This paper discusses the recent research on the consumption function that has attempted to relax the assumption of certainty equivalence. While there remain many open questions, both theoretical and empirical, it is clear that the assumption of certainty equivalence can be misleading. Under more...

We present a theory of choice among lotteries in which the decision maker's attention is drawn to (precisely defined) salient payoffs. This leads the decision maker to a context-dependent representation of lotteries in which true probabilities are replaced by decision weights distorted in favor...

This paper introduces a tractable, structural model of subjective beliefs. Forward-looking agents care about expected future utility flows, and hence have higher current felicity if they believe that better outcomes are more likely. On the other hand, biased expectations lead to poorer decisions...

We study identification of time inconsistency when an agent at time 0 makes an advance commitment, and later at time 1 can revise their choice after possibly receiving additional information. Roughly speaking, we prove that the only data that reject time-consistent expected utility maximization...

We provide a user's guide to exotic' preferences: nonlinear time aggregators, departures from expected utility, preferences over time with known and unknown probabilities, risk-sensitive and robust control, hyperbolic' discounting, and preferences over sets ( temptations'). We apply each to a...

Economists have been reluctant to rely on culture as a possible determinant of economic phenomena. The notion of culture is so broad and the channels through which it can enter the economic discourse so vague that it is difficult to design testable hypotheses. In this paper we show this does...

Many economic decisions involve a binary choice - for example, when consumers decide to purchase a good or when firms decide to enter a new market. In such settings, agents' choices often depend on imperfect expectations of the future payoffs from their decision (expectational error) as well as...

In this chapter, we discuss field experiments in surveys that are conducted with the purpose of learning about expectation formation and the link between expectations and behavior. We begin by reviewing the rationale for conducting experiments within surveys, rather than just relying on...

People often estimate probabilities, such as the likelihood that an insurable risk will materialize or that an Irish person has red hair, by retrieving experiences from memory. We present a model of this process based on two established regularities of selective recall: similarity and...