The Illusion of Choice: Reviewing Micro-Macro Perspectives in Behavioral Finance

L'illusion du choix: Une revue des dimensions microéconomiques et macroéconomiques en finance comportementale

Claire Barraud ()
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Claire Barraud: UGA - Université Grenoble Alpes, UGA UFR FEG - Université Grenoble Alpes - Faculté d'Économie de Grenoble - UGA - Université Grenoble Alpes

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Abstract: This article examines the psychological mechanisms that shape financial behavior and proposes a structured synthesis of behavioral finance across its microeconomic and macroeconomic dimensions. Its first contribution is to offer a concise yet comprehensive review of all cognitive and emotional biases identified in the microeconomic literature, providing an accessible framework for navigating a field that is often dispersed and conceptually diverse. Its second contribution is to clarify how behavioral finance operates simultaneously at the microeconomic and macroeconomic levels: while some macroeconomic phenomena arise from the aggregation of individual biases, macro-level dynamics also display properties that cannot be reduced to the mere sum of micro-level mechanisms. The third contribution is to unify the macroeconomic branch of behavioral finance by presenting a chronological typology of the mechanisms underlying price instability, centered on communication, informational and attentional cascades, emotional contagion, and herding. This integrative perspective shows that processes that appear deliberate often stem from automatic, affective, or socially transmitted forces, contributing to the illusion of choice. By bringing together the principal insights of the micro-and macro-oriented literatures, the article aims to clarify the internal coherence of behavioral finance and to illuminate the channels through which beliefs, emotions, and collective dynamics shape financial behavior.

Keywords: Informational cascade; Herding; Emotional contagion; Emotional biases; Cognitive biases; Behavioral finance; Finance comportementale; Biais Cognitifs; Biais Emotionnels; Contagion émotionnelle; Cascade Informationnelle (search for similar items in EconPapers)
Date: 2025-12-03
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