The Methodologies of Behavioral Econometrics

Behavioral econometrics is one part of a methodological trinity that includes theory, data collection and econometrics. Sometimes, on a good methodological day, there are few demands on the econometrician and the data can just be described and summarized, or elementary statistical tests applied. More often, latent structures from theory have to be estimated, and data collection has to be designed to allow identification and powerful estimation to be undertaken. In these cases, more common than many believe, appropriate econometric methods have to be used. The various methodologies of behavioral econometrics are reviewed, with illustrative case studies that showcase appropriate and inappropriate states of the art. Significant methodological challenges are identified. † Department of Risk Management & Insurance and Center for the Economic Analysis of Risk, Robinson College of Business, Georgia State University, USA. E-mail: [email protected]. Table of