About this Research Topic
Traditional economic theory assumes that people manage their finances in a rational way. Over their lifetime they should spend equal amounts for consumption because this way they will obtain the highest overall utility. This implies that they borrow relatively much at the early stages of their life, redeem their debts and save during middle age, and dissave their wealth after retirement.
However, it is well-known that many people do not save enough to sustain their spending levels after retirement. Also, several anomalous behaviors occur, such as simultaneous borrowing (at relatively high rates) and saving (at relatively low rates), investing in safe assets (with relatively low returns) and not investing (or not enough) in risky assets (with high returns in the long run), diversifying investments too little, and paying little attention to the portfolio aspect of investments, i.e., considering each investment separately.
In household spending decisions, consumers treat different incomes in different ways, for example, they are more likely to spend from their current accounts and less likely from savings, invested wealth and pension money. Moreover, they tend to earmark money for specific expenses, such as for entertainment, clothing, food, etc., and not using money for a specific purpose that is earmarked for other purposes. Self-employed individuals also tend to show such mental accounting behavior in their management of business finance.
In making choices, often consumers are satisficers rather than optimizers, often deciding after gathering very limited information about alternatives.
It appears that people often behave differently than predicted from traditional economic theory. This behavior may be due to all kinds of psychological phenomena, such as high time preference, risk aversion, personality factors, social influences, misperceptions, wrong expectations, etc. Although much research has already been devoted to the psychological processes underlying behavior, the range of economic behaviors that can be explained from specific psychological phenomena is still unknown. Also, little is known yet about how to overcome imperfections in decision making. Even though suboptimal behaviors may lead to less than desired outcomes, people may feel more comfortable with their behavior than with behaving optimally, as predicted by traditional economic theory. Acting in this way, they may even attain a higher level of subjective well-being. Alternatively, suboptimal behavioral tendencies may be used to attain desirable outcomes, as practiced in nudging. Changing default options, as in organ donations, is an example of such nudging mechanisms.
This special issue of Frontiers in Behavioral Economics is dedicated to the issues described above and it aims at contributions from psychological theory that may explain behaviors previously discovered in behavioral economics or contribute to changing behaviors. We welcome both theoretical and empirical contributions using any kind of methodology.
However, it is well-known that many people do not save enough to sustain their spending levels after retirement. Also, several anomalous behaviors occur, such as simultaneous borrowing (at relatively high rates) and saving (at relatively low rates), investing in safe assets (with relatively low returns) and not investing (or not enough) in risky assets (with high returns in the long run), diversifying investments too little, and paying little attention to the portfolio aspect of investments, i.e., considering each investment separately.
In household spending decisions, consumers treat different incomes in different ways, for example, they are more likely to spend from their current accounts and less likely from savings, invested wealth and pension money. Moreover, they tend to earmark money for specific expenses, such as for entertainment, clothing, food, etc., and not using money for a specific purpose that is earmarked for other purposes. Self-employed individuals also tend to show such mental accounting behavior in their management of business finance.
In making choices, often consumers are satisficers rather than optimizers, often deciding after gathering very limited information about alternatives.
It appears that people often behave differently than predicted from traditional economic theory. This behavior may be due to all kinds of psychological phenomena, such as high time preference, risk aversion, personality factors, social influences, misperceptions, wrong expectations, etc. Although much research has already been devoted to the psychological processes underlying behavior, the range of economic behaviors that can be explained from specific psychological phenomena is still unknown. Also, little is known yet about how to overcome imperfections in decision making. Even though suboptimal behaviors may lead to less than desired outcomes, people may feel more comfortable with their behavior than with behaving optimally, as predicted by traditional economic theory. Acting in this way, they may even attain a higher level of subjective well-being. Alternatively, suboptimal behavioral tendencies may be used to attain desirable outcomes, as practiced in nudging. Changing default options, as in organ donations, is an example of such nudging mechanisms.
This special issue of Frontiers in Behavioral Economics is dedicated to the issues described above and it aims at contributions from psychological theory that may explain behaviors previously discovered in behavioral economics or contribute to changing behaviors. We welcome both theoretical and empirical contributions using any kind of methodology.
Keywords: financial decisions, investment, preferences, behavior
Important Note: All contributions to this Research Topic must be within the scope of the section and journal to which they are submitted, as defined in their mission statements. Frontiers reserves the right to guide an out-of-scope manuscript to a more suitable section or journal at any stage of peer review.
