The Covid era provided an exceptional opportunity to record and examine decision-making in a crisis. We analyse the features of decision-making during the Covid era through the lens of behavioural economics. Covid-era decision-making processes and outcomes deviated acutely from what was recommended by Western public health authorities prior to mid-March 2020. We find that several behavioural economics concepts – including several concepts that we each individually identified as important early in the Covid era (e.g., in Foster 2020 and Pingle 2022) – explain why decision-making processes and the decisions made deviated from what had been considered best practice, often producing results that increased harm rather than ameliorating it. We reflect on how we might reduce the chance of repeating the types of mistakes made during the Covid era when a future similar crisis arises. Because human social planners are not immune to behavioural tendencies as economic analysis traditionally assumes, we find that we must plan to address our human frailties if we are to plan and act effectively the next time a crisis looms.

We integrate a dynamic model of addiction with a dynamic model of imperfect altruism to examine help for addicts. Help for the addict is a public good that reduces the rate of addiction, and addiction emits an externality that negatively impacts those who might help. Our model suggests help that reduces addiction for one person can dysfunctionally increase addiction for another who has different preferences. Although an increase in the number of available helpers reduces addiction when there is little congestion, it can create a free rider problem that dysfunctionally eliminates private help when congestion sufficiently reduces the marginal utility of helping. Increasing the government provision of help can dysfunctionally increase addiction when it crowds out private help provision that is more efficient. In general, our model indicates that effectively addressing addiction is context-dependent, which aligns with the literature on addiction treatment.

Richard H. Day was a renaissance man and a difference maker. This essay honors the life and scholarly work of Dick Day, expressed mostly through those who knew him as colleagues and students. It also provides an introduction to this special issue, which honors Professor Day with papers of the type he founded this journal to publish.

It is standard to assume people making an uncertain choice experience no ambiguity when they know the probabilities that actually apply to the possible outcomes. However, bounded rationality, among other possible factors, may effectively create ambiguity in such cases. This chapter examines data from an experiment that allows us to compare decision behaviour under total ambiguity with that under ‘no ambiguity’. The experimental evidence indicates people experience ambiguity even when none seems to be present, and the ambiguity biases decision behaviour in a systematic way. In particular, it makes prospects with an intermediate variance level particularly attractive, and it makes high variance prospects more attractive than they otherwise would be.

We modify the standard descriptive growth model to incorporate what Keynes (1936) called the “essence” of his general theory. The essence is that exogenous changes in investment cause changes in employment and unemployment. We implement this idea by assuming the path for the capital growth rate is exogenous, which implicitly indicates that the significant fluctuations in investment do not result from rational calculation but rather result from what Keynes labelled “animal spirits.” Testing the Keynes hypothesis using post-WWII U.S. data, we find that changes in investment Granger-cause changes in unemployment but the reverse is not supported by the data.

We humans find it difficult to comprehend the magnitude of one thing without comparing the magnitudes of two things. When we compare two magnitudes, we tend to use ratios and differences. This suggests a procedural theory of decision making should contain the possibility of using ratios and differences in the process. Here, we present a "ratio-difference" theory of decision-making. We illustrate that a procedural decision theory that gives weight to ratio comparisons and difference comparisons has the potential to not only provide standard choice theory conclusions but also explain a number of decision anomalies.

A number of behavioral economic insights suggest we will tend to overreact, individually and collectively, to a new, serious, but low probability health threat, like Covid 19. To respond more effectively to such threats, we should recognize why we will tend to overreact and prepare in advance not to do so. We also should recognize the usefulness in giving lower level governments, non-profits, and less formal communities some ability to respond, rather than presuming we should address a significant threat like Covid using the highest level of government.

In this chapter, we identify 20 top papers in experimental economics and their reviewers. We introduce each paper by presenting the primary question addressed. We then very briefly discuss the experimental approach used to address the question, and highlight the results of the experiment relative to the primary question. We introduce the reviewer(s) of the paper by highlighting a few insights in their review. By introducing the papers and reviewers in this manner, we provide readers with a quick way to become familiar with a wide variety of experimental methods that researchers have fruitfully applied.

From his 1973 PhD Dissertation to his last presentation given to the Society for the Advancement of Behavioral Economics in Dublin in 2019, John Tomer emphasized the usefulness of broadening the human capital concept, so we could understand more deeply the benefits of human capital accumulation. John also practiced what he preached, investing in his own human capital with the expectation it would provide a better life. This essay reviews John's insights, seeking to highlight the implications for policy of the broader view of human capital that John helped develop.

The prisoner's dilemma captures the incentive problem present in many contexts of interest to public choice theorists. Self-interest makes defection a dominant strategy, and public choice theorists can identify useful government institutions and rules as government interventions that resolve the prisoner's dilemma and capture the benefits of cooperation. We can similarly identify useful social norms as interventions that resolve the prisoner's dilemma. This implies we can extend and enrich public choice theory by recognizing how the relatively hidden motivations present in social norms may substitute for or complement government interventions. We examine guilt and love as examples, and we illustrate how they facilitate, respectively, trade and voting. These examples more generally illustrate why public policy makers should consider unseen, or at least subtle, motivations.

Multiple goals tend to conflict, and this is true for multiple monetary policy goals. We present evidence that the Federal Reserve has responded to the general political support for homeownership and affordable housing in the U.S. by conducting monetary policy favorable to housing. When combined with insufficient recognition of financial innovations and flaws in the financial system, the addition of the goal of supporting housing has been “one goal too far,” creating economic distress more so than relieving it. We present evidence that it significantly contributed to the Great Inflation and the Great Recession. This work highlights the potential for government failure when a central bank makes discretionary choices with too many policy targets.

It is apparent that love influences people's choices, yet little work in economics has focused on how love develops or why it matters for resource allocation decisions. Here, we present a simple dynamic model of how love develops and evolves, recognizing our parsimonious model will not capture all the nuances associated with such a complex topic. Nonetheless, our love dynamic, motivated by a few intuitive assumptions, can explain many observed facts, like why stable love relationships can develop but also why blossoming relationships can unexpectedly take a turn and ultimately dissolve. We embed our love dynamic in an intertemporal optimization problem and derive the optimal path for effort put toward a love relationship when it can also produce material consumption. The optimal path offers an explanation for why "taking the other for granted" may be rational. (C) 2019 Elsevier B.V. All rights reserved.

Different values lead to different choices and outcomes. As the outcomes accumulate, they determine whether individuals experience better or worse lives and determine whether society is a more or less healthy. This paper examines values and culture, focusing on how they contribute to economic success. Recognizing their significant impact, we examine how values are inculcated and discuss policy implications.

This paper examines the hypothesis that cognitive limitations lead people to behave as if they are facing ambiguity, even when no ambiguity is apparent. We compare human subject decision behavior under total ambiguity, where no probability information is available, to behavior a case with no apparent ambiguity, where probabilities are transparently presented. We find that decision behavior in the Total Ambiguity case is predictive of the deviations we observe in the No Ambiguity case from the choice predictions of subjective expected utility theory. We also create prospect pairs to examine whether more cognitively challenging probabilities create ambiguity which we can identify using ambiguity theory. Using these pairs, we do not find evidence that a cognitively challenging probability creates ambiguity that systematically alters decision behavior.

A standard growth model is modified in a straightforward way to incorporate what Keynes (1936) suggests in the "essence" of his general theory. The theoretical essence is the idea that exogenous changes in investment cause changes in employment and unemployment. We implement this idea by assuming the path for capital growth rate is exogenous in the growth model. The result is a growth model that can explain both long term trends and fluctuations around the trend. The modified growth model was tested using the U.S. economic data from 1947 to 2014. The hypothesized inverse relationship between the capital growth and changes in unemployment was confirmed, and the structurally estimated model fits fluctuations in unemployment reasonably well.

In the developing world, kidnapping is relatively common, and a market for kidnap insurance has arisen in response. We provide a model that allows us to analyze how kidnap insurance affects the interaction between the kidnapper and the victim’s family when both are self-interested and have complete knowledge. We find that a market for kidnap insurance can be supported because it benefits a risk-averse family, as long as the introduction of insurance does not increase the risk of kidnapping too much. Families should fully insure if purchasing insurance does not increase the probability of kidnapping, and partially insure otherwise. Kidnapping insurance allows families to redeem hostages from kidnappers with a greater willingness to kill, which may reduce the number of kidnapping fatalities as long as the insurance does not increase the risk of kidnapping too much.