The Road not Taken: How Psychology was Removed from Economics, and How it Might be Brought Back

Bruni, Luigino; Sugden, Robert

doi:10.1111/j.1468-0297.2007.02005.x

Cited by 278 publications

(149 citation statements)

References 41 publications

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“…But since other notions of reference point also struggle to fit the empirical evidence, this may be suggestive that, however theoretically appealing it may be, a universal notion of reference-point may not exist. And indeed, this form of obsession with generality -typical of rational choice thinking -is far from the spirit of behavioural economics (Bruni and Sugden, 2007). Taking a broader perspective, the aversion to feelings of regret (Loomes and Sugden, 1982), or to inequality (Fehr and Schmidt, 1999) may also be regarded as forms of reference-dependence, for they share the common feature of being formalised through some sort of reference point from which positive and negative components are treated asymmetrically or nonlinearly.…”

Section: Discussionmentioning

confidence: 99%

The willingness-to-accept/willingness-to-pay disparity in repeated markets: loss aversion or ‘bad-deal’ aversion?

Isoni

2010

Theory Decis

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Several experimental studies have reported that an otherwise robust regularity -the disparity between Willingness-To-Accept and Willingness-To-Pay -tends to be greatly reduced in repeated markets, posing a serious challenge to existing referencedependent and reference-independent models alike. This paper offers a new account of the evidence, based on the assumptions that individuals are affected by good and bad deals relative to the expected transaction price (price sensitivity), with bad deals having a larger impact on their utility ('bad-deal' aversion). These features of preferences explain the existing evidence better than alternative approaches, including the most recent developments of loss aversion models.Keywords: WTA/WTP disparity, price sensitivity, bad-deal aversion, Vickrey auctions, reference-dependence, loss aversion. JEL classification: D11, D44 1The disparity between the Willingness-To-Accept (WTA) and Willingness-To-Pay (WTP) measures of value has been one of the most widely studied behavioural regularities in the last four decades. The disparity -which has been documented in a large number of contingent valuation and experimental studies 1 -poses serious challenges to Hicksian consumer theory and its applications to welfare economics.While in Hicksian consumer theory WTA and WTP can reasonably be expected to differ only by a few percentage points (Willig, 1976;Randall and Stoll, 1980) many studies have reported differences of much higher orders of magnitude. Such large disparities suggest that indifference curves are not reversible (Knetsch, 1989). They imply that the impact of policies that produce changes in resource allocation cannot be evaluated indifferently using the two measures, and that the resulting welfare changes cannot be approximated by changes in consumer's surplus. If improvements and deteriorations are regarded as highly asymmetrical, the Coase theorem no longer holds. Even in the absence of transaction costs and income effects, the outcome of a negotiation critically depends on the allocation of property rights. Yet, recently, several studies have found that the extent of the disparity is greatly reduced for experienced traders (List, 2003a(List, , 2004 and when agents repeatedly interact in experimental markets (e.g. Shogren et al., 2001;Loomes et al., 2003).Taken at face value, this whole body of evidence poses a theoretical puzzle.On the one hand, the existence and robustness of the disparity in one-off situations seems to indicate that preferences depart from the assumptions of standard consumer theory in systematic ways. This has led to the development of reference-dependent models that incorporate such departures (e.g. Tversky and Kahneman, 1991;Sugden, 2003;Köszegi and Rabin, 2006;Loomes et al., 2009). On the other hand, preferences elicited in experimental markets, in which subjects face feedback, repetition, and incentives, appear sometimes to be compatible with the properties generally assumed in reference-independent economic models. This paper offers a solu...

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Section: Discussionmentioning

confidence: 99%

The willingness-to-accept/willingness-to-pay disparity in repeated markets: loss aversion or ‘bad-deal’ aversion?

Isoni

2010

Theory Decis

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“…However, if competing models predict the same pattern of choices, behavioral data are limited (Bruni and Sugden, 2007). In these cases, forcing the models to predict neural activity can provide decisive evidence (Glimcher and Rustichini, 2004;Hampton et al, 2006Hampton et al, , 2008Sanfey et al, 2006;Kable and Glimcher, 2007;Loewenstein et al, 2008).…”

Section: Introductionmentioning

confidence: 99%

Neurobiology of Value Integration: When Value Impacts Valuation

Park¹,

Kahnt²,

Rieskamp³

et al. 2011

Journal of Neuroscience

119

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Everyday choice options have advantages (positive values) and disadvantages (negative values)that need to be integrated into an overall subjective value. For decades, economic models have assumed that when a person evaluates a choice option, different values contribute independently to the overall subjective value of the option. However, human choice behavior often violates this assumption, suggesting interactions between values. To investigate how qualitatively different advantages and disadvantages are integrated into an overall subjective value, we measured the brain activity of human subjects using fMRI while they were accepting or rejecting choice options that were combinations of monetary reward and physical pain. We compared different subjective value models on behavioral and neural data. These models all made similar predictions of choice behavior, suggesting that behavioral data alone are not sufficient to uncover the underlying integration mechanism. Strikingly, a direct model comparison on brain data decisively demonstrated that interactive value integration (where values interact and affect overall valuation) predicts neural activity in value-sensitive brain regions significantly better than the independent mechanism. Furthermore, effective connectivity analyses revealed that value-dependent changes in valuation are associated with modulations in subgenual anterior cingulate cortex-amygdala coupling. These results provide novel insights into the neurobiological underpinnings of human decision making involving the integration of different values.

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“…15 See also Pareto (1971), whose views in this respect has been recently criticized (Bruni and Sugden 2007). Slutsky (1998) had practical reasons for eliminating the questions concerning 'human nature': according to him, these questions are subject to as yet unresolved controversies of which economic inquiry is largely independent.…”

Section: Figure 2 | Marginalist Homo Economicus Imentioning

confidence: 99%

Homo Economicus and Homo Stramineus

Hudík¹

2015

Prague Economic Papers

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Abstract:The model of Homo economicus has often been criticized as unrealistic. In particular, it has been found lacking for allegedly assuming that people are seli sh, an assumption which is contradicted by both introspection and empirical evidence. The aim of this paper is to show that never in the history of the economic discipline has seli shness constituted the core of the Homo economicus model. In fact, the standard economic model of behaviour which has been used by economists for more than a hundred years is reticent about the motives of behaviour. Critics thus do not criticize Homo economicus but a straw man -Homo stramineus. Three possible reasons for confusing Homo economicus with Homo stramineus are identii ed: malicious intent, ignorance and an attempt to avoid the tautological model of behaviour.

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The Road not Taken: How Psychology was Removed from Economics, and How it Might be Brought Back

Cited by 278 publications

References 41 publications

The willingness-to-accept/willingness-to-pay disparity in repeated markets: loss aversion or ‘bad-deal’ aversion?

The willingness-to-accept/willingness-to-pay disparity in repeated markets: loss aversion or ‘bad-deal’ aversion?

Neurobiology of Value Integration: When Value Impacts Valuation

Homo Economicus and Homo Stramineus

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