Journal of Economic Literature: Vol. 47 No. 2 (June 2009)

DellaVigna, Stefano. 2009. "Psychology and Economics: Evidence from the Field." Journal of Economic Literature, 47(2): 315-72.

DOI: 10.1257/jel.47.2.315

The research in Psychology and Economics (a.k.a. Behavioral Economics) suggests that individuals deviate from the standard model in three respects: (1) nonstandard preferences, (2) nonstandard beliefs, and (3) nonstandard decision making. In this paper, I survey the empirical evidence from the field on these three classes of deviations. The evidence covers a number of applications, from consumption to finance, from crime to voting, from charitable giving to labor supply. In the class of nonstandard preferences, I discuss time preferences (self-control problems), risk preferences (reference dependence), and social preferences. On nonstandard beliefs, I present evidence on overconfidence, on the law of small numbers, and on projection bias. Regarding nonstandard decision making, I cover framing, limited attention, menu effects, persuasion and social pressure, and emotions. I also present evidence on how rational actors -- firms, employers, CEOs, investors, and politicians -- respond to the nonstandard behavior described in the survey. Finally, I briefly discuss under what conditions experience and market interactions limit the impact of the nonstandard features.

DellaVigna, Stefano (University of California, Berkeley)

A12: Relation of Economics to Other Disciplines
D03: Behavioral Economics: Underlying Principles