Keynes's animal spirits vindicated: an analysis of recent empirical and neural data on money illusion

Sacha Bourgeois‐Gironde · Marianne Guille

11 citations0/0 files storedJournal of Post Keynesian Economics

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Decision-Making and Behavioral Economics Monetary Policy and Economic Impact Economic theories and models

Abstract

The tendency of people to think of money in nominal, rather than real, terms is now well documented by recent empirical data. In particular, experimental and neurobiological data provide new insights on the individual and subindividual (neurobiological processes) anchoring of money illusion. The sensitivity of the reward brain system to the nominal format of money may explain money illusion at a biological level and provide a sort of physical demonstration of Keynes animal spirits hypothesis. These findings make it more difficult to ignore the hedonic or emotional dimension of money, which lies outside the scope of homo economicus.

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References

1964CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*1981The Framing of Decisions and the Psychology of Choice 1965The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets 1975THE VALUATION OF RISK ASSETS AND THE SELECTION OF RISKY INVESTMENTS IN STOCK PORTFOLIOS AND CAPITAL BUDGETS**This paper is another in a series of interrelated theoretical and statistical studies of corporate financial and investment policies being made under grants from the Rockefeller Foundation, and more recently the Ford Foundation, to the Harvard Business School. The generous support for this work is most gratefully acknowledged. The author is also much indebted to his colleagues Professors Bishop, Christenson, Kahr, Raiffa, and (especially) Schlaifer, for extensive discussion and commentary on an earlier draft of this paper; but responsibility for any errors or imperfections remains strictly his own.[Professor Sharpe's paper, “Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk” (Journal of Finance, September 1964) appeared after this paper was in final form and on its way to the printers. My first section, which parallels the first half of his paper (with corresponding conclusions), sets the algebraic framework for sections II, III and VI, (which have no counterpart in his paper) and for section IV on the equilibrium prices of risk assets, concerning which our results differ significantly for reasons which will be explored elsewhere. Sharpe does not take up the capital budgeting problem developed in section V below.]2003Maps of Bounded Rationality: Psychology for Behavioral Economics 1995The Role of Monetary Policy 2000Fairness as a Constraint on Profit Seeking: Entitlements in the Market 1973

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