A model of the effect of affect on economic decision making |
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Authors: | Benjamin E Hermalin Alice M Isen |
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Institution: | (1) Walter A. Haas School of Business, University of California, 545 Student Services Bldg. #1900, Berkeley, CA 94720-1900, USA;(2) Johnson Graduate School of Management, Cornell University, 359 Sage Hall, Ithaca, NY 14853-6201, USA |
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Abstract: | The standard economic model of decision making assumes a decision maker’s current emotional state has no impact on his or her decisions. Yet there is a large psychological literature that shows that current
emotional state, in particular mild positive affect, has a significant effect on decision making, problem solving, and behavior. This paper offers a way to incorporate this
insight from psychology into economic modelling. Moreover, this paper shows that this simple insight can parsimoniously explain
a wide variety of behaviors.
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Keywords: | Affect Morale Emotion |
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