from the Wikipedia entry on "behavioral finance":
>There are three main themes in behavioral finance and economics
(Shefrin, 2002):
* Heuristics: People often make decisions based on approximate rules of thumb, not strictly rational analyses. See also cognitive biases and bounded rationality.
* Framing: The way a problem or decision is presented to the decision maker will affect their action.
* Market inefficiencies: There are explanations for observed market outcomes that are contrary to rational expectations and market efficiency. These include mispricings, non-rational decision making, and return anomalies. Richard Thaler, in particular, has written a long series of papers describing specific market anomalies from a behavioral perspective.
>Market wide anomalies can not generally be explained by individuals
suffering from cognitive biases, as individual biases often do not
have a large enough effect to change market prices and returns. In
addition, individual biases could potentially cancel each other out.
Cognitive biases have real anomalous effects only if there is a social
contamination with a strong emotional content (collective greed or
fear), leading to more widespread phenomena such as herding and
groupthink. Behavioral finance and economics rests as much on social
psychology as on individual psychology.
>There are two exceptions to this general statement. First, it might
be the case that enough individuals exhibit biased (ie. different from
rational expectations) behavior that such behavior is the norm and
this behavior would, then, have market wide effects. Further, some
behavioral models explicitly demonstrate that a small but significant
anomalous group can have market-wide effects (eg. Fehr and Schmidt,
1999).<
There's also Herbert Simon's idea of bounded rationality, which says that people can't always calculate what something is worth (or what it costs) to them.
I don't know how this can help.
On 4/14/06, Grace Loehr <divinegracie at earthlink.net> wrote:
> Hey all,
> (I forget if this email goes to Kelley or the entire list -- I'd like it to
> go to the entire list) What's that "new" economic theory I read about in
> the recent past ... the one that proves that people don't make economic and
> purchasing choices based on rational choice, but on other, nonrational,
> emotional factors? I want to mention this in context of discussing women's
> reproductive rights in the context of having HIV infection for a
> presentation I have at school. (Which I'm petrified about as I have no
> public speaking experience)
>
> The "official" CDC recommendation is that HIV infected women NOT have
> children or breastfeed, and health care providers telling pts this can be
> devastating and have the opposite effect, esp. with black pts, for whom
> memory of the Tuskegee Syphilis Study is still alive. White hcp's telling
> black pts these things are clueless about how their words are heard. There
> are conspiracy theories and genocide theories abounding in the black
> community about HIV (the gov't created it to decimate black people; the
> gov't is withholding treatment from blacks; &c) similar to other
> conspiracy/genocide theories vis a vis the public health system, health
> care system, and the black population.
>
> Any suggestions on ethical or other ideas to use with this topic?
>
> Grace
>
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>
-- Jim Devine / "There can be no real individual freedom in the presence of economic insecurity." -- Chester Bowles