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Handbook of Macroeconomics Volume 1, Part C, 1999, Pages 1305-1340
Chapter 20 Human behavior and the efficiency of the financial system Robert J. Shiller Show more https://doi.org/10.1016/S1574-0048(99)10033-8
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Abstract Recent literature in empirical finance is surveyed in its relation to underlying behavioral principles, principles which come primarily from psychology, sociology, and anthropology. The behavioral principles discussed are: prospect theory, regret and cognitive dissonance, anchoring, mental compartments, overconfidence, over- and under-reaction, representativeness heuristic, the disjunction effect, gambling behavior and speculation, perceived irrelevance of history, magical thinking, quasi-magical thinking, attention anomalies, the availability heuristic, culture and social contagion, and global culture.
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Keywords efficient markets; random walk; excess volatility; anomalies in finance; stock market; prospect theory; regret and cognitive dissonance; anchoring; mental compartments; overconfidence; overreaction; underreaction; representativeness heuristic; the disjunction effect; gambling behavior and speculation; irrelevance of history; magical thinking; quasi-magical thinking; attention anomalies; the availability heuristic; culture and social contagion; global culture
JEL classification G10
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* An earlier version was presented at a conference Recent Developments in Macroeconomics at the Federal Reserve Bank of New York, February 27–28, 1997. The author is indebted to Ricky Lam for research assistance, and to Michael Krause, Virginia Shiller, Andrei Shleifer, David Wilcox, and the editors for helpful comments. This research was supported by the National Science Foundation.
Copyright © 1999 Published by Elsevier B.V.
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