A Critical Review on the Book Fundamentals of Behavioral Economics and Finance

The Fundamentals of behavioral economics and finance by Ali Saidi and Seyed Mohamad Javad Farhanian was first published in 2012 and the second edition was out in 2015. While the book covers a wide variety of subjects in behavioral economics and finance, it fails to logically connect the materials together within a broader context. The authors neither provided theoretical foundations nor investigated applied aspects of behavioral economics and finance systematically. Furthermore, a good deal of materials is translated from English. The authors provide a list of behavioral biases followed by prescriptions to fight against them without proofing that increasing information cause behavior change. This is not consistent with an evidence-based approach to behavioral economics and finance. Moreover, the existence of personal and unproven prescriptions in the book is simply unscientific that undermines the credibility of behavioral economics and finance

Climate change risk and human behaviour

We study contributions of individuals who make decisions simultaneously in a group towards a green fund that reduces the future probability of a climate catastrophe. We derive the theoretical predictions of the effects on contributions arising from `behavioral parameters' such as loss aversion and present-bias; `structural factors' such as variation in the timing of uncertainty; the `demand for a commitment device'; and `institutional factors' such as comparing voluntary contributions with mandatory tax financed contributions. We then run experiments to test our predictions

Climate change risk and human behaviour

We study contributions of individuals who make decisions simultaneously in a group towards a green fund that reduces the future probability of a climate catastrophe. We derive the theoretical predictions of the effects on contributions arising from `behavioral parameters' such as loss aversion and present-bias; `structural factors' such as variation in the timing of uncertainty; the `demand for a commitment device'; and `institutional factors' such as comparing voluntary contributions with mandatory tax financed contributions. We then run experiments to test our predictions

Loss Aversion and Tax Evasion: Theory and Evidence

We consider income-source-dependent tax evasion and show that this is a generalization of the well-known endowment effect. We show that loss aversion, moral costs, mental accounting, and risk preferences play a key role in explaining key features of source-dependent tax evasion. We provide evidence of the first direct link between subject-specific loss aversion and tax evasion, which is central to most successful modern theoretical accounts of tax evasion. We provide some evidence that risk aversion strengthens the cautionary effect of loss aversion and risk loving behavior attenuates, or reverses, it. However, the underlying effect is also influenced by the source of income. Evasion is increasing in the tax rate and decreasing in the audit penalty, as predicted. Our paper provides novel theoretical insights; proposes new methods in the estimation of the underlying behavioral parameters; and confirms the central predictions of the theory, while pointing out challenges for further developments that existing theory is unable to account for