Should Social Scientists Care about Choice Anomalies?

The behavioral anomalies found by experimental psychologists (Tversky, Kahneman, and others) relate to the individual level. They are often considered to be irrelevant by economists because competitive markets are assumed to eliminate them at the aggregate level. However, markets are only able to perform this role under very limited conditions that often do not obtain even in the near-perfect stock market. Moreover, democratic, bureaucratic, and bargaining processes may under different identifiable conditions weaken or strengthen the anomalies. At the aggregate level, institutions such as conventions and laws may arise to counteract anomalies.