Thursday, October 19th, 2017 10:15 am

Behavioral Economics

Insights from psychology about individual behavior – examples of which include limited rationality, low self-control, or a taste for fairness – predict several important types of observed market outcomes that fully-rational economic models do not.

Responses
 

Source: European IGM Economic Experts Panel
www.igmchicago.org/european-economic-experts-panel

Responses weighted by each expert's confidence

Source: European IGM Economic Experts Panel
www.igmchicago.org/european-economic-experts-panel
Participant University Vote Confidence Comment Bio/Vote History
Aghion Philippe Aghion Harvard Did Not Answer
Bio/Vote History
         
Allen Franklin Allen Imperial College London Strongly Agree 8
I think this is true in many markets. In financial markets it may be less true because of the money at stake but they matter there too.
Bio/Vote History
         
Antras Pol Antras Harvard Agree 8
Still, models with fully rational agents provide a perfectly good approximation for explaining many market outcomes!
Bio/Vote History
         
Besley Timothy J. Besley LSE Did Not Answer
Bio/Vote History
         
Blanchard Olivier Blanchard Peterson Institute Strongly Agree 10
Bio/Vote History
         
Bloom Nicholas Bloom Stanford Agree 7
Bio/Vote History
         
Blundell Richard William Blundell University College London Did Not Answer
Bio/Vote History
         
Bénassy-Quéré Agnès Bénassy-Quéré Paris School of Economics Agree 5
Bio/Vote History
         
Carletti Elena Carletti Bocconi No Opinion
Bio/Vote History
         
Danthine Jean-Pierre Danthine Paris School of Economics Agree 3
Bio/Vote History
         
De Grauwe Paul De Grauwe LSE Did Not Answer
Bio/Vote History
         
Eeckhout Jan Eeckhout University College London Agree 6
Bio/Vote History
         
Fehr Ernst Fehr Universität Zurich Did Not Answer
Bio/Vote History
         
Freixas Xavier Freixas Universitat Pompeu Fabra Did Not Answer
Bio/Vote History
         
Fuchs-Schündeln Nicola Fuchs-Schündeln Goethe-Universität Frankfurt Agree 9
Bio/Vote History
         
Galí Jordi Galí Universitat Pompeu Fabra Agree 6
Bio/Vote History
         
Garicano Luis Garicano LSE Did Not Answer
Bio/Vote History
         
Giavazzi Francesco Giavazzi Bocconi Did Not Answer
Bio/Vote History
         
Griffith Rachel Griffith University of Manchester Did Not Answer
Bio/Vote History
         
Guerrieri Veronica Guerrieri Chicago Booth Agree 7
Bio/Vote History
         
Guiso Luigi Guiso Einaudi Institute for Economics and Finance Uncertain 8
Bio/Vote History
         
Hellwig Martin Hellwig Max Planck Institute for Research on Collective Goods No Opinion
Is "fully rational" about optimization or about expectations? Is "market outcomes" about anything in the real world or about markets?
Bio/Vote History
         
Honohan Patrick Honohan Trinity College Dublin Strongly Agree 9
Bio/Vote History
         
Kleven Henrik Kleven Princeton Did Not Answer
Bio/Vote History
         
Krahnen Jan Pieter Krahnen Goethe University Frankfurt Uncertain 5
while I see the impact of nudging on macro outcomes (e.g. pension fund participation), I am uncertain whether this is due to irrationality.
Bio/Vote History
         
Krusell Per Krusell Stockholm University Agree 8
Bio/Vote History
         
Kőszegi Botond Kőszegi Central European University Strongly Agree 10
Bio/Vote History
         
La Ferrara Eliana La Ferrara Bocconi Strongly Agree 8
Bio/Vote History
         
Leuz Christian Leuz Chicago Booth Agree 3
Tend to agree, but depends on setting & details. Often traditional models can be extended to explain as well. Point is not always to predict
Bio/Vote History
         
Meghir Costas Meghir Yale Did Not Answer
Bio/Vote History
         
Neary Peter Neary Oxford Did Not Answer
Bio/Vote History
         
O'Rourke Kevin O'Rourke Oxford Strongly Agree 10
Bio/Vote History
         
Pagano Marco Pagano Università di Napoli Federico II Agree 4
Bio/Vote History
         
Pastor Lubos Pastor Chicago Booth Uncertain 7
Psychology can be useful but most puzzling phenomena can also be explained by rational models. What you mean by rationality matters.
Bio/Vote History
         
Persson Torsten Persson Stockholm University Agree 9
Bio/Vote History
         
Pissarides Christopher Pissarides LSE Did Not Answer
Bio/Vote History
         
Portes Richard Portes London Business School Strongly Agree 7
See many Thaler ‘anomalies’ columns over the years.
Bio/Vote History
         
Prendergast Canice Prendergast Chicago Booth Agree 8
Bio/Vote History
         
Reichlin Lucrezia Reichlin London Business School Agree 3
Bio/Vote History
         
Repullo Rafael Repullo CEMFI Agree 7
Still, as forcefully argued by Steve Ross, fully-rational economic models can go a long way to explain many of these market outcomes.
Bio/Vote History
         
Rey Hélène Rey London Business School Did Not Answer
Bio/Vote History
         
Schoar Antoinette Schoar MIT Strongly Agree 9
Bio/Vote History
         
Van Reenen John Van Reenen MIT Agree 8
Bio/Vote History
         
Vickers John Vickers Oxford Agree 5
Bio/Vote History
         
Voth Hans-Joachim Voth University of Zurich Strongly Agree 9
Bio/Vote History
         
Weder di Mauro Beatrice Weder di Mauro Gutenberg University Mainz and INSEAD Did Not Answer
Bio/Vote History
         
Whelan Karl Whelan University College Dublin Did Not Answer
Bio/Vote History
         
Wyplosz Charles Wyplosz The Graduate Institute Geneva No Opinion
I don't know enough
Bio/Vote History
         
Zilibotti Fabrizio Zilibotti Universität Zurich Uncertain 5
Bio/Vote History
         

About the European IGM Economic Experts Panel

This panel explores the views of European economists on vital public policy issues. It does this by polling them on important policy questions, by including a way for them to explain their answers briefly if they wish, and by disseminating these responses directly to the public in a simple format.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the main areas of economics, to be geographically diverse, and to include older and younger scholars. As with the IGM’s US panel, the experts are all outstanding researchers in their fields. The panel includes recipients of top national and international prizes in economics, fellows of the Econometric society and the European Economic Association, members of distinguished national and international policymaking bodies in Europe, recipients of significant grants for economic research, highly accomplished affiliates and program directors of the Centre for Economic Policy Research and the National Bureau of Economic Research, and past and current editors of leading academic journals in the profession. This approach not only provides a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters in Europe and beyond.

Questions for the European IGM Economic Experts Panel are emailed individually to all members of the panel. They are phrased as statements with which one can agree or disagree. The experts are also asked how confident they are in their knowledge of the issue associated with the question (10 being highest). Each panelist responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering. They may also include brief comments with their responses, or provide links to relevant sources.

It is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist knows a lot about a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's knowledge that he or she does not feel well placed to judge. In this case, our panelists vote "no opinion".

Panelists suggest many of the questions themselves. Members of the public are also welcome to suggest questions (see link below). Although IGM faculty members are responsible for deciding the final version of each question, we send a draft of the question to the panel in advance and invite them to point out problems with the wording if they see any. This process helps us to reduce vagueness or problems of interpretation.

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