Exposure, Experience, and Expertise: Why Personal Histories Matter in Economics

Ulrike Malmendier

No 29336, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Personal experiences of economic outcomes, from global financial crises to individual-level job losses, can shape individual beliefs, risk attitudes, and choices for years to come. A growing literature on experience effects shows that individuals act as if past outcomes that they experienced were overly likely to occur again, even if they are fully informed about the actual likelihood. This reaction to past experiences is long-lasting though it decays over time as individuals accumulate new experiences. Modern brain science helps understand these processes. Evidence on neuroplasticity reveals that personal experiences and learning alter the strength of neural connections and fine-tune the brain structure to those past experiences ("use-dependent brain"). I show that experience effects help understand belief formation and decision-making in a wide area of economic applications, including inflation, home purchases, mortgage choices, and consumption expenditures. I argue that experience-based learning is broadly applicable to economic decision-making and discuss topics for future research in education, health, race, and gender economics.

JEL-codes: E7 G11 G12 G41 (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-hpe and nep-mac
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Published as Ulrike Malmendier, FBBVA Lecture 2020 "Exposure, Experience, and Expertise: Why Personal Histories Matter in Economics", Journal of the European Economic Association, Volume 19, Issue 6, December 2021, Pages 2857–2894

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