Why do people believe in a zero-sum economy?

Zero-sum thinking and aversion to trade pervade our society, yet fly in the face of everyday experience and the consensus of economists. Boyer and Petersen’s evolutionary model invokes coalitional psychology to explain these puzzling intuitions. I raise several empirical challenges to this explanation, proposing two alternative mechanisms—intuitive mercantilism (assigning value to money rather than goods) and errors in perspective-taking

Narrative expectations in financial forecasting

How do people form expectations about the future? We use amateur and expert investors’ expectations about financial asset prices to study this question. Three experiments contrast the rational expectations assumption from neoclassical economics (investors forecast according to neoclassical financial theory) against two psychological theories of expectation-formation—behaviorally-informed expectations (investors understand empirical market anomalies and expect these anomalies to occur) and narrative expectations (investors use narrative thinking to predict future prices). Whereas neoclassical financial theory maintains that past public information cannot be used to predict future prices, participants used company performance information revealed before a base price quotation to project future price trends after that quotation (Experiment 1), contradicting rational expectations. Importantly, these projections were stronger when information concerned predictions about a company’s future performance rather than actual data about its past performance, suggesting that people not only rely on financially irrelevant (but narratively relevant) information for making predictions, but erroneously impose temporal order on that information. These biased predictions had downstream consequences for asset allocation choices (Experiment 2) and these choices were driven in part by affective reactions to the company performance news (Experiment 3). There were some mild effects of expertise, but overall the effects of narrative appear to be consistent across all levels of expertise studied, including professional financial analysts. We conclude by discussing the prospects for a narrative theory of choice that provide new micro-foundational insights about economic behavior

Amenability of algebras of approximable operators

We give a necessary and sufficient condition for amenability of the Banach algebra of approximable operators on a Banach space. We further investigate the relationship between amenability of this algebra and factorization of operators, strengthening known results and developing new techniques to determine whether or not a given Banach space carries an amenable algebra of approximable operators. Using these techniques, we are able to show, among other things, the non-amenability of the algebra of approximable operators on Tsirelson's space.Comment: 20 pages, to appear in Israel Journal of Mathematic

Causal mechanisms

This chapter reviews empirical and theoretical results concerning knowledge of causal mechanisms—beliefs about how and why events are causally linked. First, it reviews the effects of mechanism knowledge, showing that mechanism knowledge can override other cues to causality (including covariation evidence and temporal cues) and structural constraints (the Markov condition), and that mechanisms play a key role in various forms of inductive inference. Second, it examines several theories of how mechanisms are mentally represented—as associations, forces or powers, icons, abstract placeholders, networks, or schemas—and the empirical evidence bearing on each theory. Finally, it describes ways that people acquire mechanism knowledge, discussing the contributions from statistical induction, testimony, reasoning, and perception. For each of these topics, it highlights key open questions for future research.</p