Required Textbooks

Kahneman, Daniel, and Amos Tversky, eds. Choices, Values and Frames. Cambridge University Press, 2000. (This book is henceforth referred to as CVF.)

Shleifer, Andrei. Inefficient Capital Markets: An Introduction to Behavioral Finance. Oxford UP, 2000. (This book is henceforth referred to as ICM.)

The following books are also useful:

Camerer, Colin F., George Loewenstein, and Matthew Rabin, eds. Advances in Behavioral Economics. Princeton University Press, 2003. (This book is henceforth referred to as ABE.)

Thaler, Richard. Advances in Behavioral Finance. Russel Sage Foundation, 1993.

The remainder of reading assignments are listed below. Required readings are denoted by an asterisk (*).


*Rabin, M. "Economics and Psychology." JEL 36, no. 1 (March 1998): 11-46.

*Kahneman, D. "Maps of Bounded Rationality: Psychology for Behavioral Economics." American Economic Review (December 2003): 1449-1475.
This is Kahneman's Nobel lecture. See a video of it.

Thaler, Richard. The Winner's Curse: Paradoxes and Anomalies of Economic Life. Princeton, N. J.: Princeton University Press, 1994.

Discussion of Traditional Objections

Akerlof, George A., and Janet L. Yellen. "Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?" American Economic Review 75, no. 4 (September 1985): 708-20.

*Gabaix, Xavier, and David Laibson. "Some Industrial Organization With Boundedly Rational Consumers: Noise."

*ICM. Chapter 2.

*Thaler, R. "The Psychology and Economics Conference Handbook: Comments on Simon, on Einhorn and Hogarth, and on Tversky and Kahneman." Journal of Business 59, no. 4. Part 2 (Oct 1986): S279 - S284.


Some Psychology of Decision-making

*Camerer, C. "Individual Decision Making." Handbook of Experimental Economics. Edited by J. Kagel, and A. Roth. Princeton UP, 1995, pp. 587-703.

Kahneman, D., J. Knetsch, and R. Thaler. "Experimental Tests of the Endowment Effect and Coase Theorem." JPE (1990): 1325-48.

*Tversky, A., and D. Kahneman. "Judgement Under Uncertainty: Heuristics and Biases." Science 185 (1974): 1124-31.

Thaler, R. "Mental Accounting." In Quasi-Rational Economics. Russell Sage Foundation, 1991.

Tversky, A., and D. Kahneman. "The Framing of Decisions and the Psychology of Choice." Science 211 (1981): 453-8.

Slovic, Paul. "Rational Actors and Rational Fools: Implications of the Affect Heuristic for Behavioral Economics."

Decisions Under Risk and Uncertainty

*Kahneman, D., and A. Tversky. "Prospect Theory: An Analysis of Decision Under Risk." Econometrica 47, no. 2 (March 1979): 263-91. CVF, Chapter 2.

*Plott, C., and K. Zeiler. "The Willingness to Pay/Willingness to Accept Gap, The "Endowment Effect," Subject Misconceptions and Experimental Procedures for Eliciting Valuations." 2003. Caltech Mimeo.

*Rabin. "Diminishing Marginal Utility Cannot Explain Risk Aversion." You can consult also Rabin, Matthew. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem." (In Notes and Comments) Econometrica 68, no. 5 (Sep 2000): 1281-1292. CVF, Chapter 11.

*Tversky, A., and D. Kahneman. "Advances in Prospect Theory: Cumulative Representation of Uncertainty." Journal of Risk and Uncertainty 5, no. 4 (1992). CVF, Chapter 3.

Overconfidence, and Manipulation of Beliefs

Benabou, R., and Jean Tirole. "Self-Confidence and Personal Motivation." Quarterly Journal of Economics 117, no. 3 (August 2002): 871-915.

Brunnermeier, M., and J. Parker. Optimal Expectations. Princeton University (2002).

Koszegi, B. U. "Ego Utility and Information Acquisition." Berkeley Mimeo. (PDF

Landier, Augustin, and David Thesmar. "Contracting with Optimistic Entrepreneurs: Theory and Evidence." May 2004.

Quattrone, and Tversky. "Contrasting Rational and Psychological Analyses of Political Choice." American Political Science Review 82, no. 3 (September): 720-736. CVF, Chapter 25.

Rabin, Matthew, and Joel Schrag. "First Impressions Matter: A Model of Confirmatory Bias.'' Quarterly Journal of Economics 114, no. 1 (February 1999): 37-82.

Weinstein. "Unrealistic Expectations About Future Life Events." Journal of Personality and Social Psychology 39 (1980): 806-820.

Decision Utility and Experienced Utility

*Gilbert, D. T., E. C. Pinel, T. D. Wilson, S. J. Blumberg, and T. P. Wheatley. "Durability Bias in Affective Forecasting." In Heuristics and Biases: The Psychology of Intuitive Judgment. Edited by T. Gilovich, D. Griffin, and D. Kahneman. Cambridge: Cambridge University Press, 2002, pp. 292-312.

*Kahneman, Daniel, et al. "Back to Bentham?" QJE 112, no. 2 (May 1997): 375-405.

*Kahneman, Daniel. Experienced Utility and Objective Happiness: A Moment-Based Approach. CVF, Chapter 37.


Frey, B., and A. Stutzer. "What can Economists Learn from Happiness Research?" Journal of Economic Literature (2002): 402-35.

Contingent Valuation

*Kahneman, D., Ilana Ritov, and Savid Schkade. "Economic Preferences or Attitude Expressions? An Analysis of Dollar Responses to Public Issues." CVF, Chapter 36.

*Gul, F., and Pesendorfer. "Self-Control and the Theory of Consumption." Mimeo.

Time Discounting

Some Psychological Evidence on Time Discounting

*Frederick, Shane, and G. Loewenstein, and T. O'Donoghue. "Time Discounting: A Critical Review." Forth. JEL. In ABE.

Metcalfe, J., and W. Mischel. "A Hot/Cold System Analysis of Delay of Gratification: Dynamics of Willpower." Psychological Review 106, no. 1 (1999): 3-19.

Mischel, W., Y. Shoda, and M. L. Rodriguez. "Delay of Gratification in Children." In Choice over Time. Edited by Elster, and Loewenstein. Russell Sage Foundation, 1992.

Modeling Time Discounting and Self-control

*Gul, F., and Pesendorfer. "Self-Control and the Theory of Consumption." Mimeo.

*Laibson, D. "Golden Eggs and Hyperbolic Discounting." QJE 112, no. 2 (May 1997): 443-77.


Angeletos, M., D. Laibson, A. Repetto, and J. Tobacman. "The Hyperbolic Buffer Stock Model: Calibration, Simulation, and Empirical Evaluation." JEP (2002).

Bernheim, D., D. Garrett, and D. Maki.  "Education and Saving: The Long-Term Effects of High School Financial Curriculum Mandates." Working Paper 97012, Stanford University, Department of Economics.(PDF)

*Bernheim, D., J. Skinner, and S. Weinberg. "What Accounts for the Variation in Retirement Wealth Among U.S. Households?" AER 91 (2001): 832-857. See also: Stanford Working Paper 97035. (PDF)

*Laibson, D., A. Repetto, and J. Tobacman. "A Debt Puzzle." Forthcoming in Essays in Honor of E. Phelps. (PDF)

Luttmer, Erzo, and Thomas Mariotti. "Subjective Discounting in an Exchange Economy." JPE (2003). (Finance application)

Mankiw. "The Savers-Spenders Theory of Fiscal Policy." AER (May 2000).

O'Donoghue, Ted, and M. Rabin. "Doing It Now or Later." AER 89, no. 1 (March 1999): 103-24.

Financial Literacy and Social Influence

Choi, James C. Choi, David Laibson, Brigitte C. Madrian, and Adnrew Metrick.  "Active Decisions: A Natural Experiment in Savings." August 4, 2003. (PDF)

Duflo, E., and E. Saez. "Participation and Investment Decisions in a Retirement Plan: The Influence of Colleagues' Choices." NBER Working Paper No. W7735.

Madrian, Brigitte, and D. Shea. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior." Quarterly Journal of Economics 116 (2001): 1149-1525.

*Thaler, and Bernatzi. "Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving." (PDF)

Other Perspectives

Ameriks, John, Andrew Caplin, and John Leahy. "Wealth Accumulation and the Propensity to Plan." Forthcoming Quarterly Journal of Economics.

Bounded Rationality

Some More Evidence

*Ariely, D., G. Loewenstein, and D. Prelec. "Coherent Arbitrariness: Stable Demand Curves without Stable Preferences." Quarterly Journal of Economics (2003): 73-105.

*Costa-Gomes, M., et. al. "Experimental Studies of Strategic Sophistication and Cognition in Normal-Form Games." Econometrica 69 (2003): 1193-1235.

Cognitive Modelling

Conlisk, John. "Why Bounded Rationality?" JEL (June 1996): 669-700.

Gabaix, Xavier, and David Laibson. "Bounded Rationality and Directed Cognition." Mimeo.

*Gabaix, Xavier, David Laibson, Guillermo Moloche, and Stephen Weinberg. "The Allocation of Attention: Theory and Evidence." Mimeo.

Gigerenzer, Todd, et al. "Simple Heuristics that Make Us Smart." Oxford U P, 1999.

Ergin, Haluk. "Preference for Flexibility with Contemplation Costs." MIT Mimeo.

Rubinstein, A. Modeling Bounded Rationality. MIT Press, 1998.

The Near-rationality Approach

Akerlof, George A., and L. Janet Yellen. "Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?" American Economic Review 75, no. 4 (September 1985): 708-20.

Evans, G., and G. Ramey. "Expectation Calculation and Macroeconomic Dynamics." American Economic Review 82 (March 1992).

*Gabaix, Xavier, and David Laibson. "The 6D Bias and the Equity Premium Puzzle." Forth. NBER Macro Annual (2002).

Mankiw, N. G., and Ricardo Reis. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve." Quarterly Journal of Economics 117, no. 4 (November 2002).

Reis, Ricardo. "Inattentive Consumers."


*Mullainathan, Sendhil. "Thinking through Categories." MIT Mimeo.

Fryer, and Jackson. Categorical Cognition. NBER Working Papers 9579. 2003.

Wilson, Andrea. "Bounded Memory and Biases in Information Processing." NajEcon Working Paper Reviews.


*Ameriks, John, Andrew Caplin, and John Leahy. "The Absent-Minded Consumer." January 2004. (PDF)

*Mullainathan, S. "A Memory Based Model of Bounded Rationality." QJE (2002). (PDF)

Behavioral Game Theory

*Camerer, Ho, and Chong. "A Cognitive Hierarchy Theory of One-Shot Games and Experimental Analysis." Forth, QJE.

*Camerer, Colin, and Teck-Hua Ho. "Experience Weighted Attraction Learning in Normal-Form Games." Econometrica 67, no. 4 (July 1999): 827-74.

*Ho, Teck-Hua, Colin F. Camerer, and Juin-Kuan Chong. "The Economic Value of EWA Lite: A Functional Theory of Learning in Games."

Camerer, Colin, and Teck-Hua Ho. "Iterated Dominance and Iterated Best Response in Experimental "p-Beauty Contests." AER 88, no. 4 (September 1998): 947-69.

*Erev, Ido, and Alvin Roth. "Predicting How People Play Games." AER 88, no. 4 (September 1998): 848-81.

Trust and Social Capital

Glaeser, Laibson, Scheinkman, and Soutter. "What is Social Capital?" QJE (2001).

La Porta, Schleifer, and Vishny. "Trust in Large Organizations." American Economic Review Papers and Proceedings. May 1997.

Public Goods

Ledyard, John O. "Public Goods: A Survey of Experimental Research." Handbook of Experimental Economics. Princeton University Press, 1995.


Barber, Brad, and Terrance Odean. "All that Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors." 2003. (PDF)

Hirshleifer, David, and Siew Teoh. "Limited Attention, Information Disclosure, and Financial Reporting." Ohio State Working Paper, October 2003. Background.

*DellaVigna, Stefano, and Joshua Pollet. "Attention, Demographic Changes, and the Stock Market." 2003.

*Gabaix, Xavier, David Laibson, Guillermo Moloche, and Stephen Weinberg. "The Allocation of Attention: Theory and Evidence." Mimeo.

Hirshleifer, David, Sonya Lim, and Siew Teoh. "Disclosure to a Credulous Audience: The Role of Limited Attention." Ohio State Working Paper, October 2002.

*Hong, Harrison, and Jeremy Stein. "Simple Forecasts and Paradigm Shifts." NBER Working Papers 10013.

Sims, C. "Rational Inattention." Journal of Monetary Economics 50, 665-690.

Industrial Organization

Ausubel, L. "The Failure of Competition in the Credit Card Market." American Economic Review (1991).

Stefano, Della Vigna, and Ulrike Malmendier. "Overestimating Self-Control: Evidence from the Health Club Industry." Mimeo. 2003.

*———. "Contract Design and Self-Control: Theory and Evidence." Edited by Ulrike Malmendier. January 2004. Forthcoming in Quarterly Journal of Economics (May 2004).

*Gabaix, Xavier, and David Laibson. "Some Industrial Organization with Boundedly Rational Consumers."

Glaeser, Edward L. "The Political Economy of Hatred." August 2002.

Mullainathan, S., and A. Shleifer. "Media Bias."


Inflation and Nominal Illusion

Psychological Evidence

*Shafir, E., P. Diamond, and A. Tversky. "Money Illusion." QJE 112, no. 2 (May 1997): 341-74. CVF, Chapter 17.

Shiller, R. "Why do People Dislike Inflation?" NBER WP 5539, (1996); and in Reducing Inflation: Motivation and Strategy. Edited by Christina Romer, and David Romer. NBER and U. Chicago Press, 1996.

Shiller, R. "Public Resistance to Indexation: A Puzzle." BPEA, no. 1 (1997): 159-229.

Mankiw, Greg, Ricardo Reis, and Justin Wolfers. Published, NBER Macroeconomics Annual, "Disagreement About Inflation Expectations." 2003.

Inflation and Unemployment

Akerlof, Dickens, and Perry. "The Macroeconomics of Low Inflation." BPEA, no. 1 (1996): 1-76.

Genesove, David, and Chris Mayer. "Loss Aversion and Seller Behavior: Evidence from the Housing Market." Quarterly Journal of Economics 116, no. 4 (2001): 1233-1260.

Price Stickiness

Blinder, et al. Asking About Prices. Russel Sage, 1998.

*Fehr, E., and J. R. Tyran. "Does Money Illusion Matter?" AER (2001).

Inflation and the Equity Premium

Modigliani, F., and R. Cohn. "Inflation, Rational Valuation, and the Market." The Collected Papers of Franco Modigliani 5, MIT Press (1989): 304-24.

*Campbell, John, and Tuomo Vuolteenaho. "Inflation Illusion and Stock Prices." (PDF)

Real and Nominal Interest Rate: Fisher Hypothesis

Evans, Martin. "Real Rates, Expected Inflation and Inflation Risk Premia." Journal of Finance (1997).

Kandel, S., A. Ofer, and O. Sarig. "Real Interest Rates and Inflation: An Ex-Ante Empirical Analysis." Journal of Finance (1996): 205-25.

Labor Economics

Fairness, Morale, and Unemployment

Akerlof, G. "Labor Contracts as Partial Gift Exchange." QJE (1982): 543-69.

Bewley, T. Why Wages Don't Fall During a Recession, 1999. Harvard UP, chapters 8 and 21, 2000.

*Fehr, and Fischbacher. "The Nature of Human Altruism." Nature 425 (23 October 2003): 785-791.

*Fehr, and G├Ąchter. "Fairness and Retaliation: The Economics of Reciprocity." Journal of Economic Perspectives 14 (2000).

*Fehr, and Schmidt. "A Theory of Fairness, Competition and Cooperation." QJE 114 (1999): 817-868. 

*Henrich, Fehr, Boyd, Bowles, Gintis, Camerer, and McElreath. "In Search of Homo Economicus: Behavioral Experiments in 15 Small-Scale Societies." American Economic Review 91 (2001): 73-78.

Rabin, M. "Incorporating Fairness into Game Theory and Economics." AER (1993): 1058-82.

Labor Supply

Camerer, Babcock, Loewenstein, Thaler. "Labor Supply of New York City Cabdrivers: On Day at a Time." QJE (1997): 407-42. CVF, Chapter 20.

Fehr, E., and L. Goette. "Do Workers Work More if Wages are High? Evidence from a Randomized Field Experiment." IEW - Working Papers iewwp125.

Farber, Henry. "Is Tomorrow Another Day? The Labor Supply of New York City Cab Drivers." NBER Working Papers 9706, May 2003.

Oettinger, G. "An Empirical Analysis of the Daily Labor Supply of Stadium Vendors." JPE (1999): 360-92.


*Bernheim, Antonio, and Douglas Bernheim. "Addiction and Cue-Conditioned Cognitive Processes." NBER Working Papers 9329. Research: Behavioral Public Economics.

Gruber, J., and B. Koszegi. "Is Addiction 'Rational'? Theory and Evidence." Quarterly Journal of Economics 116, no. 4 (2001): 1261-1305.

Laibson, D. "A Cue-Theory of Consumption." Quarterly Journal of Economics 116, no. 1 (2001): 81-120.


*Barberis, and Thaler. "A Survey of Behavioral Finance." 

Cochrane, John. "New Facts in Finance." Economic Perspectives XXIII, no. 3 (1999).

Hirshleifer. "Investor Psychology and Asset Pricing." Journal of Finance 56, no. 4 (August 2001): 1533-1598.

Direct Evidence on Investor Behavior

*Benartzi, S., and R. Thaler. "Naive Diversification Strategies in Defined Contribution Savings Plans." AER (2001).

Barber, Brad, and Terrance Odean. "All that Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors." 2003. (PDF)
See other papers.

Heath, C., S. Huddart, and M. Lang. "Psychological Factors and Stock Option Exercises." QJE (1999).

Grinblatt, Mark, and Matti Keloharju. "What Makes Investors Trade?"

*Odean, T. "Are Investors Reluctant to Realize Their Losses?" Journal of Finance (1998): 1775-1798. See other papers.

Odean, T. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment." Edited by Brad Barber. Quarterly Journal of Economics 116, no. 1 (February 2001): 261-292.

*Odean, T. "Do Investors Trade too Much?" AER (Dec 1999).

Limits to Arbitrage


*Inefficient Markets. Chapters 2 and 4.

Shleifer, A., and Vishny. "Limits of Arbitrage." Journal of Finance 52: 25-55.


Inefficient Markets. Chapter 3.

Gabaix, Xavier, Arvind Krishnamurthy, and Olivier Vigneron. "Predictable Risk Premia When Arbitrage is Limited: Evidence from Mortgage-Backed Securities.

Froot, and Dabora. "How are Stock Prices Affected by the Location of Trade?" J Fin Ec 53 (1999): 189-216.

Lamont, and Thaler. "Can the Market Add and Subtract? Mispricing in Tech Stock Carve-Outs." Journal of Political Economy (April 2003).

Cross-sectional Predictability of Stock Returns

*Barberis, and Shleifer. "Style Investing." Mimeo (2001).

*Davis, Fama, and French. "Characteristics, Covariances, and Average Returns: 1929 to 1997." Journal of Finance  55, no. 1 (Feb 2000): 389-406.

*Bondt, W. De, and R. Thaler. "Does the Stock Market Overreact?" Journal of Finance 40, no. 3 (July 1985): 793-805. Also in Thaler. Chapter 9 in Advances in Behavioral Finance. NY, Russell Sage Foundation, 1993.

Daniel, and Titman. "Market Reactions to Tangible and Intangible Information." NBER Working Papers 9743.

*Daniel, Kent, and Titman. "Evidence on the Characteristics of Cross Sectional Variation in Stock Returns." Journal of Finance 52, no. 1 (March 1997): 1-33.

Fama, E., and K. French. "Multifactor Explanations of Asset Pricing Anomalies." Journal of Finance (1996): 55-84.

*Grinblatt, and Moskowitz. "What do We Really Know About the Cross-Sectional Relation Between Past and Expected Returns?" NBER WP 8744.

*Lakonishok, J., A. Shleifer, and R. Vishny. "Contrarian Investment, Extrapolation and Risk." Journal of Finance 49, no. 5 (Dec 1994): 1541-1578. 

Porta, J. La, J. Lakonishok, A. Shleifer, and R. Vishny. "Good News for Value Stocks: Further Evidence on Market Efficiency." Journal of Finance (June 1997).

Lettau, Martin, and Sydney. "Resurrecting the (C)CAPM: A Cross-Sectional Test When Risk Premia Are Time-Varying." (With Syndey Ludvigson). Journal of Political Economy 109, no. 6: 1238-1287.

Aggregate Equity Premium

Theories of the (time varying) risk premium based on loss aversion.

*Barberis, N., M. Huang, and Tano Santos. "Prospect Theory and Asset Prices." QJE (2001).

*Benartzi, S., and R. Thaler. "Myopic Loss Aversion and the Equity Premium Puzzle." QJE 110, no. 1 (February 1995): 73-92. CVF, p. 301.

*Epstein, Zin. "'First-Order Risk Aversion and the Equity Premium Puzzle." Journal of Monetary Economics 26, no. 3 (December 1990): 387-407.

Johnson, and Thaler. "Gambling with the House Money and Trying to Bread Even: The Effects of Prior Outcomes on Risky Choice." In  Quasi-Rational Economics. Edited by Thaler. Russel Sage 1992.

Other Perspectives

*Gabaix, Xavier, and David Laibson. "The 6D Bias and the Equity Premium Puzzle." NBER Macro Annual (2001).

Earnings Announcements and Underreaction

*Bernard, V. "Stock Price Reactions to Earnings Announcements: A Summary of Recent Anomalous Evidence and Possible Explanations." Chapter 11 in Advances in Behavioral Finance. Edited by Thaler. NY, Russell Sage Foundation, 1993, pp. 303-340.

Cohen, Randolph B., A. Paul, Gompers, and Tuomo Vuolteenaho. Draft dated 27-Jun-2002. "Who Underreacts to Cash-Flow News? Evidence from Trading between Individuals and Institutions." Journal of Financial Economics. (Forthcoming)


Hong, H., T. Lim, and J. Stein. Bad News Travel Slowly: Size, Analyst Coverage and the Profitability of Momentum Strategies.

*Lee, C., and Swaminathan. "Price Momentum and Trading Volume." Journal of Finance.

Moskowitz, T., and Grinblatt. "Do Industries Explain Momentum?" Journal of Finance.

Yao, Tong. "When Are Momentum Profits Due to Factor Dynamics?"

Kent, Subrahmanyam, and Titman. "Overconfidence, Arbitrage, and Equilibrium Asset Pricing." Journal of Finance 56, no. 3 (June 2001): 921-965.

"Rational" Non-standard Preferences

Campbell, J., and J. Cochrane. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior." JPE (1999).

Epstein, L., and S. Zin. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework." Econometrica (1989): 937-68.

*Hansen, L., T. Sargent, T. Tallarini. "Robust Permanent Income and Pricing." Mimeo. Chicago, 1999.

Evidence on Rational Expectations

Froot, K., and J. Frankel. "Forward Discount Bias: Is it an Exchange Risk Premium?" QJE (1989): 139-61.

Gourinchas, P. O., and A. Tornell. "Exchange Rate Dynamic and Learning." NBER WP, 1996.

*Ito, T. "Foreign Exchange Rate Expectations: Micro Survey Data." AER 80, no. 3 (June 1990): 434-49.

Kandel, and Pearson. "Differential Interpretation of Public Signals and Trade in Speculative Markets." JPE (1995): 831-72.

Experimental Finance

Smith, Vernon, Gerruy Suchanek, and Arlington Williams. "Bubbles, Crashes and Endogenous Expectations in Experimental Spot Asset Markets." Econometrica 56, no. 5 (1988).

Excess Volatility and the Relation between Volume and Price Movements

*Gabaix, Xavier, Parameswaran Gopikrishnan, Vasiliki Plerou, and H. Eugene Stanley. "A Theory of Power Law Distributions in Financial Market Fluctuations." Nature 423 (2003): 267-70.

———. "A Theory of Large Fluctuations in Stock Market Activity." (PDF)

Bubbles and Cashes


Abreu, and Brunnermeier. "Bubbles and Crashes." Econometrica 71, no. 1 (2003): 173-204. 

*Baker, Malcolm, and Jeffrey Wurgler. "Investor Sentiment and the Cross-Section of Stock Returns." 2003.

Bulow, Jeremy, and Paul Klemperer. "Rational Frenzies and Crashes." Journal of Political  Economy 102, no. 1 (1994): 1-23.

*Gabaix, Xavier, Parameswaran Gopikrishnan, Vasiliki Plerou, and H. Eugene Stanley. "A Theory of Power Law Distributions in Financial Market Fluctuations." Nature 423, (2003): 267-70.

Hong, and Stein. "Differences of Opinion, Rational Arbitrage and Market Crashes." NBER WP 7376.

Shiller, R. Irrational Exuberance. Princeton U. Press, 2000.


*Hong, Chen, and Stein. "Forecasting Crashes: Trading Volume, Past Returns and Conditional Skewness in Stock Prices." NBER Working Papers 7687.

Kindleberger. Mania, Panics and Crashes: A History of Financial Crises. 3rd ed. Wiley, Paperback (2000).

Smith, Vernon, Gerruy Suchanek, and Arlington Williams. "Bubbles, Crashes and Endogenous Expectations in Experimental Spot Asset Markets." Econometrica 56, no. 5 (1988).

Theories of Investor Sentiment

Barberis, N., A. Shleifer, and R. Vishny. "A Model of Investor Sentiment." JFE (1998): 307-343. Chapter 20 in Inefficient Markets.

*Daniel, K., D. Hirshleifer, and A. Subramanyam. "Investor Psychology and Security Market Under- and Overreactions." Journal of Finance 53, no. 6 (December 1998): 1839-85.

Griffin, D., and A. Tversky. "The Weighting of Evidence and the Determinants of Confidence." Cognitive Psychology (1992): 411-35.

*Hong, H., and J. Stein. "A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Financial Markets." Journal of Finance 54, no. 6 (Dec 1999): 2143-2184.

Odean, T. "Volume, Volatility, Price, and Profit When All Traders Are Above Average." Journal of Finance (1998): 1887-1934.

Some Corporate Finance

*Barker, M., and J. Wurgler. "Market Timing and Capital Structure." Journal of Finance (February 2002).

*Barker, M., and J. Wurgler. "Market Timing and Capital Structure." Journal of Finance (February 2002). See other papers.

Landier, Augustin, and David Thesmar. "Contracting with Optimistic Entrepreneurs: Theory and Evidence."

Malmendier, Ulrike, and Geoffrey Tate. "CEO Overconfidence and Corporate Investment." May 2003.

Moods, the Sun and the Moon

Hirshleifer, Jack, and Tyler Shumway. "Good Day Sunshine: Stock Returns and the Weather." Journal of FinanceDavid Hirshleifer: Ralph M. Kurtz Chair in Finance.

Yuan, Kathy, Lu Zheng, Qiaoqiao Zhu. "Are Investors Moonstruck? Lunar Phases and Stock Returns."

Objections to Behavioral Finance, and Replies

Fama, E. "Market Efficiency, Long-Term Returns, and Behavioral Finance." J Fin Econ (1998): 283-306.

Loughran, T., and Ritter. "Uniformly Least Powerful Tests of Market Efficiency." Journal of Financial Economics. WP U. Florida.

Shleifer, A., and R. Vishny. "The Limits of Arbitrage." Journal of Finance (1997): 35-55.

Some Other Perspectives

"Agent-based" Models

*Chan, Nicholas, Blake LeBaron, Andrew Lo, and Tomaso Pogio. "Agent Based Financial Markets:  A Comparison with Experimental Markets." Unpublished, 1999.

Gode, D., and S. Sunder. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality." JPE (1993): 119-137.

———. "What Makes Markets Allocationally Efficient?" QJE (May 1997): 603-30.

*LeBaron, Blake. "Agent Based Computational Finance: Suggested Readings and Early Research." Journal of Economic Dynamics and Control, 2000.

Levy, Levy, and Solomon. "Microscopic Simulations of Financial Markets." Academic Press, 2000.

See other resources.

Artificial Intelligence Perspectives

Genetic Algorithms

Mitchell, M. "An Introduction to Genetic Algorithms." MIT Press, 1996.

Case-based Reasoning

Gilboa, and Schmeidler. "Case-Based Decision Theory." QJE 110, no. 3 (August 1995): 605-39.

Machine Learning

Vapnik, V. N. "The Nature of Statistical Learning Theory." Berlin: Springer-Verlag, 1995.


Camerer, Loewenstein, and Prelec. "How Neuroscience Can Inform Economics." JEP. (Under revision)</