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Friday, July 24, 2009

Studying Psychology Markets

Studying the Psychology

Human behavior is difficult to predict, but economists are finding behavioral research a necessary component of models that forecast the economy. Donald Moser, a professor of business administration at the University of Pittsburgh, researches the influence of economic and behavioral factors on an individual's decision-making with the goal of developing models that are better predictors than either economic or behavioral models alone, the studying psychology markets.

The melding of psychology and economic theory is increasingly used in business contexts like tax compliance, labor markets, investment decisions, securities markets and managerial reporting. onal said,"In the early '90s, there were something called experimental asset markets: experiments with people engaged in a controlled market in an experimental setting designed to mimic a real stock market. It was found to be very difficult to predict investor behavior in these kinds of settings, and that people individually have difficulty with certain decisions and use "decision biases" instead of normal economic reasoning".

In psychology, there is one bias called the "availability bias." In the context of investor decision-making, people tend to try to predict what's going to happen by retrieving whatever they can from their memory and making it available for making the decision.

How difficult is it for economic models to take into account human behavior that tends toward the irrational? Quite a bit more difficult ? because there's evidence that behavior is somewhat situational. People are more honest in certain circumstances than others, and the degree to which they act in their own self-interest can also be based on the situation.

That's why these factors haven't always been modeled: They were thought to be secondary effects, and the primary drivers were wealth and leisure. I don't disagree. I wouldn't ignore wealth, but there's evidence these other factors are not minor effects and are big enough that they need to be included in the models. Trying to come up with mathematical models that capture this is quite difficult.

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