ABSTRACT
In this chapter we bring subjective psychological factors into behavioural economics by exploring the role played by personality, moods, emotions and visceral factors (VFs) in economic and fi nancial decision-making. Rational choice theories in standard economic models assume homogeneous, self-interested individuals using logical methods to make their choices. A representative agent captures the average behaviour of everyone and there is no obvious role for psychological factors. Many models in behavioural economics refl ect this approach to some extent, and the analyses in previous chapters, whilst admitting that subjectivity and behavioural bias have important impacts on beliefs and expectations, have generally focused on observable infl uences and choices, usually in an experimental context. Therefore individual differences and largely unobservable phenomena such as moods and emotions have been assumed away.
