Psychology and Economics

Matthew Rabin

Journal of Economic Literature, 1998, vol. 36, issue 1, 11-46

Abstract: Because psychology systematically explores human judgment, behavior, and well-being, it can teach us important lessons about how humans differ from the way they are traditionally described by economists. This essay discusses a selection of psychological findings relevant to economics. While standard economics assumes that each person maximizes stable and coherent preferences given rationally-formed probabilistic beliefs, psychological research teaches us about ways to describe preferences more realistically, about biases in belief-formation, and about ways it is misleading to conceptualize people as attempting to maximize stable, coherent, and accurately perceived preferences.

Date: 1998
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Related works:
Working Paper: Psychology and Economics (1997)
Working Paper: Psychology and Economics (1997)
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