Harvard University

To fashion fundamental concepts and models for behavioral economics based on theories of context-dependent choice

  • Amount $286,695
  • City Cambridge, MA
  • Investigator Andrei Shleifer
  • Initiative Behavioral and Regulatory Effects on Decision-making (BRED)
  • Year 2015
  • Program Economics
  • Sub-program Economic Institutions, Behavior, & Performance

Behavioral economics catalogs examples of how people fail to act as naпve economic models say they should. In theory, such examples should lead to revised models of economic behavior that are more sophisticated, nuanced, and accurate. These have been slow in coming. To date, behavioral economists have been more concerned with classifications and applications than with foundations, representations, or explanations. Courses and textbooks tend to take up one anomaly or bias after another, without much of a conceptual or analytic framework to offer. Funds from this grant support a project by Harvard economist Andrei Shleifer to develop a theoretical framework that can systematically accommodate many of the anomalous behaviors detected by behavioral economists. Shleifer will attempt to do this through further development of “salience theory,” which hypothesizes that certain facts or pieces of information can appear more salient or command more attention at the moment of decision. These salient facts are then overweighted by decision-makers relative to their nonsalient cousins, causing decision-makers to deviate from the rational behavior predicted by, say, expected utility theory. Grant funds will support Shleifer as he continues to develop salience theory and use it to incorporate the diverse insights of behavioral economics into satisfying, predictive models of human economic behavior. Topics to be explored include the role stereotypes and generalization play in decision-making, how being surprised affects salience, and how attitudes about what is or is not normal shape what people pay attention to.

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