Psychology and Economics

by: Matthew Rabin

Journal of Economic Literature, Vol. 36, No. 1. (1998), pp. 11-46.

View FullText article

DOI, JSTOR

Reviews [Write a review of this article]

There are no reviews of this article

Find related articles from these CiteULike users

brian, Bart, harperf, heintz, potvurka, GroupLens (group), Compensation-and-Benefits (group), folk_epistemology (group), ynagar, yteng2, andrea_maurizio, plm

Find related articles with these CiteULike tags

15575, ambiguity, aversion, behavioral_economics, behavioral-economics, economic, economics, no-tag, psychology, rationality, review, risk

Abstract

Because psychology systematically explores human judgment, behavior, and well-being, it can teach us important facts about how humans differ from traditional economic assumptions. In this essay I discuss a selection of psychological findings relevant to economics. Standard economics assumes that each person has stable, well-defined preferences, and that she rationally maximizes those preferences. Section 2 considers what psychological research teaches us about the true form of preferences, allowing us to make economics more realistic within the rationalchoice framework. Section 3 reviews research on biases in judgment under uncertainty; because those biases lead people to make systematic errors in their attempts to maximize their preferences, this research poses a more radical challenge to the economics model. The array of psychological findings reviewed in Section 4 points to an even more radical critique of the economics model: Even if we are willing to modify our familiar assumptions about preferences, or allow that people make systematic errors in their attempts to maximize those preferences, it is sometimes misleading to conceptualize people as attempting to maximize well-defined, coherent, or stable preferences.

@article{citeulike:87216, abstract = {Because psychology systematically explores human judgment, behavior, and well-being, it can teach us important facts about how humans differ from traditional economic assumptions. In this essay I discuss a selection of psychological findings relevant to economics. Standard economics assumes that each person has stable, well-defined preferences, and that she rationally maximizes those preferences. Section 2 considers what psychological research teaches us about the true form of preferences, allowing us to make economics more realistic within the rationalchoice framework. Section 3 reviews research on biases in judgment under uncertainty; because those biases lead people to make systematic errors in their attempts to maximize their preferences, this research poses a more radical challenge to the economics model. The array of psychological findings reviewed in Section 4 points to an even more radical critique of the economics model: Even if we are willing to modify our familiar assumptions about preferences, or allow that people make systematic errors in their attempts to maximize those preferences, it is sometimes misleading to conceptualize people as attempting to maximize well-defined, coherent, or stable preferences.}, author = {Rabin, Matthew }, citeulike-article-id = {87216}, doi = {10.2307/2564950}, journal = {Journal of Economic Literature}, keywords = {15575, behavioral-economics, economics, psychology}, number = {1}, pages = {11--46}, posted-at = {2008-03-20 15:17:33}, priority = {0}, title = {Psychology and Economics}, url = {http://dx.doi.org/10.2307/2564950}, volume = {36}, year = {1998} }

RIS record

TY - JOUR ID - citeulike:87216 L3 - citeulike-article-id:87216 TI - Psychology and Economics JF - Journal of Economic Literature VL - 36 IS - 1 SP - 11 EP - 46 N2 - Because psychology systematically explores human judgment, behavior, and well-being, it can teach us important facts about how humans differ from traditional economic assumptions. In this essay I discuss a selection of psychological findings relevant to economics. Standard economics assumes that each person has stable, well-defined preferences, and that she rationally maximizes those preferences. Section 2 considers what psychological research teaches us about the true form of preferences, allowing us to make economics more realistic within the rationalchoice framework. Section 3 reviews research on biases in judgment under uncertainty; because those biases lead people to make systematic errors in their attempts to maximize their preferences, this research poses a more radical challenge to the economics model. The array of psychological findings reviewed in Section 4 points to an even more radical critique of the economics model: Even if we are willing to modify our familiar assumptions about preferences, or allow that people make systematic errors in their attempts to maximize those preferences, it is sometimes misleading to conceptualize people as attempting to maximize well-defined, coherent, or stable preferences. KW - 15575 KW - behavioral-economics KW - economics KW - psychology AU - Rabin, Matthew PY - 1998/// UR - http://dx.doi.org/10.2307/2564950 ER -

RIS BibTeX