Rothschild, and three most helpful referees. Very special thanks for many years of helpful insights are due to Richard Day and Luigi Ermini. Hamlet: “What a piece of work is a man! how noble in reason! how infinite in faculties!”

Social behavior is ordinarily treated as being under conscious (if not always thoughtful) control. Howmer, considerable evidence now supports the view that social behavior often operates in an implicit or unconscious fashion. The identifying feature of implicit cognition is that past experience influences judgment in a fashion not introspectively known by the actor. The present conclusion-that attitudes, self-esteem, and stereotypes have important implicit modes of operation-xtends both the construct validity and predictive usefulness of these major theoretical constructs of social psychology. Methodologically, this review calls for inmased use of indirect measures--which are imperative in studies of implicit cognition. The theorized ordinariness of implicit stereotyping is consistent with r ent findings of discrimination by people who explicitly disavow prejudice. The finding that implicit cognitive effects arc often reduced by focusing judges ' attention on their judg-ment task provides a basis for evaluating applications (such as affirmative action) aimed at reducing such unintended discrimination. Long before they became central to other areas of psycholog-ical theory, concepts of cognitive mediation dominated the anal-ysis of social behavior. The constructs on which this article fo-

Early studies of intuitive judgment and decision making conducted with the late Amos Tversky are reviewed in the context of two related concepts: an analysis of accessibility, the ease with which thoughts come to mind; a distinction between effortless intuition and deliberate reasoning. Intuitive thoughts, like percepts, are highly accessible. Determinants and consequences of accessibility help explain the central results of prospect theory, framing effects, the heuristic process of attribute substitution, and the characteristic biases that result from the substitution of nonextensional for extensional attributes. Variations in the accessibility of rules explain the occasional corrections of intuitive judgments. The study of biases is compatible with a view of intuitive thinking and decision making as generally skilled and successful.

ly on the accuracy of the prediction; errors in predicting feelings are measured in units of divorce, dropout, career burnout and consumer dissatisfaction. The accuracy of people's predictions of their own feelings is important not only for individual well-being but, increasingly, also for public policy. Recent decades have seen an expansion of 1 attempts to base public policies on measurements of public values. The best-known of such efforts is Oregon's experiment in health-care rationing, but attempts to base public policy on public values have been made in diverse areas, such as transportation safety and environmental policy Measurement of public values typically involves surveys in which respondents are asked 2 to predict how they would feel if they were in health conditions or environmental states different from the ones they are in. The meaningfulness of the measured values, and the optimality of the policies based on them, therefore, depend, in

Rationality is a complex behavioral theory that can be parsed into statements about preferences, perceptions, and process. This paper looks at the evidence on rationality that is provided by behavioral experiments, and argues that most cognitive anomalies operate through errors in perception that arise from the way information is stored, retrieved, and processed, or through errors in process that lead to formulation of choice problems as cognitive tasks that are inconsistent at least with rationality narrowly defined. The paper discusses how these cognitive anomalies influence economic behavior and measurement, and their implications for economic analysis.

We develop a model that fleshes out, extends, and modifies existing models of referencedependent preferences and loss aversion while accomodating most of the evidence motivating these models. Our approach makes reference-dependent theory more broadly applicable by avoiding some of the ways that prevailing models—if applied literally and without ancillary assumptions—make variously weak and incorrect predictions. Our model combines the reference-dependent gain-loss utility with standard economic “consumption utility ” and clarifies the relationship between the two. Most importantly, we posit that a person’s reference point is her recent expectations about outcomes (rather than the status quo), and assume that behavior accords to a personal equilibrium: The person maximizes utility given her rational expectations about outcomes, where these expectations depend on her own anticipated behavior. We apply our theory to consumer behavior, and emphasize that a consumer’s willingness to pay for a good is endogenously determined by the market distribution of prices and how she expects to respond to these prices. Because a buyer’s willingness to buy depends on whether she anticipates buying the good, for a range of market prices there are multiple personal equilibria. This multiplicity disappears when the consumer is sufficiently uncertain about the price she will face. Because paying more than she anticipated induces a sense of loss in the buyer, the lower the prices at which she expects to buy the lower will be her willingness to pay. In some situations, a known stochastic decrease in prices can even lower the quantity demanded.

Do not reference without permission of the authors. We conduct experiments to explore the possibility that subject misconceptions, as opposed to a particular theory of preferences referred to as the “endowment effect,” account for reported gaps between willingness to pay (“WTP”) and willingness to accept (“WTA”). Two facts are evident in the literature. First, there is no consensus regarding the nature or robustness of the WTA-WTP gap. Secondly, while experimenters are very concerned to avoid subject misconceptions, there is no consensus about their fundamental properties or how they might be avoided. Instead, experimenters have revealed different conceptions of the phenomenon through different types of experimental procedures and controls. Such controls involve the role of anonymity, elicitation mechanisms, practice, training and binding outcome experiences applied separately or in different combinations. The resulting pattern of research leaves open the possibility that the widely differing reports of a gap between WTP and WTA could be due to an incomplete science regarding

Security is both a feeling and a reality. And they’re not the same. The reality of security is mathematical, based on the probability of different risks and the effectiveness of different countermeasures. We can calculate how secure your home is from burglary, based on such factors as the crime rate in the

Abstract. This paper explores the possibility of basing economic appraisal on the measurement of experienced utility (utility as hedonic experience) rather than decision utility (utility as a representation of preference). Because of underestimation of the extent of hedonic adaptation to changed circumstances and because of the ‘‘focusing illusion’ ’ (exaggerating the importance of the current focus of one’s attention), individuals ’ forecasts of experienced utility are subject to systematic error. Such errors induce preference anomalies which the experienced utility approach might circumvent. The ‘‘day reconstruction method’ ’ of measuring experienced utility is considered as a possible alternative to stated preference methods.

of the process) for helpful comments. 1 Behavioral economics increases the explanatory power of economics by providing it with more realistic psychological foundations. This book consists of representative recent articles in behavioral economics. 1 This chapter is intended to provide an introduction to the approach and methods of behavioral economics, and to some of its major findings, applications, and promising new directions. It also seeks to fill some unavoidable gaps in the chapters ’ coverage of topics. What Behavioral Economics Tries To Do At the core of behavioral economics is the conviction that increasing the realism of the psychological underpinnings of economic analysis will improve economics on its own terms--generating theoretical insights, making better predictions of field phenomena, and suggesting better policy. This conviction does not imply a wholesale rejection of the neoclassical approach to economics based on utility maximization, equilibrium, and efficiency. The neoclassical approach is useful because it provides economists with a theoretical framework that can be applied to almost any form of economic (and even non-economic) behavior, and it makes refutable predictions. Many of these predictions are tested in the chapters of this book, and rejections of those predictions suggest new theories. Most of the papers modify one or two assumptions in standard theory in the direction of greater psychological realism. Often these departures are not radical at all because they relax simplifying assumptions that are not central to the economic approach. For example, there is nothing in core neoclassical theory that specifies that people should not care about fairness, that they should weight risky outcomes in a linear fashion, or that they must discount the future exponentially at a constant rate. 2 Other assumptions simply acknowledge human limits on 1 Since it is a book of advances, many of the seminal articles which influenced those collected here are not included, but are noted below and are widely reprinted elsewhere.