We add some elements of prospect theory to an analytically tractable version of Lucas's “islands” model and show that the inclusion of reference dependence, declining sensitivity and loss aversion into the agents’ utility function leads to four main results. First, the presence of...

Anecdotal, empirical, and experimental evidence suggests that offering extrinsic rewards for certain activities can reduce people׳s willingness to engage in those activities voluntarily. We propose a simple rationale for this ‘crowding out’ phenomenon using standard economic arguments. The...

The combination of economic and biological factors is likely to result in overeating in the current environment of cheap and readily available food. This propensity is shown using a “dual decision” approach where choices reflect the interaction of a “deliberative” system, operating as in...

In this paper we import a mainstream psychological theory, known as attachment theory, into economics and show the implications of this theory for economic behavior by individuals in the ultimatum bargaining game. Attachment theory examines the psychological tendency to seek proximity to another...

Using a probit model, we estimated the role of emotional factors in determining household participation in the debt market, after controlling for such traditional economic predictors as age, level of education, income, wealth, and work status. A sample of 445 Caucasian subjects selected among...

This paper examines the effect of “empathy” and “sympathy” on tax compliance. We run a series of laboratory experiments in which we observe the subjects’ decisions in a series of one-shot Tax Compliance Games presented at once and with no immediate feedback. Importantly, we employ...

Beliefs have as pervasive a role as utility functions in economic models of choice, and are no more visible to the naked eye. This suggests the value of a data-theoretic approach to imperfect information along the lines of Samuelson's “revealed preference” approach to utility maximization. I...

We introduce some elements of Prospect Theory into a general equilibrium model with monopolistic competition in the good market and real wage rigidities due to (right to manage or efficient) wage bargaining, or to efficiency wages. We show that, under these types of labor market frictions, an...

We explore empirically the relevance of positional concerns in France. Unlike previous literature, we use two types of surveys, one addressed to a convenience sample, and the other to a random sample of French households living in the metropolitan area of Montpellier. Surveys are composed of a...

The world-wide inflation in executive compensation in recent years has been accompanied by an increase in the prevalence of long-term incentives. This article demonstrates how the subjectively perceived value of long-term incentives is affected by risk aversion, uncertainty aversion, and time...