the weight that had returned. He chose the anti-charity option both times, knowing that if he didn’t make his weekly weight-loss targets, he’d be donating to groups he strongly disagrees with, including Americans United for Life, an anti-abortion group, and the National Rifle Association. “I think that’s the extra motivation—there’s no way I’m giving those people money,” says Palmer, 54, who owns an IT consulting business in New York City. Palmer was also careful to put enough money on the line that he would think twice before slacking off. He wagered $50 per week in 2013 that he would make his weekly weight-loss goal over the course of several months, and upped the stakes to $100 a week in 2016. “If it were $5, who cares?” he says. “I’ll have an extra piece of pie for $5. But I’m not going to have the extra piece for $100, so it’s a different situation.” StickK’s model makes use of a powerful concept in behavioral economics called the commitment device, which creates an incentive for people to stay on track with self- prescribed goals. Nobody likes losing money, especially to a charity that clashes with one’s personal or political beliefs. What behavioral economics does is to apply such psychological insights to human behavior to better inform how and why people make economic decisions. “Our consumer site is based on a fundamental finding in behavioral economics, which is that the stick is more powerful than the carrot,” says Jordan Goldberg, the company’s CEO, who says that people seek out the website for all kinds of efforts. He’s seen everything from the expected, such as losing weight or keeping up with homework, to the downright quirky, such as learning how to use chopsticks. And the available evidence seems to support the company’s approach. People are nearly twice as likely to succeed if they put money on the line—the success rate almost doubles from 46 percent to 85 percent—and they’re somewhat more likely to follow through when they use the anti-charity option, according to data provided by stickK. Nearly 89 percent of those who select an anti-charity keep their goals, while 81 percent of those who pick the charity option follow through on their objectives. For the anti-charity option, stickK allows users to choose between opposing groups on either side of contentious issues like abortion, gun control and gay marriage. With the charity option, the money goes to a cause chosen at random from a predefined list for those who fail, including places like the American Red Cross and Doctors Without Borders. “We don’t let people choose an individual charity, because we don’t want it to be too much of a silver lining for not succeeding,” says Goldberg. “We don’t want people saying, ‘Oh well, at least my money is going to a cause I really care about, therefore it’s not a big deal that I didn’t succeed at my goals.’ We’re happy that we’re raising money for charity, but at the end of the day, our mission, our reason for being, is to help people improve themselves and accomplish their goals.” Page 2 of 17 Behavioral Economics SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. Among those who opt to hand over their money to an individual—a “friend or foe”—79 percent succeed. The popularity of the company’s approach—users have created more than 307,000 commitments and put more than $25 million on the line since 2008—underscores how far behavioral economics has come. 2 The field has grown rapidly over the past several decades to become a powerful, even disruptive force. Higher Stakes Boost stickK Users’ Success Rates Success rate for stickK users, by type of stake Notes: Data represent commitment contracts from 2011 through June 2014. "Success rate" shows the number of reports of success submitted by users divided by the total number of commitment contracts. “Friend or foe” means an individual who receives money from the user if he or she fails to meet his or her goals. Source: stickK The Web startup stickK helps users meet their goals by requiring them to sign commitment contracts with optional monetary stakes. From the beginning of 2011 through June 2014, 85 percent of users with money at stake met their goals, while less than half of those with no stakes did. Those who signed “anti-charity” commitments, which require them to donate money to groups with whom they disagree if they fail, were more likely to meet goals (89 percent) than those who agreed to give money to favorable charities (81 percent) or individuals (79 percent) —“friends or foes”—if they failed. Percentage of stickK user commitments, by type of stake Page 3 of 17 Behavioral Economics SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. Notes: Data represent commitment contracts from 2011 through June 2014. "Success rate" shows the number of reports of success submitted by users divided by the total number of commitment contracts. “Friend or foe” means an individual who receives money from the user if he or she fails to meet his or her goals. Source: stickK The Web startup stickK helps users meet their goals by requiring them to sign commitment contracts with optional monetary stakes. From the beginning of 2011 through June 2014, 85 percent of users with money at stake met their goals, while less than half of those with no stakes did. Those who signed “anti-charity” commitments, which require them to donate money to groups with whom they disagree if they fail, were more likely to meet goals (89 percent) than those who agreed to give money to favorable charities (81 percent) or individuals (79 percent)—“friends or foes”—if they failed. Its aim is to improve the precision of some key assumptions about how people make decisions. Traditional economists build theories on the notion that humans are perfectly rational actors who know how to maximize their own happiness; behavioral economists consider how emotions and psychological programming can undermine such assumptions. These insights have profoundly affected business people, investors, consumers and policymakers alike, although critics warn that the field is not a replacement for traditional theories and can’t solve all economic issues. The study of behavioral economics began to take off in the late 1970s, when an increasing number of psychologists and economists began to question the accuracy of “homo economicus,” the economic man, who is fully rational, self-interested and exhibits complete self-control. 3 “If you look at economics textbooks, you will learn that homo economicus can think like Albert Einstein, store as much memory as IBM’s Big Blue [computer], and exercise the willpower of Mahatma Gandhi. Really. But the folks that we know are not like that,” wrote Richard H. Thaler and Cass Sunstein, two leading behavioral economics researchers, in their 2008 best-seller, “Nudge.” 4 “Real people have trouble with long division if they don’t have a calculator, sometimes forget their spouse’s birthday, and have a hangover on New Year’s Day. They are not homo economicus; they are homo sapiens.” Of course, even the most ardent defenders of economics have conceded that these generalizations were not intended as gospel—they’re used to simplify theoretical models.
Load more

Recommended publications
  • When Does Behavioural Economics Really Matter?
    When does behavioural economics really matter? Ian McAuley, University of Canberra and Centre for Policy Development (www.cpd.org.au) Paper to accompany presentation to Behavioural Economics stream at Australian Economic Forum, August 2010. Summary Behavioural economics integrates the formal study of psychology, including social psychology, into economics. Its empirical base helps policy makers in understanding how economic actors behave in response to incentives in market transactions and in response to policy interventions. This paper commences with a short description of how behavioural economics fits into the general discipline of economics. The next section outlines the development of behavioural economics, including its development from considerations of individual psychology into the fields of neurology, social psychology and anthropology. It covers developments in general terms; there are excellent and by now well-known detailed descriptions of the specific findings of behavioural economics. The final section examines seven contemporary public policy issues with suggestions on how behavioural economics may help develop sound policy. In some cases Australian policy advisers are already using the findings of behavioural economics to advantage. It matters most of the time In public policy there is nothing novel about behavioural economics, but for a long time it has tended to be ignored in formal texts. Like Molière’s Monsieur Jourdain who was surprised to find he had been speaking prose all his life, economists have long been guided by implicit knowledge of behavioural economics, particularly in macroeconomics. Keynes, for example, understood perfectly the “money illusion” – people’s tendency to think of money in nominal rather than real terms – in his solution to unemployment.
    [Show full text]
  • Price Competition with Satisficing Consumers
    View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Aberdeen University Research Archive Price Competition with Satisficing Consumers∗ Mauro Papiy Abstract The ‘satisficing’ heuristic by Simon (1955) has recently attracted attention both theoretically and experimentally. In this paper I study a price-competition model in which the consumer is satisficing and firms can influence his aspiration price via marketing. Unlike existing models, whether a price comparison is made depends on both pricing and marketing strategies. I fully characterize the unique symmetric equilibrium by investigating the implications of satisficing on various aspects of market competition. The proposed model can help explain well-documented economic phenomena, such as the positive correla- tion between marketing and prices observed in some markets. JEL codes: C79, D03, D43. Keywords: Aspiration Price, Bounded Rationality, Price Competition, Satisficing, Search. ∗This version: August 2017. I would like to thank the Editor of this journal, two anonymous referees, Ed Hopkins, Hans Hvide, Kohei Kawamura, Ran Spiegler, the semi- nar audience at universities of Aberdeen, East Anglia, and Trento, and the participants to the 2015 OLIGO workshop (Madrid) and the 2015 Econometric Society World Congress (Montreal) for their comments. Financial support from the Aberdeen Principal's Excel- lence Fund and the Scottish Institute for Research in Economics is gratefully acknowledged. Any error is my own responsibility. yBusiness School, University of Aberdeen - Edward Wright Building, Dunbar Street, AB24 3QY, Old Aberdeen, Scotland, UK. E-mail address: [email protected]. 1 1 Introduction According to Herbert Simon (1955), in most global models of rational choice, all alternatives are eval- uated before a choice is made.
    [Show full text]
  • Course Syllabus
    Spring 2017 OIDD 690: Managerial Decision Making Professor Katy Milkman Course Syllabus INSTRUCTOR Professor Katy Milkman CLASS MEETINGS Tuesdays and Thursdays, Jon M. Huntsman Hall Room G50 1:30‐2:50 PM or 3:00‐4:20 PM OFFICE HOURS Email me, and we’ll set up an appointment. OFFICE LOCATION Jon M. Huntsman Hall 566 EMAIL [email protected] PREREQUISITES No advanced mathematical training is required for this course, although having taken an introductory probability/statistics course may be useful. TEACHING ASSISTANTS MBA Students Anupama Suryanarayanan ([email protected]) and Christopher Teng ([email protected]) and Ph.D. Candidate Edward Chang ([email protected]) 1. Overview 1.1 Background Over the last 30 years, psychologists and economists have joined forces to study how people process information and actually make decisions, rather than how they would make decision if they were fully rational and selfish. This research program (dubbed behavioral economics) has provided an understanding of how people’s decisions deviate from “optimal” choices as well as the consequences of such deviations. This course is devoted to understanding the nature, causes and implications of these limitations. The first two thirds of the course will focus on when individuals make decisions that deviate from the predictions of economics, and the final third of the course will focus on implications of these systematic decision biases for managers and policy makers. 1.2 Objectives The course has two main objectives. The first is improving the ability of the student (as a future manager) to influence the behavior of others, be they consumers, employees or people outside of a business relationship altogether.
    [Show full text]
  • ECON 1820: Behavioral Economics Spring 2015 Brown University Course Description Within Economics, the Standard Model of Be
    ECON 1820: Behavioral Economics Spring 2015 Brown University Course Description Within economics, the standard model of behavior is that of a perfectly rational, self interested utility maximizer with unlimited cognitive resources. In many cases, this provides a good approximation to the types of behavior that economists are interested in. However, over the past 30 years, experimental and behavioral economists have documented ways in which the standard model is not just wrong, but is wrong in ways that are important for economic outcomes. Understanding these behaviors, and their implications, is one of the most exciting areas of current economic inquiry. The aim of this course is to provide a grounding in the main areas of study within behavioral economics, including temptation and self control, fairness and reciprocity, reference dependence, bounded rationality and choice under risk and uncertainty. For each area we will study three things: 1. The evidence that indicates that the standard economic model is missing some important behavior 2. The models that have been developed to capture these behaviors 3. Applications of these models to (for example) finance, labor and development economics As well as the standard lectures, homework assignments, exams and so on, you will be asked to participate in economic experiments, the data from which will be used to illustrate some of the principals in the course. There will also be a certain small degree of classroom ‘flipping’, with a portion of many lectures given over to group problem solving. Finally, an integral part of the course will be a research proposal that you must complete by the end of the course, outlining a novel piece of research that you would be interested in doing.
    [Show full text]
  • PAPM 1000 Winter 2011 1
    PAPM 1000 Winter 2011 1 Carleton University Arthur Kroeger College of Public Affairs PAPM 1000: Introduction to Public Affairs and Policy Management Winter Term: History of Economic Thought Winter 2011 Instructor: Derek Ireland Wednesday: 14:35-16:25 (2:35-4:25 PM) Office: D199 Loeb Building C164 Loeb Building Phone: 613 747 9593 Office Hours: Wednesdays From 13:00 to 14:20 --Or Email: [email protected] Determined Through Emails with Student Course Objective The objective of the course is to provide an understanding of economic ideas and thinking, how these ideas have evolved and developed and been applied through many centuries, and the implications of economic ideas for past and current policy debates, analysis, development and management. What do we mean by economic ideas? Economic ideas are essentially the concepts, hypotheses, presumptions, guesses and initial thoughts on cause and effect relationships that have been identified, discussed and argued about by economic thinkers over the past decades and centuries. Some of these concepts, guesses and so on are then developed into economic theories which are applied and tested in theoretical and empirical research and policy analysis in our attempts to find answers to such questions as: . Why do consumers purchase what they do? . Why do businesses produce what they do and locate in one place rather than another? . Why do countries trade with each other and should there be more or less international trade in the future? . Why do some countries grow faster than others? . Why are the more advanced OECD countries expected by many economists to grow much more slowly in the future? .
    [Show full text]
  • Behavioral Economics and Marketing in Aid of Decision Making Among the Poor
    Behavioral Economics and Marketing in Aid of Decision Making Among the Poor The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters Citation Bertrand, Marianne, Sendhil Mullainathan, and Eldar Shafir. 2006. Behavioral economics and marketing in aid of decision making among the poor. Journal of Public Policy and Marketing 25(1): 8-23. Published Version http://dx.doi.org/10.1509/jppm.25.1.8 Citable link http://nrs.harvard.edu/urn-3:HUL.InstRepos:2962609 Terms of Use This article was downloaded from Harvard University’s DASH repository, and is made available under the terms and conditions applicable to Other Posted Material, as set forth at http:// nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of- use#LAA Behavioral Economics and Marketing in Aid of Decision Making Among the Poor Marianne Bertrand, Sendhil Mullainathan, and Eldar Shafir This article considers several aspects of the economic decision making of the poor from the perspective of behavioral economics, and it focuses on potential contributions from marketing. Among other things, the authors consider some relevant facets of the social and institutional environments in which the poor interact, and they review some behavioral patterns that are likely to arise in these contexts. A behaviorally more informed perspective can help make sense of what might otherwise be considered “puzzles” in the economic comportment of the poor. A behavioral analysis suggests that substantial welfare changes could result from relatively minor policy interventions, and insightful marketing may provide much needed help in the design of such interventions.
    [Show full text]
  • Hyperbolic Discounting and Pension Design the Case of Germany
    Stefan Zimmermann Hyperbolic Discounting and Pension Design The Case of Germany MSc Thesis 2010 Hyperbolic Discounting and Pension Design: The Case of Germany Master Thesis to achieve the degree Master of Science (M.Sc.) in Economics at the Faculty of Economics and Management at Tilburg University submitted by Stefan Zimmermann ANR: 661647 Words: 9509 Supervisor: Johannes Binswanger, PhD Second Reader: Nathanaël Vellekoop, Drs Berlin, August 17th, 2010 Abstract Both data and people’s self-reports reveal that there is a undersaving problem. Be- havioral economics seeks to explain this phenomenon with the concept of hyperbolic discounting. In essence, short-term actions are inconsistent with long-term goals. This is applied to the German pension system in this text. The results lean on a theoretical life-cycle model that is simulated in Matlab, whereby the parameters are calibrated to match the German economy. It is shown that myopic preferences lead to deviations from outcomes that would be desirable from a normative point of view. The savings rate is considerably lower for hyperbolic discounters, compared to standard discounters. Moreover, a fully funded pension scheme seems preferable to the current Pay-As-You-Go system. Contents List of Tables4 List of Figures4 1 Introduction5 2 Survey6 2.1 Facts about the German Pension System................7 2.2 Behavioral Aspects............................7 3 The Life-Cycle Model - LCM 10 3.1 The Life-Cycle Model without a Pension Scheme............ 11 3.1.1 Behavior of Private Agents.................... 11 3.2 The Life-Cycle Model with a Pension Scheme............. 16 3.2.1 Pay-As-You-Go Pension - PAYG...............
    [Show full text]
  • Esther Duflo Wins Clark Medal
    Esther Duflo wins Clark medal http://web.mit.edu/newsoffice/2010/duflo-clark-0423.html?tmpl=compon... MIT’s influential poverty researcher heralded as best economist under age 40. Peter Dizikes, MIT News Office April 23, 2010 MIT economist Esther Duflo PhD ‘99, whose influential research has prompted new ways of fighting poverty around the globe, was named winner today of the John Bates Clark medal. Duflo is the second woman to receive the award, which ranks below only the Nobel Prize in prestige within the economics profession and is considered a reliable indicator of future Nobel consideration (about 40 percent of past recipients have won a Nobel). Duflo, a 37-year-old native of France, is the Abdul Esther Duflo, the Abdul Latif Jameel Professor of Poverty Alleviation Latif Jameel Professor of Poverty Alleviation and and Development Economics at MIT, was named the winner of the Development Economics at MIT and a director of 2010 John Bates Clark medal. MIT’s Abdul Latif Jameel Poverty Action Lab Photo - Photo: L. Barry Hetherington (J-PAL). Her work uses randomized field experiments to identify highly specific programs that can alleviate poverty, ranging from low-cost medical treatments to innovative education programs. Duflo, who officially found out about the medal via a phone call earlier today, says she regards the medal as “one for the team,” meaning the many researchers who have contributed to the renewal of development economics. “This is a great honor,” Duflo told MIT News. “Not only for me, but my colleagues and MIT. Development economics has changed radically over the last 10 years, and this is recognition of the work many people are doing.” The American Economic Association, which gives the Clark medal to the top economist under age 40, said Duflo had distinguished herself through “definitive contributions” in the field of development economics.
    [Show full text]
  • Sendhil Mullainathan [email protected]
    Sendhil Mullainathan [email protected] _____________________________________________________________________________________ Education HARVARD UNIVERSITY, CAMBRIDGE, MA, 1993-1998 PhD in Economics Dissertation Topic: Essays in Applied Microeconomics Advisors: Drew Fudenberg, Lawrence Katz, and Andrei Shleifer CORNELL UNIVERSITY, ITHACA, NY, 1990-1993 B.A. in Computer Science, Economics, and Mathematics, magna cum laude Fields of Interest Behavioral Economics, Poverty, Applied Econometrics, Machine Learning Professional Affiliations UNIVERSITY OF CHICAGO Roman Family University Professor of Computation and Behavioral Science, January 1, 2019 to present. University Professor, Professor of Computational and Behavioral Science, and George C. Tiao Faculty Fellow, Booth School of Business, July 1, 2018 to December 31, 2018. HARVARD UNIVERSITY Robert C Waggoner Professor of Economics, 2015 to 2018. Affiliate in Computer Science, Harvard John A. Paulson School of Engineering and Applied Sciences, July 1, 2016 to 2018. Professor of Economics, 2004 (September) to 2015. UNIVERSITY OF CHICAGO Visiting Professor, Booth School of Business, 2016-17. MASSACHUSETTS INSTITUTE OF TECHNOLOGY Mark Hyman Jr. Career Development Associate Professor, 2002-2004 Mark Hyman Jr. Career Development Assistant Professor, 2000-2002 Assistant Professor, 1998- 2000 SELECTED AFFILIATIONS Co - Founder and Senior Scientific Director, ideas42 Research Associate, National Bureau of Economic Research Founding Member, Poverty Action Lab Member, American Academy of Arts
    [Show full text]
  • Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines*
    TYING ODYSSEUS TO THE MAST: EVIDENCE FROM A COMMITMENT SAVINGS PRODUCT IN THE PHILIPPINES* NAVA ASHRAF DEAN KARLAN WESLEY YIN We designed a commitment savings product for a Philippine bank and im- plemented it using a randomized control methodology. The savings product was intended for individuals who want to commit now to restrict access to their savings, and who were sophisticated enough to engage in such a mechanism. We conducted a baseline survey on 1777 existing or former clients of a bank. One month later, we offered the commitment product to a randomly chosen subset of 710 clients; 202 (28.4 percent) accepted the offer and opened the account. In the baseline survey, we asked hypothetical time discounting questions. Women who exhibited a lower discount rate for future relative to current trade-offs, and hence potentially have a preference for commitment, were indeed significantly more likely to open the commitment savings account. After twelve months, average savings balances increased by 81 percentage points for those clients assigned to the treatment group relative to those assigned to the control group. We conclude that the savings response represents a lasting change in savings, and not merely a short-term response to a new product. I. INTRODUCTION Although much has been written, little has been resolved concerning the representation of preferences for consumption over time. Beginning with Strotz [1955] and Phelps and Pollak [1968], models have been put forth that predict individuals will exhibit more impatience for near-term trade-offs than for future trade-offs. These models often incorporate hyperbolic or quasi- * We thank Chona Echavez for collaborating on the field work, the Green Bank of Caraga for cooperation throughout this experiment, John Owens and the USAID/Philippines Microenterprise Access to Banking Services Program team for helping to get the project started, Nathalie Gons, Tomoko Harigaya, Karen Lyons and Lauren Smith for excellent research and field assistance, and three anony- mous referees and the editors.
    [Show full text]
  • Beyond Greed and Fear Financial Management Association Survey and Synthesis Series
    Beyond Greed and Fear Financial Management Association Survey and Synthesis Series The Search for Value: Measuring the Company's Cost of Capital Michael C. Ehrhardt Managing Pension Plans: A Comprehensive Guide to Improving Plan Performance Dennis E. Logue and Jack S. Rader Efficient Asset Management: A Practical Guide to Stock Portfolio Optimization and Asset Allocation Richard O. Michaud Real Options: Managing Strategic Investment in an Uncertain World Martha Amram and Nalin Kulatilaka Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing Hersh Shefrin Dividend Policy: Its Impact on Form Value Ronald C. Lease, Kose John, Avner Kalay, Uri Loewenstein, and Oded H. Sarig Value Based Management: The Corporate Response to Shareholder Revolution John D. Martin and J. William Petty Debt Management: A Practitioner's Guide John D. Finnerty and Douglas R. Emery Real Estate Investment Trusts: Structure, Performance, and Investment Opportunities Su Han Chan, John Erickson, and Ko Wang Trading and Exchanges: Market Microstructure for Practitioners Larry Harris Beyond Greed and Fear Understanding Behavioral Finance and the Psychology of Investing Hersh Shefrin 2002 198 Madison Avenue, New York, New York 10016 Oxford University Press is a department of the University of Oxford It furthers the University's objective of excellence in research, scholarship, and education by publishing worldwide in Oxford New York Auckland Bangkok Buenos Aires Cape Town Chennai Dar es Salaam Delhi Hong Kong Istanbul Karachi Kolkata Kuala Lumpur Madrid Melbourne Mexico City Mumbai Nairobi São Paulo Shanghai Taipei Tokyo Toronto Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries Copyright © 2002 by Oxford University Press, Inc.
    [Show full text]
  • Building on Kahneman's Insights in the Development of Behavioral
    7_SHEFRIN.DOCX 5/15/2013 12:46 PM Building On Kahneman’s Insights in the Development of Behavioral Finance Hersh Shefrin* INTRODUCTION First, I want to thank Michael Kaufman for inviting me to be part of this esteemed panel. And second, I would like to thank Danny Kahneman for his wisdom, insights, generosity, kindness, and much more. On a personal dimension, I first met Danny in 1978 when he and Amos Tversky were visiting Stanford University’s Center for Advanced Study in the Behavioral Sciences. At the time I was working with Dick Thaler, who was also visiting Stanford, on developing a System 1/System 2 model of economic choice.1 It should come as no surprise that what I learned from Danny and Amos in those first interactions, and subsequently over the years, dramatically influenced my own research and indeed the entire field of economics.2 * Mario L. Belotti Professor of Finance, Santa Clara University. This Article stems from remarks that I gave in response to Daniel Kahneman’s keynote address at Loyola University Chicago School of Law’s Second Annual Investor Protection Conference, “Behavioral Economics and Investor Protection.” 1. See generally DANIEL KAHNEMAN, THINKING, FAST AND SLOW 19–109 (2011) (describing System 1 and System 2 decision making processes). Professor Adam Zimmerman briefly summarizes the two Systems as follows: Cognitive psychologists and neurologists have identified two types of decisionmaking processes: intuitive and deliberative. Intuitive decisionmaking processes, which are sometimes called System I processes, are intuitive, automatic, and quick, encompassing the types of instantaneous judgments that permit a person to size up a situation.
    [Show full text]