Psychological Bias as a Driver of Financial Regulation |
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Authors: | David Hirshleifer |
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Institution: | Merage Chair in Business Growth and Professor of Finance, The Paul Merage School of Business, University of California, Irvine, CA 92697‐3125E‐mail: mmatlock@uci.edu |
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Abstract: | I propose here the psychological attraction theory of financial regulation – that regulation is the result of psychological biases on the part of political participants – voters, politicians, bureaucrats, and media commentators; and of regulatory ideologies that exploit these biases. Some key elements of the psychological attraction approach are: salience and vividness, omission bias, scapegoating and xenophobia, fairness and reciprocity norms, overconfidence, and mood effects. This approach further emphasises emergent effects that arise from the interactions of individuals with psychological biases. For example, availability cascades and ideological replicators have powerful effects on regulatory outcomes. |
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Keywords: | Investor psychology regulation salience omission bias scapegoating xenophobia fairness reciprocity norms mood availability cascades overconfidence evolutionary psychology memes ideology replicators G0 G28 H0 H1 H10 |
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