Behavioral economics

There are three prevalent themes in behavioral finances:[3] Issues in behavioral economics[edit] Behavioral finance[edit] The central issue in behavioral finance is explaining why market participants make systematic errors contrary to assumption of rational market participants.[1] Such errors affect prices and returns, creating market inefficiencies. It also investigates how other participants take advantage (arbitrage) of such market inefficiencies. Behavioral finance highlights inefficiencies such as under- or over-reactions to information as causes of market trends (and in extreme cases of bubbles and crashes). Other key observations include the asymmetry between decisions to acquire or keep resources, known as the "bird in the bush" paradox, and loss aversion, the unwillingness to let go of a valued possession. Quantitative behavioral finance[edit] Quantitative behavioral finance uses mathematical and statistical methodology to understand behavioral biases. Financial models[edit]

Mr Keynes and the moderns It’s a great honour to be asked to give this talk, especially because I’m arguably not qualified to do so.[1] I am, after all, not a Keynes scholar, nor any kind of serious intellectual historian. Nor have I spent most of my career doing macroeconomics. Until the late 1990s my contributions to that field were limited to international issues; although I kept up with macro research, I avoided getting into the frontline theoretical and empirical disputes. By contrast I probably do have a better sense than most technically competent economists of the arguments that actually drive political discourse and policy. What I want to do in this lecture is talk first, briefly, about how to read Keynes – or rather about how I like to read him. What did Keynes really intend to be the key message of the General Theory? I’d divide Keynes readers into two types: Chapter 12ers and Book 1ers. So who’s right about how to read the General Theory? But of course, it wasn’t just about that. Figure 1. Figure 2.

The Pursuit of Happiness: Can We Have an Economy of Well-Being? - Up Front Blog At this year’s American Economic Association meetings in Denver, there were the usual panels on topics like the financial crisis and the real estate market. More unusual was a session on whether happiness measures should replace GNP. The latter was written up (rather skeptically) by The Wall Street Journal. That same month there was a similar panel at the World Economic Forum in Davos, with Jeffrey Sachs, the once wunderkind of free markets, calling for happiness as the next United Nations Millennium Development Goal. That session was written up (less skeptically) by The New York Times. What is the world coming to? I participated in both panels (kicking myself for not skiing at either place). There is also talk of happiness as a policy objective. This is exciting for scholars. In my new book, The Pursuit of Happiness, I posit that the definition of happiness that individuals select is partly determined by their capacity to pursue fulfilling lives. Even that would be a bold step.

How Online Companies Get You to Share More and Spend More | Magazine Zynga, Facebook, Apple, and many other online companies and services are refining techniques developed by game developers to keep you in their game. Photo: Christopher Griffith; brain created by Megan Caponetto/Apostrophe You’re not stupid, but you can be fooled. For millennia, the best salespeople have known how to exploit the vulnerabilities of the human mind. In the burgeoning field of behavioral economics, we’ve begun to give precise names to the mental weaknesses that make us all susceptible to a well-crafted pitch. Drawing on the insights of psychology, behavioral economists have explained why we buy more stuff at $0.99 than at $1.00 (the “left-digit effect”), why we commit to gym memberships we’ll never use (“optimism bias”), and why we don’t return things we buy as often as we should (“post-purchase rationalization”). Eliminating small frictions can radically alter one’s decisions. The more interesting mechanism is Amazon Prime, the option I have been using for years.