A Reduced-Form Approach to Behavioral Public Finance

Sendhil  Mullainathan; Joshua  Schwartzstein; William  Congdon

Article | Annual Review of Economics | 2012

A Reduced-Form Approach to Behavioral Public Finance

by Sendhil Mullainathan, Joshua Schwartzstein and William Congdon

Abstract

Research in behavioral public finance has blossomed in recent years, producing diverse empirical and theoretical insights. This article develops a single framework with which to understand these advances. Rather than drawing out the consequences of specific psychological assumptions, the framework takes a reduced-form approach to behavioral modeling. It emphasizes the difference between decision and experienced utility that underlies most behavioral models. We use this framework to examine the behavioral implications for canonical public finance problems involving the provision of social insurance, commodity taxation, and correcting externalities. We show how deeper principles undergird much work in this area and that many insights are not specific to a single psychological assumption.

Keywords: Public Sector; Behavioral Finance;

Format: Print

Read Now

Citation:

Mullainathan, Sendhil, Joshua Schwartzstein, and William Congdon. "A Reduced-Form Approach to Behavioral Public Finance." Annual Review of Economics 4 (2012): 511–540.

Legal Time is a two-party dynamic negotiation simulation. Students take the role of either the prosecution or the defense in a case that centers on a client who has been accused of spear-heading a conspiracy to commit wire fraud. This conflict-resolution scenario gives students the opportunity to see how their negotiations are influenced by important situational and behavioral factors – specifically, (i) fairness considerations and self-serving motives, (ii) time pressure, and (iii) learning from one’s own experience and the experiences of others.

Faculty & Research

A Reduced-Form Approach to Behavioral Public Finance

Abstract

Citation:

About the Author

More from the Author