Psychology and economics

Stefano DellaVigna from UC Berkeley has written a very useful review of Psychology and Economics: Evidence from the Field (PDF). Hat tip: Andrew Leigh

In the conclusions DellVigna specuates on future research topics:

..future research is likely to reduce the imbalance across fields in economics and across topics in psychology. While the research in behavioral finance and consumption savings is very active, relatively few studies, instead, have tackled mortgage markets, development, and political decisions, fields ripe for exploration. Future research is also likely to explore psychological phenomena that have been largely neglected. For example, emotions,automatic processing, and implicit discrimination are likely to matter for economic decisions such as divorce, judicial sentencing, and policing. Ten years from now, we will hopefully be able to assess quantitatively which psychological factors matter in which decisions.

I identify two specific areas for future research: the market interaction between standard and non-standard agents, as in Section 5, and public policy applications. The market interaction is likely to find several additional applications, for example to the interaction between politicians and voters. In addition, this area is likely to investigate the judgmental biases, such as overconfidence, of experienced agents such as managers and politicians.

For another recent review of the literature, see my earlier post, Who are the behavioral economists and what do they say?