This proposal develops an approach for extending what is known about individual deviations from rationality to aid in understanding the behavior of financial markets. The project therefore will help to provide a bridge from research conducted with individuals in laboratory settings to real- world macro-phenomenon based on the behavior of markets. Financial markets are important and have been extensively studied from an institutional perspective, but very few researchers have taken the perspective of the individual and examined the extent to which deviations from rational, expected-utility behavior among individuals might affect the aggregate behavior of markets. An extensive data set already is in hand and early work on investor behavior appears to support the initial hypotheses of the investigators. The researchers are excellent and they have extensive experience on topics related to the focus of this proposal. Results of the project should be of interest to behavioral decision theorists, psychologists, and economists.
