Optimism bias is inconsistent with the independence of decision weights and payoffs found in models of choice under risk, such as expected utility theory and prospect theory. Hence, to explain the evidence suggesting that agents are optimistically biased, we propose an alternative model of risky...

"Informal" work refers to temporary or occasional side jobs from which earnings are presumably not reported in full to the Internal Revenue Service and which typically do not constitute a dominant or complete source of income. Perhaps the most important reason for undertaking informal work is to...

Most upper-management and sales force personnel, as well as workers in many other jobs, are paid based on performance, which is widely perceived as motivating effort and enhancing productivity relative to non-contingent pay schemes. However, psychological research suggests that excessive rewards...

This paper challenges the common assumption that economic agents know their tastes. After reviewing previous research showing that valuation of ordinary products and experiences can be manipulated by non-normative cues, we present three studies showing that in some cases people do not even have...

Dishonest acts are all too prevalent in day-to-day life. In the current review, we examine some possible psychological causes for such dishonesty that go beyond the standard economic considerations of probability and value of external payoffs. We propose a general model of dishonest behavior...

When faced with a choice of selecting one of several available products (or possibly buying nothing), a standard theoretical perspective suggests that the option with the highest benefit-cost difference will be chosen. This analysis applies to all prices including the price of zero. In contrast,...

Monetary incentives are often considered as a way to foster contributions to public goods in society and firms. This paper investigates experimentally the effect of monetary incentives in the presence of a norm enforcement mechanism. Norm enforcement through peer punishment has been shown to be...

Subsidizing charitable giving, for example, for victims of natural disasters, is very popular, not only with governments but also with private organizations. Many companies, for example, match their employees’ charitable contributions, hoping that this will foster the willingness to...

We employ experiments to illustrate one factor contributing to the lack of distrust in the recent corporate scandals: Trust rather than no trust was the default. People are more trusting when the default is full trust than when it is no trust. We introduce a new game, the distrust game (DTG),...

High rates of unemployment entail substantial costs to the working population in terms of reduced subjective well-being. This paper studies the importance of individual economic security, in particular, job security, in workers' well-being by exploiting sector-specific institutional differences...