1. A Retrieved-Context Theory of Financial Decisions.
- Author
-
Wachter, Jessica A and Kahana, Michael Jacob
- Subjects
MEMORY ,ASSET allocation ,ECONOMICS literature - 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 retrieved-context 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 effect 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. [ABSTRACT FROM AUTHOR]
- Published
- 2024
- Full Text
- View/download PDF