How Humans Behave: Implications for Economics and Economic Policy How Humans Behave: Implications for Economics and Economic Policy

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June 2003

Conference Overview (950K PDF) [also published in the final issue of the New England Economic Review]

Participants' biographies

Draft versions of papers and presentations are available as PDF files.

Session One Perception, Motivation, and Decision-Making: An Overview

The first paper will review what psychologists and others who study human behavior have learned about decision-making. It will explore how individuals acquire information, visualize the future, and make decisions. What motivates the individual's choice? What, if anything, is he trying to maximize? Do his decisions reflect a set of stable preferences? What roles do perceptions, social pressures, memory, and emotions play?

Presenter: Eldar Shafir Paper Professor of Psychology and Public Affairs Princeton University

Discussants: Robert Boyd Discussion | Slides Professor of Anthropology University of California, Los Angeles

Steven R. Quartz Discussion Associate Professor of Philosophy Computation and Neural Systems Program California Institute of Technology

Session Two The Behavioral Challenge to Economics

How does research by psychologists and other behavioral scientists challenge the economist's model of individual decision-making? How should we amend our views of individual consumption and investment decisions? Would these amendments make consumer behavior more or less predictable? What are the implications for our concept of utility? What can we say about welfare?

Presenter: Colin F. Camerer Paper Rea A. and Lela G. Axline Professor of Business Economics California Institute of Technology

Discussants: Dan Ariely Discussion (slides) Luis Alvarez Renta Professor of Marketing Massachusetts Institute of Technology

Alan S. Blinder Gordon S. Rentscheler Memorial Professor of Economics Princeton University

Robert H. Frank H. J. Louis Professor of Economics Johnson Graduate School of Management Cornell University

Session Three Labor Market Behavior

What can economists learn from psychology about labor market behavior? Why do individuals work, and how do employers and workers set wages? How important are the concepts of fairness and equity, for instance, and to whom do they apply? What are the macroeconomic consequences of long-term unemployment? How accurately do workers perceive inflation of different magnitudes? What are the policy implications?

Presenter: Truman F. Bewley Paper Alfred Cowles Professor of Economics Yale University

Discussants: Katharine G. Abraham Discussion Professor of Survey Methodology and Affliliate Professor of Economics Joint Program of Survey Methodology University of Maryland

Rafael Di Tella Discussion Associate Professor Graduate School of Business Administration Harvard University

Session Four Organizations

This session will explore how decisions are made in and by organizations such as firms, political groups, and markets. At a micro level, how do individuals make decisions within such organizations? How, for instance, do organizations shape individuals' perceptions, motivations, and opportunities? And at an aggregate level, how do individual decisions translate into organizational “behaviors”? What, for example, are the roles of power and politics in organizational decision making?

Chair: Jeffrey C. Fuhrer Senior Vice President and Director of Research Federal Reserve Bank of Boston

Presenter: Robert S. Gibbons Paper Sloan Distinguished Professor of Organizational Economics and Strategy Massachusetts Institute of Technology

Discussants: Tom Tyler Discussion University Professor of Psychology New York University

Duncan J. Watts Discussion | Slides Associate Professor of Sociology Columbia University

Session Five Savings

This session will explore how the results of behavioral research can help to improve our understanding of savings behavior. How do individuals decide when and how much to save? And how do individuals choose where to invest their savings? What are the roles of inertia and time inconsistency, for instance? And how accurate are individuals' perceptions of the financial risks they are likely to face? How can policymakers use behavioral insights to promote better savings decisions?

Presenter: Richard H. Thaler Paper Robert P. Gwinn Professor of Economics and Behavioral Science Graduate School of Business University of Chicago

Discussants: Alicia H. Munnell Discussion Peter F. Drucker Professor of Management Sciences Carroll School of Management Boston College

Drazen Prelec Digital Equipment Corporation LFM Professor of Management Sloan School of Management Massachusetts Institute of Technology

Antonio Rangel Discussion (slides) Assistant Professor of Economics Stanford University

Session Six Implications for Macroeconomic Policy

What are the implications of psychological and other behavioral research for macroeconomic policy? What can we learn from this research about the appropriate goals of macroeconomic policy and about the tradeoffs between them? How can we use behavioral research to improve our models, our forecasts, and our policy decisions?

Moderator: Henry J. Aaron Bruce and Virginia MacLaury Senior Fellow Economic Studies Program Brookings Institution

Presenters: Daniel Benjamin Paper | Presentation Economics Department Harvard University

David I. Laibson Paper | Presentation Professor of Economics Harvard University

Discussants: Laurence Ball Discussion Professor of Economics Johns Hopkins University

The Honorable Donald L. Kohn Discussion (link to Board site) Member, Board of Governors of the Federal Reserve System

Janet Yellen Discussion Eugene E. and Catherine M. Trefethen Professor of Business Professor of Economics University of California at Berkeley