Human judgments are systematically affected by various biases and distortions. The main goal of our study is to analyze the effects of five well-documented behavioral biases—namely, the disposition effect, herd behavior, availability heuristic, gambler’s fallacy and hot hand fallacy—on the...

It has been suggested that oil exploration may lead to false perceptions of decreasing scarcity. We perform a simulation of the exploration process using Bayesian updating. The approach enables us to isolate the information effect on the success rate and also to quantify the subjective...

We propose nonparametric definitions of absolute and comparative naiveté. These definitions leverage both ex-ante choice of menu to identify individuals' projections of their future behavior and ex-post choice from menus to identify their actual behavior. Their main advantage is their...

We show that professional soccer players exhibit reference-dependent behavior during matches. Controlling for the state of the match and for unobserved heterogeneity, we show on a minute-by-minute basis that a player breaches the rules of the game, measured by the referee's assignment of cards,...

This paper studies a New Keynesian business cycle model with agents who are averse to ambiguity (Knightian uncertainty). Shocks to confidence about future TFP are modeled as changes in ambiguity. To assess the size of those shocks, our estimation uses not only data on standard macro variables,...

The newsworthiness of an event is partly determined by how unusual it is and this paper investigates the business cycle implications of this fact. Signals that are more likely to be observed after unusual events may increase both uncertainty and disagreement among agents. In a simple business...

This paper studies the temporal path of subjective probability assessments. A reference-dependent agent who experiences utility from anticipation and from changes in this anticipatory emotion makes utility-maximizing assessments about his likelihood of success in a future lottery. Consistent...

The paper considers optimal monetary stabilization policy in a forward-looking model, when the central bank recognizes that private-sector expectations need not be precisely model-consistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close...

We use novel data to study the decision to undergo genetic testing by individuals at risk for Huntington disease (HD), a hereditary neurological disorder that reduces healthy life expectancy to about age 50. Although genetic testing is perfectly predictive and carries little financial or time...

Harstad and Selten (this forum) raise interesting questions about the relative promise of optimization models and bounded-rationality models in making progress in economics. This article builds from their analysis by indicating the potential for using neoclassical (broadly defined) optimization...