| Benjamin E. Hermalin, University of California, Berkeley Alice M. Isen, Cornell University |
| The Effect of Affect on Economic and Strategic Decision Making |
| Session: C-3-4 Saturday 12 August 2000 by Hermalin, Benjamin E. |
| The standard economic model of decision making assumes a decision maker makes her choices to maximize her utility or happiness. Her current emotional state is not explicitly considered. Yet there is a large psychological literature that shows that current emotional state, in particular positive affect, has a significant effect on decision making. This paper offers a way to incorporate this insight from psychology into economic modeling. Moreover, this paper shows that this simple insight can parsimoniously explain a wide variety of behaviors. |
| Submitted paper full-text in .pdf |