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New Lessons from Behavioral Economics
Article

New Lessons from Behavioral Economics

The long reach of life experience affects real-world economic outcomes, for policymakers and consumers alike

IMF, 2024


Editorial Rating

8

Qualities

  • Eye Opening
  • Well Structured
  • Background

Recommendation

The Great Depression of the 1930s left an entire generation of Americans scarred by financial ruin, scarcity, and lost opportunity. This dramatic impact on the “Depression babies” of that era altered their spending habits, investment choices, and risk tolerances for the rest of their lives. Behavioral economists Ulrike Malmendier and Clint Hamilton explore the generational repercussions of financial downturns that can last long after a crisis is over.

Take-Aways

  • Behavioral economics arose as a discipline out of the actions and experiences of the Great Depression generation.
  • Individuals make economic choices based on the “experience effects” of the financial events in their lives.
  • Experience effects point to the need to address financial crises quickly.

About the Authors

Ulrike Malmendier is a professor of economics and finance at the University of California, Berkeley, where Clint Hamilton is a PhD student in finance.


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