Persuasion in Finance

Sendhil Mullainathan

Harvard University – Department of Economics; National Bureau of Economic Research (NBER)

Andrei Shleifer

Harvard University – Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

October 2005

Abstract:

Persuasion is a fundamental part of social activity, yet it is rarely studied by economists. We compare the traditional economic model, in which persuasion is communication of objectively valuable information, with a behavioral model, in which persuasion is an effort to fit the message into the audience’s already held beliefs. We present a simple formalization of the behavioral model, and compare the two models using data on financial advertising in Money and Business Week magazines over the course of the internet bubble. The evidence on the content of the persuasive messages is broadly consistent with the behavioral model of persuasion.

Persuasion in Finance

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