Advances in Behavioral Economics

Edited by Colin F. Camerer, George Loewenstein, & Matthew Rabin

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.

LIST OF CONTRIBUTORS xi PREFACE xxi ACKNOWLEDGMENTS xxv PART ONE: INTRODUCTION 1 CHAPTER ONE Behavioral Economics: Past, Present, Future by Colin F. Camerer and George Loewenstein 3 PART TWO: BASIC TOPICS 53 REFERENCE-DEPENDENCE AND LOSS-AVERSION CHAPTER TWO Experimental Tests of the Endowment Effect and the Coase Theorem by Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler 55 CHAPTER THREE Mental Accounting Matters by Richard H. Thaler 75 PREFERENCES OVER RISKY AND UNCERTAIN OUTCOMES CHAPTER FOUR Developments in Nonexpected-Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk by Chris Starmer 104 CHAPTER FIVE Prospect Theory in the Wild: Evidence from the Field by Colin F. Camerer 148 INTERTEMPORAL CHOICE CHAPTER SIX Time Discounting and Time Preference: A Critical Review by Shane Frederick, George Loewenstein, and Ted O'Donoghue 162 CHAPTER SEVEN Doing It Now or Later by Ted O'Donoghue and Matthew Rabin 223 FAIRNESS AND SOCIAL PREFERENCES CHAPTER EIGHT Fairness as a Constraint on Profit Seeking: Entitlements in the Market by Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler 252 CHAPTER NINE A Theory of Fairness, Competition, and Cooperation by Ernst Fehr and Klaus M. Schmidt 271 CHAPTER TEN Incorporating Fairness into Game Theory and Economics by Matthew Rabin 297 CHAPTER ELEVEN Explaining Bargaining Impasse: The Role of Self-Serving Biases by Linda Babcock and George Loewenstein 326 GAME THEORY CHAPTER TWELVE Theory and Experiment in the Analysis of Strategic Interaction by Vincent P. Crawford 344 CHAPTER THIRTEEN Behavioral Game Theory: Predicting Human Behavior in Strategic Situations by Colin F. Camerer 374 PART THREE: APPLICATIONS 393 MACROECONOMICS AND SAVINGS CHAPTER FOURTEEN Mental Accounting, Saving, and Self-Control by Hersh M. Shefrin and Richard H. Thaler 395 CHAPTER FIFTEEN Golden Eggs and Hyperbolic Discounting by David Laibson 429 CHAPTER SIXTEEN The Fair Wage-Effort Hypothesis and Unemployment by George A. Akerlof and Janet L. Yellen 458 CHAPTER SEVENTEEN Money Illusion by Eldar Shafir, Peter Diamond, and Amos Tversky 483 LABOR ECONOMICS CHAPTER EIGHTEEN Fairness and Retaliation: The Economics of Reciprocity by Ernst Fehr and Simon Gächter 510 CHAPTER NINETEEN Labor Supply of New York City Cab Drivers: One Day at a Time by Colin F. Camerer, Linda Babcock, George Loewenstein, and Richard H. Thaler 533 CHAPTER TWENTY Wages, Seniority, and the Demand for Rising Consumption Profiles by Robert H. Frank and Robert M. Hutchens 548 CHAPTER TWENTY-ONE Incentives, Punishment, and Behavior by Uri Gneezy and Aldo Rustichini 572 FINANCE CHAPTER TWENTY-TWO Myopic Loss-Aversion and the Equity Premium Puzzle by Shlomo Benartzi and Richard H. Thaler 590 CHAPTER TWENTY-THREE Do Investors Trade Too Much? by Terrance Odean 606 CHAPTER TWENTY-FOUR Loss-Aversion and Seller Behavior: Evidence from the Housing Market by David Genesove and Christopher Mayer 633 PART FOUR: NEW FOUNDATIONS 657 CHAPTER TWENTY-FIVE Case-Based Decision Theory by Itzhak Gilboa and David Schmeidler 659 CHAPTER TWENTY-SIX Out of Control: Visceral Influences on Behavior by George Loewenstein 689 INDEX 725