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Quantitative Marketing and Economics

, Volume 6, Issue 1, pp 17–40 | Cite as

A model of the effect of affect on economic decision making

  • Benjamin E. HermalinEmail author
  • Alice M. Isen
Article

Abstract

The standard economic model of decision making assumes a decision maker’s current emotional state has no impact on his or her decisions. Yet there is a large psychological literature that shows that current emotional state, in particular mild positive affect, has a significant effect on decision making, problem solving, and behavior. This paper offers a way to incorporate this insight from psychology into economic modelling. Moreover, this paper shows that this simple insight can parsimoniously explain a wide variety of behaviors.

Keywords

Affect Morale Emotion 

JEL Classification

B41 D99 C70 C73 D81 

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Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.Walter A. Haas School of BusinessUniversity of CaliforniaBerkeleyUSA
  2. 2.Johnson Graduate School of ManagementCornell UniversityIthacaUSA

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