NBER Working Paper #3731 June 1991 NONRATIONAL ACTORS AND FINANCIAL MARKET BEHAVIOR ABSTRACT The insights of descriptive decision theorists and psychologists,we believe,have much to contribute to our understanding of financial market macrophenomena.We propose an analytic agenda that distinguishes those individual idiosyncrasies that prove consequential at the macro-level from those that are neutralized by market processes such as poaching. We discuss five behavioral traits barn-door closing, expert/reliance effects,status quo bias,framing,and herding that we employ in explaining financial flows.Patterns in flows to mutual funds,to new equities,across national boundaries,as well as movements in debt-equity ratios are shown to be consistent with deviations from rationality. Richard Zeckhauser Jayendu Patel Darryll Hendricks John F.Kennedy School of Government Harvard University Cambridge,MA 02138