A Neurally-Informed Model of Habit in Consumer Choice

Colin F. Camerer is the Robert Kirby Professor of Behavioral Finance and Economics at the California Institute of Technology in Pasadena, Calif., where he teaches cognitive psychology and economics. Camerer earned a bachelor's degree in quantitative studies from Johns Hopkins in 1977, and an MBA in finance (1979) and Ph.D. in decision theory (1981, at age 22) from University of Chicago Graduate School of Business. Before coming to Caltech in 1994, Camerer worked at the Kellogg, Wharton, and University of Chicago business schools. He studies both behavioral and experimental economics

Gifts as Economic Signals and Social Symbols

Gift-giving has often puzzled economists, especially because efficient gifts-like cash or giving exactly what a person asks for-seem crass or inappropriate. It is shown in a formal game-theoretic model that gifts serve as "signals" of a person's intentions about future investment in a relationship, and inefficient gifts can be better signals. Other explanations for the inefficiency of gift giving are advanced, and some stylized facts about gift-giving practices are described (many of which are consistent with the signaling view of gifts)

Book Review: Taking Risks: The Management of Uncertainty

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Taxi Drivers and Beauty Contests

The trading floor of the New York Stock Exchange. The British economist John Maynard Keynes likened playing the market to voting for the prettiest face in a beauty contest; hence the second part of this article’s title

The potential of neuroeconomics

The goal of neuroeconomics is a mathematical theory of how the brain implements decisions, that is tied to behaviour. This theory is likely to show some decisions for which rational-choice theory is a good approximation (particularly for evolutionarily sculpted or highly learned choices), to provide a deeper level of distinction among competing behavioural alternatives, and to provide empirical inspiration for economics to incorporate more nuanced ideas about endogeneity of preferences, individual difference, emotions, endogeneous regulation of states, and so forth. I also address some concerns about rhetoric and practical epistemology. Neuroscience articles are necessarily speculative and the science has proceeded rapidly because of that rhetorical convention. Single-study papers are encouraged and are necessarily limited in what can be inferred, so the sturdiest cumulation of results, and the best guide forward, comes in review journals which compile results and suggest themes. The potential of neuroeconomics is in combining the clearest experimental paradigms and statistical methods in economics, with the unprecedented capacity to measure a range of neural and cognitive activity that economists like Edgeworth, Fisher and Ramsey daydreamed about but did not have

Taking Risks: The Management of Uncertainty

Book Review: Taking Risks: The Management of Uncertainty. Kenneth R. MacCrimmon and Donald A. Wehrung, with William T. Stanbury. New York: Free Press, 1986. 380 pp

Comment on Noll and Krier, "Some Implications of Cognitive Psychology for Risk Regulation"

We have known about systematic violations of the expected utility (EU) theory of choice for almost forty years, since Maurice Allais got Jimmie Savage to violate his own "sure-thing principle" (or "independence axiom") while making hypothetical choices over lunch in Paris. Savage was victimized by some combination of wine and intuition. The wine's effect is gone, but the intuition is not: devotion to EU sometimes produces unappealing choices

Progress in Behavioral Game Theory

Is game theory meant to describe actual choices by people and institutions or not? It is remarkable how much game theory has been done while largely ignoring this question. The seminal book by von Neumann and Morgenstern, The Theory of Games and Economic Behavior, was clearly about how rational players would play against others they knew were rational. In more recent work, game theorists are not always explicit about what they aim to describe or advise. At one extreme, highly mathematical analyses have proposed rationality requirements that people and firms are probably not smart enough to satisfy in everyday decisions. At the other extreme, adaptive and evolutionary approaches use very simple models-mostly developed to describe nonhuman animals-in which players may not realize they are playing a game at all. When game theory does aim to describe behavior, it often proceeds with a disturbingly low ratio of careful observation to theorizing

Does the Basketball Market Believe in the 'Hot Hand,'?

Most people who watch basketball believe in the "hot hand": Players who make a shot are more likely to hit the next shot than players who miss a shot (i.e., shots are positively autocorrelated rather than independent). Almost everyone in the sample studied by Thomas Gilovich, Robert Vallone, and Amos Tversky (1985), including several successful professionals, believed in the hot hand