Perception Matters: Psychophysics for Economists

Experimental economics, behavioral game theory, and behavioral decision research have made great strides in recent years towards their goal of predicting behavior, especially in those cases where it deviates fro the predictions of conventional economic rationality. Many, if not most, of these advances fall into two categories, both of which assign a causal role to decision makers' perception, that is, their construal of the decision situation. Category I explanations acknowledge the constructive and hence subjective nature of perception. Category II explanations emphasize the relative nature of perception.