Handbook of behavioral economics : foundations and applications 1 / edited by B. Douglas Bernheim, Stefano Dellavigna, David Laibson.

Format:

Book

Contributor:

Bernheim, B. Douglas, editor.

Della Vigna, Stefano, editor.

Laibson, David I., editor.

Language:

English

Subjects (All):

Economics--Psychological aspects.

Economics.

Physical Description:

1 online resource (749 pages)

Place of Publication:

Amsterdam : North-Holland, [2018]

Summary:

Handbook of Behavioral Economics: Foundations and Applications presents the concepts and tools of behavioral economics. Its authors are all economists who share a belief that the objective of behavioral economics is to enrich, rather than to destroy or replace, standard economics. They provide authoritative perspectives on the value to economic inquiry of insights gained from psychology. Specific chapters in this first volume cover reference-dependent preferences, asset markets, household finance, corporate finance, public economics, industrial organization, and structural behavioural economics.This Handbook provides authoritative summaries by experts in respective subfields regarding where behavioral economics has been; what it has so far accomplished; and its promise for the future. This taking-stock is just what Behavioral Economics needs at this stage of its so-far successful career.- Helps academic and non-academic economists understand recent, rapid changes in theoretical and empirical advances within behavioral economics- Designed for economists already convinced of the benefits of behavioral economics and mainstream economists who feel threatened by new developments in behavioral economics- Written for those who wish to become quickly acquainted with behavioral economics

Contents:

Front Cover

Handbook of Behavioral Economics - Foundations and Applications 1

Copyright

Contents

Contributors

Introduction to the Series

Preface

1 Reference-Dependent Preferences

1 Introduction

2 Expected Utility

2.1 Overview and some history

2.2 The EU model and risk aversion

2.3 Some issues for EU

3 Reference-Dependent Preferences

3.1 Overview and some history

3.2 Risky choice and the value function

3.3 Riskless choice

3.4 Editing and mental accounting

4 Applications with Exogenous Reference Points

4.1 Endowment effect

4.2 Labor supply

4.3 Other forms of effort provision

4.4 Finance

4.5 Coding and bracketing in applications

5 Expectations-Based Models

5.1 Overview and some history

5.2 Formulation of the expectations-based referent

5.3 What determines expectations?

5.3.1 Exogenous expectations and surprise choice

5.3.2 Endogenous expectations induced by choice

5.3.3 Endogenous expectations induced by planned choice

5.4 Applying expectations-based models

6 Applications of Expectations-Based Models

6.1 Endowment effect

6.2 Labor supply

6.3 Job search

6.4 Consumer choice and market prices

6.5 Mechanism design: auctions

6.6 Mechanism design: optimal contracting

7 Reference-Dependent "News" Utility

7.1 Overview and some history

7.2 News utility

7.3 News utility and decision making

7.4 Applications of news utility

8 Probability Weighting

8.1 Overview and some history

8.2 Simple nonlinear probability weighting

8.3 Rank-dependent probability weighting

8.4 RDPW vs. CPE

8.5 Tests of rank dependence

9 Discussion

References

2 Psychology-Based Models of Asset Prices and Trading Volume

2 Empirical Facts

2.1 Aggregate asset classes

2.2 The cross-section of average returns.

2.3 Bubbles

3 Limits to Arbitrage

4 Beliefs: Extrapolation

4.1 Return extrapolation

4.2 Extrapolation of fundamentals

4.3 Sources of extrapolative beliefs

4.4 Experience effects

4.5 Extrapolative beliefs: Summary

5 Beliefs: Overcon dence

5.1 Disagreement with a short-sale constraint

6 Other Belief-Based Approaches

6.1 Sticky beliefs

6.2 Models of under- and over-reaction

6.3 Beliefs about rare events

6.4 Feelings and beliefs

6.5 Herding and social interaction

6.6 Psychology-free approaches

7 Preferences: Gain-Loss Utility and Prospect Theory

7.1 The elements of prospect theory

7.2 Prospect theory and the cross-section: Static models

7.3 Prospect theory and the cross-section: Dynamic models

7.4 Prospect theory and the aggregate stock market

7.5 Prospect theory applications: Summary

7.6 Other alternatives to Expected Utility

8 Preferences: Ambiguity Aversion

9 Bounded Rationality

9.1 Inattention

9.2 Categorization

10 Discussion and Conclusion

Appendix A. Derivation of Eqs. (3), (4), and (5)

3 Behavioral Household Finance

Introduction

Part 1: Facts

1 Consumption and Savings

2 Borrowing

2.1 Credit cards

2.2 Payday loans

2.3 Mortgages

3 Payments

4 Asset Allocation

4.1 Stock market non-participation

4.2 Under-diversi cation

4.3 Trading behavior

4.4 Mutual fund choices

5 Insurance

5.1 Life insurance and life annuities

5.2 Property and casualty insurance

5.3 Lotteries

Part 2: Interventions

6 Education and Information

7 Peer Effects and Social In uence

8 Product Design

9 Advice and Disclosure

10 Choice Architecture

10.1 Defaults

10.2 Active choice

10.3 Commitment devices

11 Interventions that Directly Target Prices or Quantities

12 Conclusion.

Appendix A. Assets and Debt by Age Bucket and Percentile

Appendix B. Point Estimates and Standard Errors Under Multiple Imputation in the Survey of Consumer Finances

B.1 Background and point estimates

B.2 Imputation error

B.3 Sampling error

B.4 Hypothesis testing

Appendix C. Scaling Credit Card Debt in the Survey of Consumer Finances

4 Behavioral Corporate Finance

2 Three Perspectives

2.1 Corporate Finance and Behavioral Corporate Finance

2.2 Perspective 1: Biased investors

2.3 Perspective 2: Biased managers

2.4 Perspective 3: Biased third parties

2.5 Which perspective is right?

2.6 Where do we stand?-Quantifying Behavioral Corporate research

3 An Illustration: Theory and Empirics of M&A

3.1 Stylized facts

3.2 Biased investors

3.2.1 Model and predictions

3.2.2 Empirical evidence

3.3 Biased managers

3.3.1 Model and predictions

3.3.2 Empirical evidence

3.4 Biased investors and biased managers

4 Key Areas of Research

4.1 Corporate response to biased investors and analysts

4.1.1 Timing non-rational investor beliefs

4.1.2 Catering to non-standard investor demand

4.1.3 Media, attention, and information

4.2 Biased managers

4.2.1 Overcon dence

4.2.2 Other managerial biases and characteristics

4.3 Networks

5 Past and Future Developments, Open Questions, and Conclusion

6 Permissions

Appendix. Supplementary Material

References for Supplementary Appendix A

5 Behavioral Public Economics

2 Behavioral Welfare Economics

2.1 What is welfare?

2.2 Choice-oriented methods

2.2.1 The behavioral critique of standard welfare economics

2.2.2 Behavioral revealed preference

2.2.3 The Bernheim-Rangel framework

2.2.4 Empirical implementation of choice-oriented methods.

2.2.5 An application to time-inconsistency

2.2.6 The problem of the second best

2.2.7 Social aggregation

2.3 Self-reported well-being

2.3.1 SRWB as an implementation of preference theory

2.3.2 SRWB as an implementation of mental statism

2.4 Flavors of paternalism and justi cations for government intervention

2.5 Other perspectives on social objectives

3 Policies Targeting Commodities

3.1 A stylized model of consumer choice

3.2 Corrective taxation for behavioral consumers: Basic implications

3.2.1 Basic theory

3.2.2 Applications

3.2.3 Empirical measurement and implementation

3.3 Distributional concerns

3.3.1 Basic theory

3.3.2 Applications and related literature

3.4 Ef ciency costs of misperceived commodity taxes

3.4.1 Basic theory

3.4.2 Empirical measurement and implementation 56

3.5 Non-financial policy instruments

3.5.1 What is a "nudge"?

3.5.2 Justi cations for non-price interventions

3.5.3 Empirical measurement of welfare effects for non- nancial interventions

3.6 Commodity taxation with social preferences

3.6.1 The taxation of giving

3.6.2 Luxury taxes

4 Policies Targeting Saving

4.1 Behavioral themes pertaining to saving

4.2 The tax treatment of capital income

4.2.1 Imperfect self-control and the case for capital income taxation

4.2.2 Limited nancial sophistication and capital income taxation

4.3 Special savings accounts: commitment features

4.3.1 The case for illiquidity

4.3.2 The case for delayed implementation of decisions

4.3.3 Implications of population heterogeneity

4.3.4 Evidence on the demand for commitments

4.4 Special savings accounts with taxes and subsidies

4.5 Special savings accounts: default options

4.5.1 Theories of default effects

4.5.2 Optimal defaults with sophisticated time inconsistency.

4.5.3 Optimal defaults under other theories

4.6 Financial education and choice simpli cation

4.6.1 The behavioral effects of nancial education

4.6.2 The welfare effects of nancial education

4.6.3 Choice simpli cation

4.7 Mandatory saving

4.8 Other policies

5 Policies Targeting Earnings

5.1 A stylized model of income taxation with behavioral consumers

5.2 Intrinsic biases in the consumption-labor tradeoff

5.3 Biases induced by tax misperceptions

5.3.1 Confusion

5.3.2 Adoption of heuristics

5.3.3 Salience bias

5.4 Mechanism design approaches and implementation non-invariance

5.5 Consumption taxes versus income taxes

5.6 Social insurance

5.6.1 Unemployment insurance

5.6.2 Health insurance

5.7 Other issues

5.7.1 Correcting tax misperceptions

5.7.2 Tax ling and tax compliance

5.7.3 Toward more general welfare criteria

6 Concluding Remarks

Appendix A. Behavioral Themes Pertaining to Saving

A.1 Imperfect self-control

A.1.1 Imperfect self-control with time-inconsistent preferences

A.1.2 Imperfect self-control with internal goods

A.2 Limited nancial competence

A.2.1 Low nancial literacy

A.2.2 Limited reliance on experts and use of planning tools

A.2.3 The super ciality of decision processes

A.2.4 Problematic choices

6 Behavioral Industrial Organization

2 Basic Economics of Hidden Prices

2.1 Framework and safety-in-markets benchmark

2.2 Limitations on competition for naive consumers

2.3 Heterogenous naivete and distributional effects

2.4 Distortions

2.5 Example: deriving the additional price from primitives

2.6 Identifying hidden prices from market data

3 Price Discrimination with Naive Consumers

3.1 Second-degree naivete-based discrimination.

3.2 Third-degree naivete-based discrimination and privacy.

Notes:

Description based on print version record.

ISBN:

9780444633897

0444633898