We explore the learning process and behavior of an individual with unrealistically high expectations (“overconfidence”) when outcomes also depend on an external fundamental that affects the optimal action. Moving beyond existing results in the literature, we show that the agent's beliefs...

We analyze ways in which heterogeneity in responsiveness to incentives (drive) affects employees' incentives and firms' incentive systems in a career concerns model. On the one hand, since more driven agents work harder in response to existing incentives than less driven ones - and therefore pay...

A standard model of addictive process is Becker and Murphy's rational addiction' model, which has the key empirical prediction that the current consumption of addictive goods should respond to future prices, and the key normative prediction that the optimal government regulation of addictive...

The traditional normative analysis of government policy towards addictive bads is carried out in the context of a 'rational addiction' model, whereby the only role for government is in correcting the external costs of consumption of such goods. But available evidence is at least as consistent,...

We propose a theoretical model of insecurity --- high-but-fragile self-esteem --- that seeks to integrate and help make sense of diverse strands of research in psychology. Adopting from behavioral economics the concept of a ``personal equilibrium" --- a situation in which an individual's...

The traditional normative analysis of government policy towards addictive bads is carried out in the context of a 'rational addiction' model, whereby the only role for government is in correcting the external costs of consumption of such goods. But available evidence is at least as consistent,...

We establish convergence of beliefs and actions in a class of one-dimensional learning settings in which the agent's model is misspecified, she chooses actions endogenously, and the actions affect how she misinterprets information. Our stochastic-approximation-based methods rely on two crucial...

It is widely known that loss aversion leads individuals to dislike risk, and as has been argued by many researchers, in many instances this creates an incentive for firms to shield consumers and employees against economic risks. Complementing previous research, we show that consumer loss...