Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show

Abstract: We examine the risky choices of contestants in the popular TV game show "Deal or No Deal" and related classroom experiments. Contrary to the traditional view of expected utility theory, the choices can be explained in large part by previous outcomes experienced during the game. Risk aversion decreases after earlier expectations have been shattered by unfavorable outcomes or surpassed by favorable outcomes. Our results point to reference-dependent choice theories such as prospect theory, and suggest that path-dependence is relevant, even when the choice problems are simple, and when well-defined and large real monetary amounts are at stake.

American Economic Review 2008

The Benefits of Poker

After enjoying a few games of poker over the Christmas break, I decided to do some research on the potential benefits of the game. When the game is played around a table with friends, it can certainly be argued that some social capital is created, and that alcohol intake is lower (if the game is taken seriously). A recent article in the Economist describes how:

(Poker - A Big Deal, Dec 19th 2007)

Binge eating, problem drinking, and pathological gambling: Linking behavior to shared traits and social learning

Abstract
Varied definitions of the construct impulsivity may account for inconsistencies in studies that examine its relationship to bulimic symptoms, pathological gambling, and alcohol abuse. We examined the influence of urgency, sensation seeking, lack of planning, and lack of persistence on these three addictive behavior patterns in 246 college students. In structural equation modeling analyses that included all four constructs, only urgency, defined as the tendency to act rashly when distressed, explained significant variance in symptom level for each of the three addictive behaviors. Sensation seeking related to frequency of gambling and drinking, but not to symptoms of abuse. Additionally, behavior specific expectancies moderated the effect of urgency on gambling for men and binge eating for women. Urgency may influence vulnerability to many types of addictive behaviors. However, whether or not individuals engage in drinking, gambling, or binge eating may be influenced by behavior specific expectancies.

Urgency may be a useful concept in the examination of suicide also. From a superficial examination of the concept it appears to include relevant factors (e.g. impulsivity, low mood, myopia, aggression).

Fischer et al. (In press)

Personality and the consequences of social interaction for affect repair

Abstract
This study explores the interaction of extraversion and social interaction on affect repair. Following a negative affect induction, participants engaged in a neutral discussion task alone or in the presence of a pleasant and supportive confederate. Results reveal that extraversion predicted affect repair in the solitary condition with extraverts (vs. introverts) experiencing a greater enhancement of positive affect. In the social condition, extraversion did not predict repair; all individuals benefited from the interaction. Thus, when alone, introverts demonstrated a maladaptive affect repair profile that was abated in the presence of a supportive individual. Other results reveal that the social condition produced the largest affect repair. These findings suggest that, while extraverts exhibit more effective affect repair when alone, pleasant interaction facilitates affect repair for all individuals (even introverts).

The Day Reconstruction Method coupled with personality measures will demonstrate how such relationships operate in a real-world setting.

Augustine et al. (2008)

Linking discounting and cooperation with evolutionary theory

Patience is a virtue: Cooperative people have lower discount rates -'08

Abstract
Reciprocal altruism involves foregoing an immediate benefit for the sake of a greater long-term reward. It follows that individuals who exhibit a stronger preference for future over immediate rewards should be more disposed to engage in reciprocal altruism – in other words, ‘patient’ people should be more cooperative. The present study tested this prediction by investigating whether participants’ contributions in a public-good game correlated with their ‘discount rate’. The hypothesis was supported: patient people are indeed more cooperative. The paper discusses alternative interpretations of this result, and makes some suggestions for future research.

Measurement of personality as expressed in everyday life

To examine the expression of personality in its natural habitat, the authors tracked 96 participants over 2 days using the Electronically Activated Recorder (EAR), which samples snippets of ambient sounds in participants’ immediate environments. Participants’ Big Five scores were correlated with EAR-derived information on their daily social interactions, locations, activities, moods, and language use; these quotidian manifestations were generally consistent with the trait definitions and (except for Openness) often gender specific. To identify implicit folk theories about daily manifestations of personality, the authors correlated the EAR-derived information with impressions of participants based on their EAR sounds; judges’ implicit folk theories were generally accurate (especially for Extraversion) and also partially gender specific. The findings point to the importance of naturalistic observation studies on how
personality is expressed and perceived in the natural stream of everyday behavior.

Personality in Its Natural Habitat

This is an interesting study but huge resources would be needed to code the daily interactions manually. Voice activated, rather than periodic recordings, coupled with software which could identify different voices could produce a simple measure of daily interaction frequency, duration, interaction partners. Accompanied with measures of voice loundnesss and perhaps tone, this may be a more feasible alternative for incorporating verbal behaviour into large scale studies.

Substance P at the nexus of mind and body in chronic inflammation and affective disorders

A potentially very interesting serum marker: For decades, research has demonstrated that chronic diseases characterized by dysregulation of inflammation are particularly susceptible to exacerbation by stress and emotion. In recent years, substance P has been implicated in both the pathophysiology of inflammatory disease and the pathophysiology of depression and anxiety by 2 parallel fields of study. This review integrates the literature from these 2 parallel fields and examines the possibility that substance P dysregulation may be a point of convergence underlying the overlap of chronic inflammatory disease and mood and anxiety disorders.

Abstract, Full

Perspectives on Psychological Science

It is great to see critical commentry and debate on the direction psychological research is taking and the prevalent methods used:

Psychology as the Science of Self-Reports and Finger Movements: Whatever Happened to Actual Behavior?

ABSTRACT—Psychology calls itself the science of behavior, and the American Psychological Association's current "Decade of Behavior" was intended to increase awareness and appreciation of this aspect of the science. Yet some psychological subdisciplines have never directly studied behavior, and studies on behavior are dwindling rapidly in other subdisciplines. We discuss the eclipse of behavior in personality and social psychology, in which direct observation of behavior has been increasingly supplanted by introspective self-reports, hypothetical scenarios, and questionnaire ratings. We advocate a renewed commitment to including direct observation of behavior whenever possible and in at least a healthy minority of research projects.

The Optimum Level of Well-Being

Can people be too happy?- dec '07


ABSTRACT—Psychologists, self-help gurus, and parents all work to make their clients, friends, and children happier. Recent research indicates that happiness is functional and generally leads to success. However, most people are already above neutral in happiness, which raises the question of whether higher levels of happiness facilitate more effective functioning than do lower levels. Our analyses of large survey data and longitudinal data show that people who experience the highest levels of happiness are the most successful in terms of close relationships and volunteer work, but that those who experience slightly lower levels of happiness are the most successful in terms of income, education, and political participation. Once people are moderately happy, the most effective level of happiness appears to depend on the specific outcomes used to define success, as well as the resources that are available.

The Power of Personality

The Comparative Validity of Personality Traits, Socioeconomic Status, and Cognitive Ability for Predicting Important Life Outcomes-dec'07


ABSTRACT—The ability of personality traits to predict important life outcomes has traditionally been questioned because of the putative small effects of personality. In this article, we compare the predictive validity of personality traits with that of socioeconomic status (SES) and cognitive ability to test the relative contribution of personality traits to predictions of three critical outcomes: mortality, divorce, and occupational attainment. Only evidence from prospective longitudinal studies was considered. In addition, an attempt was made to limit the review to studies that controlled for important background factors. Results showed that the magnitude of the effects of personality traits on mortality, divorce, and occupational attainment was indistinguishable from the effects of SES and cognitive ability on these outcomes. These results demonstrate the influence of personality traits on important life outcomes, highlight the need to more routinely incorporate measures of personality into quality of life surveys, and encourage further research about the developmental origins of personality traits and the processes by which these traits influence diverse life outcomes.

Do Names Matter?

A number of recent papers have discussed the idea of names having an effect on outcomes. The most famous paper is the one linked below by Fryer and Levitt. another one on the effect of surnames (slighly different idea) is below that

"The Causes and Consequences of Distinctively Black Names." Quarterly Journal of Economics, 2004, 119(3), pp. 767-805. (with Fryer, Roland G., Jr.) Download

http://www.ingentaconnect.com/content/aea/jep/2006/00000020/00000001/art00009

on their blog, levitt talks about research on street names

http://freakonomics.blogs.nytimes.com/2007/05/01/do-street-names-matter/

well, the below probably demonstrates, at least anecdotally, that car names matter and also that names probably matter differently depending on the language of the people hearing them


http://en.wikipedia.org/wiki/Mitsubishi_Pajero

deadweight loss of christmas

those looking to annoy their families should read the literature on the deadweight loss of christmas - a brief summary is available in the economist below. the original paper based on the gift valuations of a sample of US students caused a lot of debate.

the links below gets you in to the spirit

http://www.economist.com/finance/displaystory.cfm?story_id=885748

http://www.bgu.ac.il/~oritt/deadweight.pdf

http://ideas.repec.org/a/aea/aecrev/v83y1993i5p1328-36.html

robert wood johnson data

the site below has links to lots of available data on health, healthcare and health behaviour and is worth downloading

http://www.rwjf.org/pr/data.jhtml

Delaney Article - UCD Today

an article about our work - i really need to get a decent photo taken

http://www.ucd.ie/ucdtoday/2012_december_07/4Decisions.pdf

Interventions in US PhD Programs

"A series of new policies in the humanities and the social sciences at Harvard University are premised on the idea that professors need the ticking clock, too. For the last two years, the university has announced that for every five graduate students in years eight or higher of a Ph.D. program, the department would lose one admissions slot for a new doctoral student. The results were immediate: In numerous departments that had for years had large clusters of Ph.D. students taking eight or more years to finish, professors reached out to students and doctorates were completed.

No exceptions were made, and Harvard officials believe that their shift shows that there is no reason for a decade-long humanities Ph.D."

Story

Is There a Gene for Learning from Decision-Making Errors?

Gene Variant May Influence How People Learn From Their Mistakes

http://www.sciencemag.org/cgi/reprint/318/5856/1539a.pdf

“Once burned, twice shy” works for most people. But some people are slow to learn
from bad experiences. Now, a team of neuroscientists in Germany reports ... that people with a particular gene variant have more difficulty learning via negative
reinforcement.

The research, which combined brain imaging with a task in which participants
chose between symbols on a computer screen, centers on the A1 variant,
or allele, of the gene encoding the D2 receptor, a protein on the surface of brain
cells activated by the neurotransmitter dopamine.

Nurturing the Natural Process

It is interesting to consider how these findings fit into the debate about how early environmental influences may affect human gene expression.

Article Preview

Modern times causing human evolution to accelerate

14 December 2007
David Holzman

New Scientist Magazine issue 2634

Human evolution is speeding up. Around 40,000 years ago our genes began to evolve much faster. By 5000 years ago they were evolving 30 to 40 times faster than ever before and it seems highly likely that we continue to evolve at this super speed today.

Our population explosion and rapidly changing lifestyles seem to be the drivers of this acceleration, the discovery of which contradicts the widely held notion that our technological and medical advances have removed most of the selection pressures acting upon us.

This stunning insight into humanity's development comes from a wide-ranging study of human gene variants gathered by the international HapMap project. Investigators led by John Hawks of the University of Wisconsin, Madison, studied 3.9 million simple differences in DNA called single nucleotide polymorphisms (SNPs, pronounced "snips") from 270 individuals, including people of Han Chinese, Japanese, Yoruban and northern European extraction. This revealed several pieces ...

The complete article is 1654 words long.

The Psychophysiology of Real-Time Financial Risk Processing

Andrew W. Lo, Dmitry V. Repin

NBER Working Paper No. 8508
Issued in October 2001

http://www.nber.org/papers/w8508

---- Abstract -----

A longstanding controversy in economics and finance is whether financial markets are governed by rational forces or by emotional responses. We study the importance of emotion in the decisionmaking process of professional securities traders by measuring their physiological characteristics, e.g., skin conductance, blood volume pulse, etc., during live trading sessions while simultaneously capturing real-time prices from which market events can be defined. In a sample of 10 traders, we find significant correlation between electrodermal responses and transient market events, and between changes in cardiovascular variables and market volatility. We also observe differences in these correlations among the 10 traders which may be systematically related to the traders' levels of experience.

Risk Aversion and College Subject

Paolo Buonanno
Dario Pozzoli

We investigate whether individual attitudes toward risk may
explain why, though there exist huge dierences in the employment
returns of graduates by elds of study, the most demanded subjects
by the economy are less frequently chosen. The econometric
methodology is based on a three step procedure which controls for
selectivity bias in the first stage (Heckman, 1979; Lee, 1983;
Trost and Lee, 1984). Using a large data set from a survey on the
2001 Italian high school graduates, the main results indicate
that students take into account the a priori probability of
unsuccess when choosing the college subject. Moreover, students
coming from a lower socio-economic background display more risk
aversion.

Keywords: Risk aversion, College subject, Self-selection
JEL: C34 J24 I21
Date: 2007-11
URL: http://d.repec.org/n?u=RePEc:brg:wpaper:0707&r=edu

peer effects and smoking

David M. Cutler, Edward L. Glaeser
NBER Working Paper No. 13477Issued in October 2007NBER Program(s): AG HC HE
The NBER Bulletin on Aging and Health provides summaries of publications like this. You can sign up to receive the NBER Bulletin on Aging and Health by email.
---- Abstract -----
Are individuals more likely to smoke when they are surrounded by smokers? In this paper, we examine the evidence for peer effects in smoking. We address the endogeneity of peers by looking at the impact of workplace smoking bans on spousal and peer group smoking. Using these bans as an instrument, we find that individuals whose spouses smoke are 40 percent more likely to smoke themselves. We also find evidence for the existence of a social multiplier in that the impact of smoking bans and individual income becomes stronger at higher levels of aggregation. This social multiplier could explain the large time series drop in smoking among some demographic groups.
This paper is available as PDF 4.0+ (173 K) or via email.

valuing time

Raymond B. Palmquist, Daniel J. Phaneuf, V. Kerry Smith
NBER Working Paper No. 13594Issued in November 2007NBER Program(s): EEE LS
---- Abstract -----
Most economic models for time allocation ignore constraints on what people can actually do with their time. Economists recently have emphasized the importance of considering prior consumption commitments that constrain behavior. This research develops a new model for time valuation that uses time commitments to distinguish consumers' choice margins and the different values of time these imply. The model is estimated using a new survey that elicits revealed and stated preference data on household time allocation. The empirical results support the framework and find an increasing marginal opportunity cost of time as longer time blocks are used.
This paper is available as PDF 4.0+ (184 K) or via email.

Behavioural Economics Grad Course

A nice resource on the MIT Open-Course site

A link to a grad course on behavioural economics

ill do one of the behavioural workshops on a subset of these after xmas (or on christmas day if there is sufficient demand in the Delaney family house)

here

Velib Project

Dave C. pointed out this new project in Paris that has instituted an inexpensive bicycle hire system to reduce car congestion in the City. Will be interesting to see if any papers come out on this in the next couple of years.

http://www.streetsblog.org/2007/08/30/video-the-velib-project/

warriors against rational choice

definitely one for the WARC hall of fame

vodka

Subjective Outcomes in Economics

NBER Working Paper No. 10361
Issued in March 2004

Hamermesh, Daniel S.

---- Abstract -----

This study examines the various uses of subjective outcomes as a focus of interest for economists. It outlines the possible channels by which economists can usefully add to what are already massive literatures on such outcomes in the other social sciences. Generally we contribute little if we merely engage in fancier empirical work and still less if we describe subjective outcomes by other subjective outcomes. Our biggest contributions can be in adducing economic theories that allow a better understanding of objective behavior using subjective outcomes, or of the determinants of subjective outcomes; or in understanding subjective outcomes, such as expectations, that underlie objective economic behavior.

*Published: Southern Economic Journal, July 2004, v. 71, iss. 1, pp. 2-11

Absolutely Essential Stuff

these are absolutely fantastic - all PhD students in economics everywhere should go through all of this - the best econometric resource ive come across to date - i hope this remains freely available

http://www.nber.org/minicourse3.html

Protensity, Imagination and Emotion

Changing time and emotions

2007

Pierre-Yves Geoffard
Stéphane Luchini

In this paper, we consider that our experience of time (to come) depends on the emotions we feel when we imagine future pleasant or unpleasant events. A positive emotion such as relief or joy associated with a pleasant event that will happen in the future induces impatience. Impatience, in our context, implies that the experience of time up to the forthcoming event expands. A negative emotion such as grief or frustration associatedwith an unpleasant event thatwill happen in the future triggers anxiety. This will give the experience of time contraction. Time, therefore, is not exogeneously given to the individual and emotions, which link together events or situations, are a constitutive ingredient of time experience. Our theory can explain experimental evidence which shows that people tend to prefer to perform painful actions earlier than pleasurable ones, contrary to the predictions yielded by the standard exponential discounting framework.

Keywords: experience of time, emotions, impatience,
anxiety, discount factor, time preference

Risk Perception and Expected Utility Theory

Affective Decision Making: A Behavioral Theory of Choice

Anat Bracha and Donald J. Brown
COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
YALE UNIVERSITY

November 13, 2007

Abstract

Affective decision-making (ADM) is a refutable and predictive theory of
individual choice under risk and uncertainty. It generalizes expected utility
theory by positing the existence of two cognitive processes – the “rational”
and the “emotional” process. Observed choice is the result of their simultaneous
interaction. We present a model of affective choice in insurance markets, where
risk perceptions are endogenous.

Keywords: Affective Choice, Endogenous Risk Perception, Expected Utility
Theory, Insurance

"ADM is a behavioral theory of choice - a property shared by consumer demand analysis – see part one in Deaton and Muellbauer (1980), but not evident in other strategic models of choice behavior such as Gul—Pessendorfer (2001), Bernheim—Rangel (2004) or Fudenberg—Levine (2006)...
ADM is a game-theoretic model of individual decision-making under risk and
uncertainty, which generalizes expected utility, and where the probability weights –
perceived risk–are endogenous, as implied by optimism bias (Slovic 2000, Weinstein
1980). In our model of individual decision-making there are two distinct psychological processes that mutually determine choice. This approach is inspired in part by Kahneman (2003), who proposes two systems of reasoning that differ in several important aspects, such as emotion. We call these systems of reasoning the rational process and the emotional process...

The emotional process is where risk perception is formed. In particular, the agent selects an optimal risk perception to balance two contradictory impulses: (1) affective motivation and (2) a taste for accuracy. This is a definition of motivated reasoning, a psychological mechanism where emotional goals motivate agent’s beliefs, e.g., Kunda (1990), and is a source of psychological biases, such as optimism bias...

The systematic departure of the ADM model from the expected utility model
allows for both optimism and pessimism in choosing the level of insurance, and shows,
consistent with consumer research (Keller and Block 1996), that campaigns intended
to educate consumers on the loss size in the bad state can have the unintended
consequence that consumers purchase less, rather than more, insurance. Hence, the
ADM model suggests that the failure of the expected utility model to explain some
data sets may be due to systematic affective biases."

Peter's had a paper named after him

The Peter Principle: An Experiment
Date:
2007
By:
David L. DickinsonMarie-Claire Villeval
URL:
http://d.repec.org/n?u=RePEc:apl:wpaper:07-16&r=cbe
The Peter Principle states that, after a promotion, the observed output of promoted employees tends to fall. Lazear (2004) models this principle as resulting from a regression to the mean of the transitory component of ability. Our experiment reproduces this model in the laboratory by means of various treatments in which we alter the variance of the transitory ability. We also compare the efficiency of an exogenous promotion standard with a treatment where subjects self-select their task. Our evidence confirms the Peter Principle when the variance of the transitory ability is large. In most cases, the efficiency of job allocation is higher when using a promotion rule than when employees are allowed to self-select their task. This is likely due to subjects’ bias regarding their transitory ability. Naïve thinking, more than optimism/pessimism bias, may explain why subjects do not distort their effort prior to pro! motion, c
JEL:
C91 J24 J33 M51 M52

genetic influences on preferencs

Genetic Influences on Economic Preferences
Date:
2007-11-22
By:
David, Cesarini (Department of Economics, Massachusetts Institute of Technology) Dawes, Christopher T. (Political Science Department, University of California, San Diego) Johannesson, Magnus (Dept. of Economics, Stockholm School of Economics) Lichtenstein, Paul (Department of Medical Epidemiology and Biostatistics, Karolinska Institutet) Wallace, Björn (Dept. of Economics, Stockholm School of Economics)

URL:
http://d.repec.org/n?u=RePEc:hhs:hastef:0679&r=cbe
We use the classical twin design to provide estimates of genetic and environmental influences on experimentally elicited preferences for risk and altruism. Our estimates provide strong prima facie evidence that economic preferences are heritable. Approximately 30 percent of the variation in behavior is explained by genetic effects in the best-fitting models. The results suggest a modest role for common environment as a source of phenotypic variation. Based on the findings, we encourage economists to move beyond a black-box treatment of preference formation and suggest that the further study of the codetermination of preferences by genes and environment will lead to a more comprehensive economic science.
Keywords:
Genetics; Altruism; Risk Aversion; Preferences; Experiments
JEL:
C90 D01 D64

Should we be concerned about online gambling?

Notice the biro tucked behind my ear - im not sure where this photo came from!

http://www.ireland.com/head2head/

Riskometer

well worth going through - a perennial topic of discussion here in terms of how people process risk and how it influences their behaviour and attitudes. the site below gives some graphical tools for putting risk in perspective

http://www.riskometer.org/

Suicide Barriers

There has been a big debate for a long time around the effectiveness of erecting suicide barriers. One of the main examples is the Golden Gate Bridge that sees as many as 40 suicides each year leading to a strong campaign to argue that money should be spent making the jumping sites inaccessible. The argument for them is that focal sites such as these are frequently used and if it is possible to deter the person momentarilty they may not carry through and may even seek counselling. The argument against is that individuals will substitute to different sites. I have been looking for evidence in this area. A number of recent high level reviews were in favour of them.

A recent empirical paper is an example

http://bjp.rcpsych.org/cgi/content/abstract/190/3/266

Frames and brains: elicitation and control of response tendencies

Using magnetic resonance imaging, De Martino and colleagues investigated the neural signature that is associated with decisions between small sure amounts of money and large riskier amounts when the framing of the outcomes is varied. We interpret their results within a dual-system framework, in which different frames evoke distinct emotional responses that different individuals can suppress to various degrees. The study advances the integration of brain imaging results into cognitive theory.

Kahneman and Frederick (2007)

Human choices are remarkably susceptible to the manner in which options are presented. This so-called "framing effect" represents a striking violation of standard economic accounts of human rationality, although its underlying neurobiology is not understood. We found that the framing effect was specifically associated with amygdala activity, suggesting a key role for an emotional system in mediating decision biases. Moreover, across individuals, orbital and medial prefrontal cortex activity predicted a reduced susceptibility to the framing effect. This finding highlights the importance of incorporating emotional processes within models of human choice and suggests how the brain may modulate the effect of these biasing influences to approximate rationality.

De Martino: Frames, Biases, and Rational Decision-Making in the Human Brain


The Kahneman 'Trends' article demonstrates the cross-talk between several areas of psychology and how they can relate to economic decision-making. In general we are talking again about dual-systems models of human behaviour. This is a given at this stage in the research and different versions have been proposed by Loewenstein in a working paper with Ted O'Donoghue, in several neuroeconomics papers, and most comprehensively in the Reflective-Impulsive model of Social Behaviour proposed by Strack and Deutsch in '04.

The model of the brain that is suggested is an emotional/impulsive system which primes motivational tendencies of approach or avoidance. These responses are monitored largely through the anterior cingulate cortex which recognises conflict between the emotional/impulsive system and the more reflective/deliberate system. Self-regulatory resources have been proposes as the source of the power for the deliberate system.

In relation to framing effects, we must be able to monitor our emotional reactions (ACC monitoring amygdala) in order to inhibit an impulsive tendency (the action of the prefrontal) and we must have societally induced standards to work from in order to do this (no specific brain area to my knowledge). Some specific words are likely to prime motivational tendencies of approach or avoidance (e.g. 'keep' or 'lose'). If we have a good reflective system and our regulatory resources are available we should be able to use deliberation to come to a mathematically rational conclusion.

Framing effects, like the implicit association test, are a good way of testing the influence of an automatic system. Introducing response time pressure would probably have similar effects as would depleting self-regulatory resources prior to economic decision-making.

An interesting finding which is touched on in the Kahneman paper is that the concordance of a response action with a motivational tendency evoked by a stimulus is important. So pulling a lever towards oneself is easier if you are responding to a positive word (e.g. gain) where as pushing a lever away is easier if you are responding to a negative word (e.g. loss). If we compare response times of people doing this and those forced to do the opposite we have a measure of the magnitude of the active component of the framing effect which would be a good accompaniment to an economic decision-making task involving framing.

The Neural Basis of Protensity

At the end of this New Scientist article, there is a brief outline of the neural basis for protensity:

"One of the more tiresome aspects of ageing is that while the days seem to drag, the years rush by. This paradox is not simply subjective: researchers are finding that our brains actually oscillate with a tick-tock that marks the passage of time, and this winds down as we grow older, making time seem to fly (New Scientist, 4 February, p 34). As yet, scientists have not come up with a way to speed the clock back up, but building temporal landmarks with memorable experiences can create the opposite illusion, so the years seem to pass more slowly".

The Economics of Identity and Career Choice

Maria Knoth Humlum - University of Aarhus
Kristin J. Kleinjans - University of Aarhus
Helena Skyt Nielsen - University of Aarhus and IZA

http://ftp.iza.org/dp3120.pdf

Standard economic models which focus on pecuniary payoffs cannot explain why there are highly able individuals who choose careers with low pecuniary returns. Therefore, financial incentives are unlikely to be effective in influencing career choices of these individuals. Based on Akerlof and Kranton (2000), we consider a model of career choice and identity where individuals derive non-pecuniary identity payoffs. Using factor analysis on a range of attitude questions, we find two factors related to identity (career orientation and social orientation), which are important for educational choices. The implication is that policymakers and institutions of higher education need to focus on identity related issues rather than just improved financial incentives if they aim at attracting the high ability youth to occupations with excess demand for labor.

Keywords: career choice, choice of higher education, identity, self-image

General or Specific Human Capital? Listen to the Market...

Don Barry, president of UL, frames the debate well from both an educationalist (Newman) and market point of view - story here, some extracts below:

"Undergraduate curricula at the leading US universities today are based on the twin notions of distribution and concentration, a compromise between the theories of the European pioneers in university education, John Henry Newman and Wilhelm von Humboldt. Distribution, favoured by Newman, demands that the curriculum should ensure a broad education for the student. Concentration, proposed by Von Humboldt, demands that the curriculum should encourage the study of one particular subject in depth.

Yale University epitomises this (the Newman) system and is consistently rated among the top five universities in the US. I know it well from my time there as a PhD student, faculty-member and visiting professor. As stated in its prospectus, Yale "does not primarily train students in the particulars of a given career" but, instead, "its main goal is to instil in students the development of skills that they can bring to bear in whatever work they eventually choose".

...this year, CAO students could sign up for such career-focused and narrowly-defined programmes as early childhood studies, genetics and cell biology, theoretical physics, forestry, business information systems, finance and venture management, and computer aided engineering and design. These titles reflect specialisation very early in a student's life. Indeed the content of these programmes requires a move towards specialisation at a very early rung on the ladder of educational attainment. Students should not be compelled to make life-determining choices based on narrow, vocational goals at 17 or 18 years of age (Ed - surely this would contribute to the likelihood of mismatch?).

Employers I meet praise Irish graduates as excellent employees. But, they often consider undergraduate curricula too narrow and overly focused on intensive training in technical skills that soon become obsolete. They feel universities fail to cultivate creativity, an ability to think "outside the box", effective communication skills or a commitment to lifelong learning. In many ways employers seem closer to Newman than the universities!"

The Age of Reason

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=973790


The Age of Reason: Financial Decisions Over the Lifecycle
SUMIT AGARWAL Federal Reserve Bank of Chicago - Economic ResearchJOHN C. DRISCOLL Federal Reserve Board - Division of Monetary AffairsXAVIER GABAIX New York University Stern School of Business; National Bureau of Economic Research (NBER)DAVID LAIBSON Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
June 7, 2007MIT Department of Economics Working Paper No. 07-11

Abstract: The sophistication of financial decisions varies with age: middle-aged adults borrow at lower interest rates and pay fewer fees compared to both younger and older adults. We document this pattern in ten financial markets. The measured effects cannot be explained by observed risk characteristics. The sophistication of financial choices peaks around age 53 in our cross-sectional data. Our results are consistent with the hypothesis that financial sophistication rises and then falls with age, although the patterns that we observe represent a mix of age effects and cohort effects.

He Had a High Opinion of Himself...

A Model of Rational Bias in Self-Assessments

JAN ZABOJNIK
Queen's University - Department of Economics
--------------------------------------------------------------------------------
2003

Abstract:

A body of empirical work documents that most people believe they are above average in a variety of skills and abilities. This paper argues that such evidence does not necessarily imply that people process information in an irrational way. I build a model in which people can learn about their abilities at a cost of foregone production. Individuals in this model keep testing their abilities until their self-assessments become favorable enough, at which point they stop. This way, a disproportionately large share of the population ends up with a high opinion about their abilities.


Keywords: Bias in self-assessments, Overconfidence, Learning about ability

The Black Box of Preferences and the Behavioural Economics of Labour Supply

Hours of Individual Labor Supply Models: Adding Breadth

LONNIE GOLDEN
MORRIS ALTMAN
--------------------------------------------------------------------------------
2007

Abstract:

What causes individuals' hours of work to climb, recede, or shift in timing? The main purpose of this article is to broaden the labor supply function to include determinants other than the conventional list of wage rate, nonwage income and preferences. Then it peers further into the black box of preferences by specifying the behavioral and social forces that both influence preference formation and lead preferences to adapt over time. Initial insights are gleaned from applying behavioral economic perspectives regarding the root sources of the process that determines how many hours and which hours someone is working or working too much? The purpose is to expand the conventional economic model of hours of labor by incorporating the various behavioral and social sources of constraints, preferences, and preference adaptation. Specifically, a model of labor hours should entail how preferences may be adaptable under social influences and how inflexibility in the workplace may often prevent individuals from getting their desired timing of work and/or a reduced number of hours. The extent of such inflexibilities puts at risk the long-term sustainability of labor as a productive resource.

Essence of Student Life

I found a nice quote in a paper that Martin sent me

"...for Levy_Garboua (1976) entering a university does not only give the expectation of satisfaction relating to future financial betterment resulting from investment in education, but also gives satisfaction assoicated with the student status. This status does indeed allow individuals to enjoy time-consuming non-market activities (leisure, culture, prospecting the marriage market, and so on) which they would not be able to perform at so little cost during their adult life due to their job requirements"

its a nice expression of incentive driven accounts of higher ed. we should also think more about the nature of discounting among students and also about biological aspects of decision making at that age.

Are TV Schedules and Latitudinal Locations the Drivers of Social Norms?

Forthcoming in Labour Economics:

CUES FOR TIMING AND COORDINATION:
LATITUDE, LETTERMAN AND LONGITUDE
Daniel S. Hamermesh, Caitlin Knowles Myers and Mark L. Pocock

Daylight, television schedules and time zones can alter timing and induce temporal coordination of economic activities. With the American Time Use Survey for 2003-2004 and data from Australia for 1992 we show that television schedules and the locations of time zones affect timing of market work and sleep, with differences in timing generated partly by returns to coordination with other agents. The responsiveness to time-zone differences is greatest among workers in industries in national markets. An exogenous shock resulting from an area’s non-adherence to daylight saving time leads its residents to alter work schedules to coordinate with people elsewhere.

A Tax on Beauty?

Daniel Hamermesh's Economic Thought of the Day: December 5, 2007—
http://www.eco.utexas.edu/faculty/Hamermesh/EconThought.htm

"Gonzalo Otalora, the Argentine author of the book Ugly, has proposed that Argentina put a tax on beauty. Each person judged beautiful would have to pay. Can we agree on who would be taxed? Would people who are judged beautiful try to change their looks in order to avoid the tax? A few would, but not if the tax is less than the gains they believe they obtain (both monetary and non-monetary) from being beautiful; but a lot of evidence suggests that people agree on what is good-looking, and that, like intelligence, beauty cannot be greatly altered. In that sense the excess burden of the tax is likely to be small. This seems like a pretty good tax to me".

Some interesting centres affiliated to the IQSS at Harvard

Some interesting centres affiliated to the Institute for Quantitative Social Science at Harvard:

The Centre for Geographic Analysis - Harvard University

The Henry A. Murray Research Archive:
an endowed, permanent repository for quantitative and qualitative research data at IQSS - worth a look.

Be Honest With Yourself

Self Confidence: Intrapersonal Strategies

ROLAND BENABOU
JEAN TIROLE
--------------------------------------------------------------------------------
February 2000

Woodrow Wilson School Working Paper No. 209


Abstract:
This paper analyzes the self-identification process and its role in motivation. We build a model of self-confidence where people have imperfect knowledge about their ability, which in most tasks is a complement to effort in determining performance. Higher self-confidence thus enhances motivation, and this creates incentives for the manipulation of self-perception. An individual suffering from time-inconsistency may thus want to enhance the self-confidence of his future selves, so as to limit their procrastination. The benefits of confidence-maintenance must, however, be traded off against the risks of overconfidence (inappropriate tasks being pursued). Moreover, rational inference implies that the individual cannot systematically fool himself. A first application of the model is self-handicapping: to avoid a negative inference about their ability, people may deliberately impair their performance, or choose overambitious tasks. Another application is selective memory or awareness management: people are (endogenously) more likely to remember or consciously acknowledge their successes than their failures. This, in turn, helps explain the widely documented prevalence of self--serving beliefs --that is, the fact that most people have overoptimistic assessments of their own abilities and other desirable traits. We analyze the workings of this "psychological immune system" and show that it typically leads to multiple equilibria in cognitive strategies, self confidence, and behavior. Moreover, while active self-esteem maintenance can improve ex-ante welfare, it can also be self-defeating. Systematically "looking on the bright side", avoiding "negative" thoughts and people, etc., can thus be beneficial in certain environments; but in other circumstances one can only lose by playing such games with oneself, and it would be better to always "accept who you are" and "be honest with yourself".

The Psychology of Workaholism

In a new economics working paper on the adoption of excessive working as a lifestyle, Cunha et al provide an interesting discussion on the psychology of workaholism, some of which is below:

"Spence and Robbins (1992) distinguish workaholics from work enthusiasts and
enthusiastic workaholics (see also Burke, 1999). Enthusiastic workaholics are highly
involved in their work, feel compelled or driven to work because of inner pressures, andfeel enjoyment at work. Workaholics differ from the former because they experience
little joy in work. Work enthusiasts are highly involved in their work and feel
enjoyment at work, but they feel not compelled or driven to work because of inner
pressures. Scott et al. (1997) propose three similar types of workaholic behaviour
patterns: compulsive-dependent workaholics, perfectionists and achievement-oriented
workaholics. Schaufeli et al. (2006) go along the same lines".

An article in the current edition of Science describes a new policy in a Korean univesity where students who maintain “B” or better grades continue to pay no tuition, whereas those with a “C” or below must pay about $16,000 per year “We want students to take responsibility for their actions,” says Suh, the new head of the university.