TY  - JOUR
AU  - Glaeser,Edward L.
TI  - Psychology and the Market
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10203
PY  - 2004
Y2  - January 2004
UR  - http://www.nber.org/papers/w10203
L1  - http://www.nber.org/papers/w10203.pdf
N1  - Author contact info:
Edward L. Glaeser
Department of Economics
315A Littauer Center
Harvard University
Cambridge, MA 02138
Tel: 617/495-0575
Fax: 617/495-7730
E-Mail: eglaeser@harvard.edu
AB  - Prospect theory, loss aversion, mental accounts, hyperbolic discounting, cues, and the endowment effect can all be seen as examples of situationalism -- the view that people isolate decisions and overweight immediate aspects of the situation relative to longer term concerns. But outside of the laboratory, emotionally-powerful situational factors -- frames, social influence, mental accounts -- are almost always endogenous and often the result of self-interested entrepreneurs. As such, laboratory work and, indeed, psychology more generally, gives us little guidance as to market outcomes. Economics provides a stronger basis for understanding the supply of emotionally-relevant situational variables. Paradoxically situationalism actually increases the relative importance of economics.
ER  -