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SBE 2020: Submission Detail

ID Number: 183
Title: Bounded Rationality in Markets and Government
Lead Author: Glaeser, Edward L.
Abstract: The economic events of the past 15 years and recent trends in economic research create an opportunity for a productive push of research on limited rationality in markets and government. The great asset gyrations in technology stocks and housing prices are hard to reconcile with extreme rationality in all market participants. Appropriate policies and institutions must reflect the limited rationality of both the market and the public sector. Economists have begun to develop the tools needed to allow more psychological realism in our models, and that realism seems likely to be necessary both in understanding extreme market phenomena and in formulating wise policies. Much of behavioral economics has focused on human decision-making essentially in isolation, but the economists comparative advantage has always been in the understanding of markets. The highest returns would seem to be in funding bounded rationality in aggregates, like markets or governments. One important step is to understand how erroneous beliefs are propagated or minimized by market settings. It seems just as necessary to understand how psychological frailty interacts with politics and regulation. The painful events of the past 15 years only underscore the importance of economic research.
PDF: Glaeser_Edward_183.pdf

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