Behavioral Economics and Its Applications by Peter Diamond, Hannu Vartiainen PDF

By Peter Diamond, Hannu Vartiainen

ISBN-10: 0691122849

ISBN-13: 9780691122847

In the decade, behavioral economics, borrowing from psychology and sociology to provide an explanation for judgements inconsistent with conventional economics, has revolutionized the best way economists view the area. yet regardless of this common good fortune, behavioral pondering has essentially reworked just one box of utilized economics-finance. Peter Diamond and Hannu Vartiainen's Behavioral Economics and Its Applications argues that behavioral economics could have an analogous influence in different fields of economics.

during this quantity, a number of the world's best thinkers in behavioral economics and common financial idea make the case for a far better use of behavioral rules in six fields the place those rules have already proved necessary yet haven't but been totally incorporated--public economics, improvement, legislations and economics, overall healthiness, salary decision, and organizational economics. the result's an try to set the time table of a tremendous improvement in economics--an time table that would curiosity policymakers, sociologists, and psychologists in addition to economists.

individuals contain Ian Ayres, B. Douglas Bernheim, Truman F. Bewley, Colin F. Camerer, Anne Case, Michael D. Cohen, Peter Diamond, Christoph Engel, Richard G. Frank, Jacob Glazer, Seppo Honkapohja, Christine Jolls, Botond Koszegi, Ulrike Malmendier, Sendhil Mullainathan, Antonio Rangel, Emmanuel Saez, Eldar Shafir, Sir Nicholas Stern, Jean Tirole, Hannu Vartiainen, and Timothy D. Wilson.

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2001b). , due to disability), retirement reflects “bad news,” to which consumption must adjust. Moreover, these same individuals find themselves with less-than-average wealth at retirement. However, even when the effects of unexpected retirement are removed through statistical procedures, one still observes both a decline in consumption at retirement, and a strong correlation between the size of this effect and accumulated wealth. Notably, the sharp drop in consumption at retirement is also larger for households with lower rates of income replacement from social security and pension plans 23 C HA PT E R T W O (Bernheim et al.

Assuming that information is not an issue, there is no role for government in the absence of preexisting distortions. It may be appropriate for the government to tax or subsidize capital income as part of a second-best policy in the presence of revenue requirements, to ensure an adequate level of competition in financial markets, to minimize fraud, and to alleviate adverse selection problems. However, under the standard view, there is nothing wrong with the choices people make, given the constraints they face.

One interesting example of this approach appears in Sugden (2004), who argues for a notion of welfare based on opportunities. Sugden formulates a rigorous welfare criterion along these lines, and proves a counterpart to the first welfare theorem. There are many practical and philosophical reasons to consider welfare standards based on opportunities rather than allocations (see, for example, Cohen 1989; Sen 1992; Roemer 1998). This certainly simplifies some aspects of measurement, and it avoids the need to systematize behavioral observations by imposing untested assumptions.

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