We use neural data collected from an experimental asset market to measure regret preferences while subjects trade stocks. When subjects observe a positive return for a stock they chose not to purchase, a regret signal is observed in an area of the brain that is commonly active during reward processing. Subjects are unwilling to repurchase stocks that have recently increased in price, even though this is suboptimal in our experiment. The strength of stock repurchasing mistakes is correlated with the neural measures of regret. Subjects with high rates of repurchasing mistakes also exhibit large disposition effects.

Neuroeconomics aims to discover mechanisms of economic decision, and express them mathematically, to predict observed choice. While the contents of neuroeconomic models and evidence are obviously different than in traditional economics, (some of the) goals are identical: to explain and predict choice, the effects of comparative statics, and perhaps make interesting new welfare judgments that are defensible. To this end, Paul Glimcher's important book carefully describes how economics, psychological, and neural levels of explanation can be linked (a structure which has been successful in visual neuroscience). As Glimcher shows, the neural evidence is quite strong for a process of learning valuations through prediction error, and a simple model of neural valuation and comparison that corresponds to random utility (though subject to normalization, which produces menu effects). There is also rapidly growing evidence for more complicated constructs in behavioral economics, including prospect theory's account of risky choice, hyperbolic time discounting, level-k models of games, and social preferences corresponding to internal reward based on what happens to other agents. (JEL D01, D03, Y30)

In economic analyses of asymmetric information, better-informed agents are assumed capable of reproducing the judgments of less-informed agents. We discuss a systematic violation of this assumption that we call the "curse of knowledge." Better-informed agents are unable to ignore private information even when it is in their interest to do so; more information is not always better. Comparing judgments made in individual-level and market experiments, we find that market forces reduce the curse by approximately 50 percent but do not eliminate it. Implications for bargaining, strategic behavior by firms, principal-agent problems, and choice under uncertainty are discussed.

Microeconomic theory typically concerns exchange between individuals or firms in a market setting. To make predictions precise, individuals are usually assumed to use the laws of probability in structuring and revising beliefs about uncertainties. Recent evidence, mostly gathered by psychologists, suggests probability theories might be inadequate descriptive models of individual choice. (See the books edited by Daniel Kahneman et al., 1982a, and by Hal Arkes and Kenneth Hammond, 1986.)

Loss aversion is one of the most widely used concepts in behavioral economics. We conduct a large-scale, interdisciplinary meta-analysis to systematically accumulate knowledge from numerous empirical estimates of the loss aversion coefficient reported from 1992 to 2017. We examine 607 empirical estimates of loss aversion from 150 articles in economics, psychology, neuroscience, and several other disciplines. Our analysis indicates that the mean loss aversion coefficient is 1.955 with a 95 percent probability that the true value falls in the interval [1.820, 2.102]. We record several observable characteristics of the study designs. Few characteristics are substantially correlated with differences in the mean estimates. (JEL D81, D91)

We test whether a model of reputation formation in an incomplete information game, using sequential equilibrium, predicts behavior of players in an experiment. Subjects play an abstracted lending game: a B player lends or does not lend; then if B lends, an E player can pay back or renege. The game is played 8 times, and there is a small controlled probability that the E player's induced preferences make him prefer to pay back (but usually he prefers to renege). In sequential equilibrium, even E players who prefer to renege should pay back in early periods of the game, and renege with increasing frequency in later periods, to establish reputations for preferring to pay back. After many repetitions of the 8-period game, actual play is roughly like the sequential equilibrium, except that E players pay back later in the game and more often than they should. This behavior is rational if B players have a "homemade" prior probability of .17 (in addition to the controlled probability) that E players will prefer to pay back. We conclude that sequential equilibrium with homemade incomplete information describes actual behavior well enough that it is plausible to apply it to theoretical settings where individuals make choices (e.g., product markets, labor markets, bargaining).

To test whether naturally occurring markets can be strategically manipulated, $500 and $1,000 bets were made, then canceled, at horse racing tracks. The net effects of these costless temporary bets give clues about how market participants react to information large bets might contain. The bets moved odds on horses visibly (compared to matched‐pair control horses with similar prebet odds) and had a slight tendency to draw money toward the horse that was temporarily bet, but the net effect was close to zero and statistically insignificant. the results suggest that some bettors inferred information from bets and others did not, and their reactions roughly canceled out.