3/2011 Draft: Highly Preliminary – Please Do Not Cite without Permission an Economic Theory of Attitudes

This paper examines the role of a person’s attitude, or mental position with regard to an object, in explaining economic behavior. Observations drawn from research and “real-life” examples form the basis for a utility function that incorporates attitudes. Employing the utility function in a model of decision-making, I use comparative static analysis to examine the effect on economic outcomes of price-driven, and other exogenous, attitude changes. The model’s analysis is then applied to investigate the implications of attitudes for motivating people, fighting terrorism, and fighting the spread of AIDS. In each of these cases, incorporating attitudes substantially improves the ability of economic analysis to explain observed outcomes and provides the basis for developing more effective private strategies and public policies.