Advances in Behavioral Economics

Advances in Behavioral Economics

Advances in Behavioral Economics

Advances in Behavioral Economics


Twenty years ago, behavioral economics did not exist as a field. Most economists were deeply skeptical--even antagonistic--toward the idea of importing insights from psychology into their field. Today, behavioral economics has become virtually mainstream. It is well represented in prominent journals and top economics departments, and behavioral economists, including several contributors to this volume, have garnered some of the most prestigious awards in the profession.

This book assembles the most important papers on behavioral economics published since around 1990. Among the 25 articles are many that update and extend earlier foundational contributions, as well as cutting-edge papers that break new theoretical and empirical ground.

Advances in Behavioral Economics will serve as the definitive one-volume resource for those who want to familiarize themselves with the new field or keep up-to-date with the latest developments. It will not only be a core text for students, but will be consulted widely by professional economists, as well as psychologists and social scientists with an interest in how behavioral insights are being applied in economics.

The articles, which follow Colin Camerer and George Loewenstein's introduction, are by the editors, George A. Akerlof, Linda Babcock, Shlomo Benartzi, Vincent P. Crawford, Peter Diamond, Ernst Fehr, Robert H. Frank, Shane Frederick, Simon Gächter, David Genesove, Itzhak Gilboa, Uri Gneezy, Robert M. Hutchens, Daniel Kahneman, Jack L. Knetsch, David Laibson, Christopher Mayer, Terrance Odean, Ted O'Donoghue, Aldo Rustichini, David Schmeidler, Klaus M. Schmidt, Eldar Shafir, Hersh M. Shefrin, Chris Starmer, Richard H. Thaler, Amos Tversky, and Janet L. Yellen.


This book was conceived several years ago when the editors, along with Drazen Prelec and Dick Thaler, spent a year as a working group at the Center for Advanced Study in Behavioral Sciences (CASES). When we weren't playing volleyball or hiking, we spent a lot of time taking stock of our field, making lists of what the main contributions were, and idly speculating about the future. We also contemplated various group projects, such as coediting a Handbook of Behavioral Economics. But none of us wanted to commit the time and energy it would take to ride herd on a group of authors who regard procrastination as such a regular feature of human behavior that they would be unembarrassed to procrastinate themselves. So the idea of a book of readings emerged, and eventually evolved into a collection of recent, important papers in the field.

The title of this collection deliberately bears the word “Advances” because we omitted many classic articles (which, by the way, any serious student of behavioral economics should read; our introductory chapter is partly designed to be an annotated guide to these influential classics). Including all of the deserving classic articles and newer contributions in one volume just stretched coverage of either type of article too thin. Fortunately, the early classics are available in many other places, including Kahneman, Slovic, and Tversky Judgment under Uncertainty: Heuristics and Biases (1982) on judgment; Kahneman and Tversky Choices, Values and Frames (2001) on choice; Elster and Loewenstein, Choice over Time (1992) on intertemporal choice; and Thaler's essential The Winner's Curse (1992). More recent compilations include Gilovich, Kahneman, and Miller, Heuristics of Judgment: Extensions and Applications (2002) on judgment; and Loewenstein, Read, and Baumeister, Time and Decision: Economic and Psychological Perspectives on Intertemporal Choice (2003) on the latest thinking about intertemporal choice.

The fact that we had to make a hard choice, and leave so many worthy papers out of the volume—not only classics, but also current works—is a testament to the progress of the field. Twenty years ago, behavioral economics did not exist as a field. There were scattered works by authors such as Duesenberry, Galbraith, Katona, Leibenstein, and Scitovsky, which received attention, but the general attitude of the field toward psychology was one of hostility and skepticism. Many economists simply didn't think it was necessary to try to model psychological limits (since errors would be extinguished by market, advice, evolution, etc.), or that it was even possible to do so parsimoniously. The older two of us experienced this hostility first-hand, from faculty members during graduate school, and later even more extremely when we attempted to publish. In fact, until about 1990, it was not uncommon to get a paper returned from a journal (usually after a delay of about a year) with a three sentence referee report saying “this isn't economics.” Fortunately, hostility switched to curiosity and acceptance rather rapidly and completely in the past few years.

How did we get here from there? A big part of the credit should go to the people to whom this book is dedicated. Kahneman and Tversky provided the raw materials . . .

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