New Lessons from Behavioral Economics by Ulrike Malmendier and Clint Hamilton

The long reach of life experience affects real-world economic outcomes, for policymakers and consumers alike On October 29, 1929, the roaring twenties came to a sudden close in the United States. In an event known as “Black Tuesday,” the US stock market collapsed, and it would not match its 1929 peak for a long time, until the 1950s. The subsequent impacts of the Great Depression were not felt just in the stock market. They were felt in people’s stomachs as they lined up at soup kitchens or slept in shantytowns. Those who grew up during the Great Depression, the “Depression babies,” were a generation that was extraordinarily frugal and averse to risks, especially those of the stock market. The trauma people experienced altered a whole generation, their beliefs and outlook on the world and their economic choices-in financial markets, in labor markets, and in many other aspects of their lives.