 A Retrieved-Context Theory Of Financial DecisionsJessica Wachter () and Michael Jacob Kahana No 26200, NBER Working Papers from National Bureau of Economic Research, Inc Abstract: Studies of human memory indicate that features of an event evoke memories of prior associated contextual states, which in turn become associated with the current event's features. This mechanism allows the remote past to influence the present, even as agents gradually update their beliefs about their environment. We apply a version of retrieved context theory, drawn from the literature on human memory, to explain three types of evidence in the financial economics literature: the role of early life experience in shaping investment choices, occurrence of financial crises, and the impact of fear on asset allocation. These applications suggest a recasting of neoclassical rational expectations in terms of beliefs as governed by principles of human memory. JEL-codes: D91 E71 G11 G12 G41 (search for similar items in EconPapers) Published as Jessica A Wachter & Michael Jacob Kahana, 2024. "A Retrieved-Context Theory of Financial Decisions," The Quarterly Journal of Economics, vol 139(2), pages 1095-1147. Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:26200 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC. |
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