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Game theory, the formalized study of strategy, began in the 1940s by asking how emotionless geniuses should play games, but ignored until recently how average people with emotions and limited foresight actually play games. This book marks the first substantial and authoritative effort to close this gap. Colin Camerer, one of the field's leading figures, uses psychological principles and hundreds of experiments to develop mathematical theories of reciprocity, limited strategizing, and learning, which help predict what real people and companies do in strategic situations. Unifying a wealth of i

Cover -- Title -- Copyright -- Dedication -- CONTENTS -- LIST OF CONTRIBUTORS -- PREFACE -- ACKNOWLEDGMENTS -- PART ONE: INTRODUCTION -- CHAPTER ONE: Behavioral Economics: Past, Present, Future -- PART TWO: BASIC TOPICS -- REFERENCE-DEPENDENCE AND LOSS-AVERSION -- CHAPTER TWO: Experimental Tests of the Endowment Effect and the Coase Theorem -- CHAPTER THREE: Mental Accounting Matters -- PREFERENCES OVER RISKY AND UNCERTAIN OUTCOMES -- CHAPTER FOUR: Developments in Nonexpected-Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk -- CHAPTER FIVE: Prospect Theory in the Wild: Evidence from the Field -- INTERTEMPORAL CHOICE -- CHAPTER SIX: Time Discounting and Time Preference: A Critical Review -- CHAPTER SEVEN: Doing It Now or Later -- FAIRNESS AND SOCIAL PREFERENCES -- CHAPTER EIGHT: Fairness as a Constraint on Profit Seeking: Entitlements in the Market -- CHAPTER NINE: A Theory of Fairness, Competition, and Cooperation -- CHAPTER TEN: Incorporating Fairness into Game Theory and Economics -- CHAPTER ELEVEN: Explaining Bargaining Impasse: The Role of Self-Serving Biases -- GAME THEORY -- CHAPTER TWELVE Theory and Experiment in the Analysis of Strategic Interaction -- CHAPTER THIRTEEN: Behavioral Game Theory: Predicting Human Behavior in Strategic Situations -- PART THREE: APPLICATIONS -- MACROECONOMICS AND SAVINGS -- CHAPTER FOURTEEN: Mental Accounting, Saving, and Self-Control -- CHAPTER FIFTEEN: Golden Eggs and Hyperbolic Discounting David Laibson -- CHAPTER SIXTEEN: The Fair Wage-Effort Hypothesis and Unemployment -- CHAPTER SEVENTEEN: Money Illusion -- LABOR ECONOMICS -- CHAPTER EIGHTEEN: Fairness and Retaliation: The Economics of Reciprocity -- CHAPTER NINETEEN: Labor Supply of New York City Cab Drivers: One Day at a Time -- CHAPTER TWENTY: Wages, Seniority, and the Demand for Rising Consumption Profiles

Financial decisions are among the most important life-shaping decisions that people make. We review facts about financial decisions and what cognitive and neural processes influence them. Because of cognitive constraints and a low average level of financial literacy, many household decisions violate sound financial principles. Households typically have underdiversified stock holdings and low retirement savings rates. Investors overextrapolate from past returns and trade too often. Even top corporate managers, who are typically highly educated, make decisions that are affected by overconfidence and personal history. Many of these behaviors can be explained by well-known principles from cognitive science. A boom in high-quality accumulated evidence–especially how practical, low-cost 'nudges' can improve financial decisions–is already giving clear guidance for balanced government regulation.

AbstractWe examine 220 estimates of the present-bias parameter from 28 articles using the Convex Time Budget protocol. The literature shows that people are on average present-biased, but estimates exhibit substantial heterogeneity across studies. There is evidence of modest selective reporting in the direction of over-reporting present bias. The primary source of heterogeneity is the type of reward, either monetary or non-monetary, but this effect is weakened after correcting for selective reporting. In studies using monetary rewards, the delay until the issue of the reward associated with the 'current' time period influences estimates of the present-bias parameter.

This paper considers the measurement of consumer loss aversion in product markets. We introduce a test based on a "substitution effect," focusing on how the end of a sale affects sales not of the good itself, but a substitute good. Such an effect cannot be easily confounded with consumer stockpiling. Using a unique dataset from an online hardware retailer, we find evidence consistent with consumer loss aversion. Moreover, we find that less experienced consumers suffer a more prominent loss aversion bias compared to more experienced consumers.