Considerable evidence shows that people have optimistic beliefs about future outcomes. I present an axiomatic model of wishful thinking (WT), in which an endowed alternative, or status quo, influences the agent's beliefs over states and thus induces such optimism. I introduce a behavioral axiom...

Considerable evidence shows that people have optimistic beliefs about future outcomes. I present an axiomatic model of wishful thinking (WT), in which an endowed alternative, or status quo, influences the agent's beliefs over states and thus induces such optimism. I introduce a behavioral axiom...

The paper shows that bounded rationality, in the form of limited knowledge of utility, is an explanation for common stylized facts of prospect theory like loss aversion, status quo bias and non-linear probability weighting. Locally limited utility knowledge is considered within a classical...

Explanations are provided for why governments do as they do in agriculture. Alternative frameworks are assessed to explain government policy including collective action and politician-voter interaction models. Several key patterns of policies are analyzed including the “developmental...

Behavioral finance studies the application of psychology to finance, with a focus on individual-level cognitive biases. I describe here the sources of judgment and decision biases, how they affect trading and market prices, the role of arbitrage and flows of wealth between more rational and less...