Geary Institute is hiring

An 18-month contract working on Day Reconstruction Methods with a team of people in economics, psychology and medicine

Details below

http://geary.ucd.ie/wellbeing/vacancies

Economics 2.0

"For decades, many of the brightest graduates in economics sought their fortune in finance. In coming years, they will seek it in marketing, as the Internet gives all companies the information-rich environment once available only in financial markets."

That’s the prediction of Hal Varian, Chief Economist at Google, and economist at the University of California at Berkeley. Varian discusses why marketing is the new finance in this Wall Street Journal article from last year.

Below, Varian gives a lecture on the "Economics of Internet Search", from this year's Calit2-sponsored series, "Behavioral, Social, and Computer Sciences Seminar Series" - Friday, May 23, 2008. Following on from the last post about 'The Weather and Work', apparently "it's good for Google if the weather is bad, but not too bad..."

The Weather and Work

Marie Connolly (Princeton) has a paper in the Journal of Labor Economics (2008, vol. 26, no. 1) about the weather and intertemporal substitution of labour. A rainy day is associated with lower enjoyment of leisure, more hours at work and higher wages. Connolly tests the model using data from the American Time Use Survey (ATUS), supplemented with information about daily weather.

The question arises - are individuals not constrained in terms of their working-time decisions? Connolly describes a few recent papers that have looked at jobs held by individuals such as taxi drivers (Camerer et al. 1997; Farber 2004, 2005) and bike messengers (Fehr and Goette 2002), in which workers can effectively choose their daily hours of work. She also mentions that daily work time is calculated in minutes in the ATUS, which allows fine-grained analysis. She finds that, on rainy days, men shift on average 30 minutes from leisure to work.

Everybody talks about the weather, but nobody does anything about it, eh?

Early to Bed, Early to Rise... Depends on the TV Schedule in Your Time Zone

The Chicago Journals website provides a useful summary (here) of a recent paper in the Journal of Labour Economics: Hamermesh, Daniel S., Caitlin Knowles Myers, and Mark L. Pocock (2008): “Cues for Timing and Coordination: Latitude, Letterman, and Longitude.”

...Daylight Saving Time has its roots in the Standard Time Act of 1918... Last year, Daylight Saving was extended by four weeks. Although the prime-time television schedule is a “relic of the technology of radio transmission” — it was created when signals could not be broadcast across the country — it remains a powerful cue. Reflecting on his own weekday television watching schedule, Hamermesh recalled, “I lived twenty years in the Eastern Time Zone, I used to stay up until 11:45 p.m. to watch the monologue on the Tonight Show. Living in Texas, I typically turn out the lights at 10:45 p.m., when the monologue is done."

...The authors... use...the American Time Use Survey (ATUS), which enabled them to observe how Americans split their time between their three most time-consuming activities: work, sleep, and television watching. After merging ATUS with sunrise and sunset data, the authors found that while natural daylight patterns have some effect on people’s life patterns, the demands of global business—market openings, etc. — and regular television schedules, demarcate the boundaries of most Americans’ lives.

Students' Earnings Expectations

There is a new working paper by César Alonso-Borrego and Antonio Romero-Medina (from the Economics Department in Universidad Carlos III de Madrid) on students' earnings expectations. The authors provide evidence on the perceived economic value of higher education to college students in terms of their reported expected and shadow wages. The results show that predictions for expected wages are similar across gender and become closer to actual wages as students approach graduation. The authors suggest that this is consistent with an improvement in the quality of student information used to forecast wages.

New Evidence on Reference Effects from IZA Working Paper

From IZA Working Papers

Economic Satisfaction and Income Rank in Small Neighbourhoods
by Andrew E. Clark, Nicolai Kristensen, Niels Westergård-Nielsen
(November 2008)
forthcoming in: Journal of the European Economic Association

Abstract:
We contribute to the literature on well-being and comparisons by appealing to new Danish data dividing the country up into around 9,000 small neighbourhoods. Administrative data provides us with the income of every person in each of these neighbourhoods. This income information is matched to demographic and economic satisfaction variables from eight years of Danish ECHP data. Panel regression analysis shows that, conditional on own household income, respondents report higher satisfaction levels when their neighbours are richer. However, individuals are rank-sensitive: conditional on own income and neighbourhood median income, respondents are more satisfied as their percentile neighbourhood ranking improves. A ten percentage point rise in rank (i.e. from 40th to 20th position in a 200-household cell) is worth 0.11 on a one to six scale, which is a large marginal effect in satisfaction terms.

The Impact of Employment during College on Academic Performance

Jeffrey S. DeSimone (NBER Working Paper 14006; May 2008) looks at the impact of employment during college on academic performance. DeSimone uses the Harvard College Alcohol Study; waves: 1993-2001, and considers the problem of unobserved heterogeneity. Using two-stage GMM regressions, he instruments work hours using paternal schooling and being raised Jewish, which are hypothesized to "reflect parental preferences towards education manifested in additional student financial support but not influence achievement conditional on maternal schooling, college and class."

DeSimone finds evidence for the identifying assumptions of instrument strength and orthogonality. The GMM results show that an additional weekly work hour reduces current year GPA by 0.011 points, roughly five times more than the OLS coefficient. The effects are stable across specifications, time, gender, class and age, but vary by health status, maternal schooling, religious background and race/ethnicity.

A Stata Mind

For those interested in STATA, in particular STATA programming, the following blog will be of interest: A Stata Mind - Notes On Computing.

Paywizard.org

Some interesting earnings data is being collected by the the Labour and Worklife Program at Harvard Law School - through their Paywizard.org website. The website allows US individuls to compare their earnings against what other people get for the same job in the same state with a free 'Salary Calculator'. In return, individuals are requested to keep the Calculator updated, by sharing their salary and job information. For a salary check on a 'postsecondary economics teacher' in New York, the following data is provided:

Total number of employed people within this occupation within this state 690.00

Mean hourly wage in Dollars: *
Annual mean wage in Dollars: 86130.00
Lowest hourly wage in occupation, 10% percentile: *
Highest hourly wage in occupation, 90% percentile: *
Lowest annual wage in occupation, 10% percentile: 46250.00
Highest annual wage in occupation, 90% percentile: 133520.00

Source: Bureau of Labor Statistics (May 2007) State Occupational Employment and Wage Estimates.

* = indicates that a wage estimate is not available
** = indicates that an employment estimate is not available
# = indicates a wage greater than $70.00 per hour or $145,600 per year

In addition, Paywizard.org is connected to the WageIndicator Network, a 75 country research program designed to enhance labor market transparency and to aid data-collection for social science research. For anyone interested in earnings data, this is an interesting project. There is no partner in Ireland yet, but in the UK data is being collected by the Trade Union Congress (TUC), Incomes Data Services (IDS) and the Mayor of London.

Vox.org

A list of the Vox authors and their associated articles is available at the link below. This is a great resource and any economist (or even anyone with a general interest in how leading economists are thinking) will find things of interest there

http://www.VoxEU.org/index.php?q=node/42

Daniel Goldstein on "smart defaults"

The paper below is a very clear account of many of the important issues surrounding the use of defaults in a wide variety of settings.

Smart Defaults: From Hidden Persuaders to Adaptive Helpers

Abstract:
Defaults have been shown to have such powerful and unrecognized effects on consumer behavior that in some settings they may be considered "hidden persuaders". While much attention has been paid to the beneficial consequences of defaults, we discuss how, in certain circumstances, defaults can be chosen to disadvantage consumers. This paper looks at defaults from the perspective of consumer welfare, consumer autonomy, and marketing ethics. It identifies three theoretical causes of default effects - implied endorsement, cognitive biases, and effort - to guide thought on the issues posed for consumer autonomy and welfare. We propose the concept of "smart defaults" and "adaptive defaults" as welfare-enhancing alternatives, in addition to other remedies, and conclude with implications for marketers, consumers, policymakers and researchers.

Available from the SSRN here

Images of Research: Stress Mapping

Michael Daly, Gerard O'Neill and I recently released a website that gives details of some experimental work we were doing linking GPS devices, heart rate monitors and day reconstruction information. This is available below. The pictures are due to Michael and some very useful software

Stress Maps

Why Would Subjective Measures of Skills-Matching Be Preferred Over Objective Measures?

Before I answer this question, I will remind readers that the idea of "matching" describes the extent of skills-match between Ph.D. training and subsequent employment (It's a different concept to over-education). Using the National Science Foundation's (NSF) `Survey of Doctorate Recipients' (SDR); Bender and Heywood (2006) report that approximately one-sixth of academics in the United States report some degree of mismatch. This mismatch is associated with substantially lower earnings, lower job satisfaction and a higher rate of turnover (Bender and Heywood, 2006). The question on `matching' in the SDR is collected because the (US) National Research Council made a demand for data that shows the extent of integration between "occupational detail and academic training" i.e. `skills-matching'.

The literature on skills-matching is small; there is at least one study using objective data, and a few more using self-reported data. Nordin, Persson and Rooth (2008) is a study that was already mentioned by me on the blog this week (see here). These authors add to the small literature on the consequences of (objective) skills-matching; they use microdata collected by Statistics Sweden, but are forced to drop 36 percent of their sample due to restrictions on fields of education to well-defined categories. The authors state that this approach is necessary because some fields of education (e.g. in the humanities and languages) are either vague or cannot easily be matched with any specific occupation. Also, the authors exclude a further 11 percent of their sample because of missing occupation data.

Robst (2007) discusses other instances where objective measures of skills-matching may be problematic. For example, "many college majors provide students with a broad range of skills... that apply to different occupations. It would be difficult to develop an algorithm for determining whether a major and a job are unrelated... individual assessments, while perhaps subjective, are expected to provide important information." One way around these problems is to use self-rated measures of skill-matching, augmented by the anchoring vignettes technique (see King et al; 2004: here) for enhancing the comparability of survey responses. I mentioned ongoing work on this here last week.

Swan Group Education

Charles Larkin will give a talk in the Geary institute seminar room tomorrow (Friday) at 12 about research being conducted as part of the Swan Group linked below. Details of this work is on the website below. This group has created a lot of debate since its inception and I hope people can attend to get involved in this.

http://www.swangroup.org/reports.htm

A good deadline for economic and psychology people

Call for Papers

7-11 JULY 2009
IAREP/SABE CONGRESS

Conference Web Site: http://www.smu.ca/iarepsabe09/

Halifax , Nova Scotia , Canada

International Association for Research in Economic Psychology (IAREP)

Society for the Advancement of Behavioral Economics (SABE)

Conference Theme: “Behavioural Economics, Economic Psychology: Theory
and Policy”

Dear Colleagues,

Behavioral economics and economic psychology have made significant advances over the past two decades impacting on economic theory and public policy. These realms of research are influenced by research in economics, psychology, sociology, biology, neuroscience, institutions as well as being informed by traditional empirical studies and evidence derived from experimental economics and surveys, interviews, and simulations. Thus, behavioral economics and economic psychology are enriched by a knowledge base that spans the disciplinary divide.

The IAREP-SABE Conference aims at providing voice to economists, psychologists and other academics to rigorously discuss and debate their latest research in a welcoming scholarly environment. We welcome paper submissions as well as session submissions, be they of a theoretical or empirical bent, on all relevant topics relating to behavioral economics and economic psychology.

We welcome your online submissions.

Go to http://www.smu.ca/iarepsabe09/

The deadline for submissions is March 15, 2009. You will be notified by April 30, 2009, whether or not your submission has been accepted for presentation.

All sessions will take place at Saint Mary's University.

Some Conference Highlights:

George Akerlof 2001 Nobel Laureate in Economics (University of California, Berkeley) will present one of SABE's two Herbert Simon Memorial Lectures.

Gerd Gigerenzer (Max Planck Institute for Human Development, Centre for Adaptive Behavior and Cognition, Berlin) will present the other of SABE's Herbert Simon Memorial Lecturers.

Ilana Ritov
(The Hebrew University of Jerusalem) will present IAREP's Kahneman lecture.

We look forward to seeing you in July 2009 in beautiful Halifax, Nova Scotia.

Yours sincerely,
Morris Altman (Academic convener)
Sonja Novkovic (Local convener)

NBER paper on IV

For those of you with dodgy or no instruments (we know who you are) see this recent NBER paper
Identification with Imperfect Instruments
A Nevo, A Rosen
Dealing with endogenous regressors is a central challenge of applied research. The standard solution is to use instrumental variables that are assumed to be uncorrelated with unobservables. We instead assume (i) the correlation between the instrument and the error term has the same sign as the correlation between the endogenous regressor and the error term, and (ii) that the instrument is less correlated with the error term than is the endogenous regressor. Using these assumptions, we derive analytic bounds for the parameters. We demonstrate the method in two applications.
http://papers.nber.org/papers/w14434

Does Skills Mismatch Lower Returns to Education?

A new IZA discussion paper by Nordin, Persson and Rooth (Education-Occupation Mismatch: Is There an Income Penalty?) "adds to the small literature on the consequences of education-occupation mismatches." The consequences of skills-matching and the measurement of skills-matching are issues that have been discussed on this blog a fair bit recently.

Nordin, Persson and Rooth use microdata from Statistics Sweden, but are forced to drop 36 percent of their sample due to restrictions on fields of education to well-defined categories. The authors state that this approach is necessary because some fields of education (e.g. in the humanities and languages) are either vague or cannot easily be matched with any specific occupation. Also, the authors exclude a further 11 percent of their sample because of missing occupation data. One way around these problems might be to use self-rated measures of skill-matching, from which wage penalties might be more accurately estimated.

Nordin, Persson and Rooth focus on the income penalty for field of education-occupation mismatches; they find that the penalty for such mismatches is large for both men and women. They also find that it is substantially larger than has been found for the US. Interestingly, the authors also control for cognitive ability and find that the "income penalty is not caused by ability, at least for Swedish men." The income penalty for men decreases with work experience which the authors suggest is an indication that education-specific skills and work experience are substitutes to some extent. "There is no evidence, though, that the mismatched individuals move to a matching occupation over time. Thus, for some, the income penalty seems to be permanent."

Time Preferences and Drinking in 18th Century Killarney

"Ale" I will lavishly order, and drinks to the counter
and I'll save not a halfpenny pay till the day that I die

From "Seamus light-hearted and loving friend of my breast' by Eoghan Rua O Suilleabhain, Killarney poet from the late 1700s.

future anhedonia and time discounting

Kassama et al in a paper in the Journal of Experimental Social Psychology introduce the idea that beliefs about the intensity of future emotional states may underly time discounting. Specifically, underestimating how intensively we will experience future hedonic states may lead us to place less weight on future consequences.


Future anhedonia and time discounting, Journal of Experimental Social Psychology

Karim S. Kassama, Daniel T. Gilbert, Andrew Boston and Timothy D. Wilson
Abstract
The temporal location of an event influences the way people mentally represent that event. We suggest (a) that such representational differences can produce an affective forecasting error that we call future anhedonia, which is the belief that hedonic states will be less intense in the future than in the present, and (b) that future anhedonia plays a role in time discounting (i.e., the tendency to place a smaller present value on present events than on future events). Experiments 1a and 1b demonstrated that people are prone to future anhedonia, Experiments 2a and 2b ruled out artifactual alternatives, and Experiments 3a and 3b demonstrated that future anhedonia plays a role in time discounting. These studies suggest that one reason why people prefer to enjoy benefits in the present and pay costs in the future is that they do not realize how they will feel when those costs and benefits are actually experienced.

Edge Behavioural Economics

Thanks to Steve Kinsella for updating me on all the useful things on the EDGE website below. The site includes video lectures from people like Daniel Kahneman, Richard Thaler, Sendhil Mullainthan and others

here

Thaler talks about potential innovations that behavioural economics thinking could bring to finance. Mullainathan talks about behavioural economics in the context of poverty giving examples from experimental work he is doing. Kahneman gives a complex talk about associationism and priming including talking about the role of priming below the level of consciousness.

Obamanomics

I posted before (here) about an 8,000 word article on Barrack Obama's economic policy agenda, in an August edition of Sunday's New York Times. The article says: "As anyone who has spent time with Obama knows, he likes experts, and his choice of advisers stems in part from his interest in empirical research... James Heckman, a Nobel laureate who critiqued the campaign’s education plan at (Austin) Goolsbee’s request, said, “I’ve never worked with a campaign that was more interested in what the research shows.”"

I also mentioned here, that according to an article in the New Republic, Richard Thaler "presides as a kind of in-house intellectual guru, consulting regularly with Obama's top economic adviser (Austin Goolsbee)...If you automatically enroll workers in 401(k)s but allow them to opt out, most stick with it. Obama's savings plan exploits this so-called 'status quo' bias."

Also, Dan Ariely suggested that Barrack Obama may be the presidential candidate to appreciate behavioural economics. Ariely describes this on YouTube (here); thanks to Seattlest.com for the link. Finally, if you want to know what Obama has been reading, check out this post about GoogleReader's "power-reader" feature.

Over-Education, Matching and Job Satisfaction of the Highly Educated

Readers of this blog might remember me discussing the job satisfaction of the highly educated on previous occasions: here, here and here. It is thought that the job satisfaction of individuals with high levels of human capital may be particularly sensitive to how much those individuals get to use their human capital. Recent papers from the NBER and the European Commission have shown that the degree of skills-matching between Ph.D. and subsequent employment expalins a large component of satisfaction with that employment.

"Skills-matching" has also been discussed on the blog before: here for Ph.D. graduates, and here, here and here for undergraduates. It is also possible that over-education (a separate occurence to skills-mismatch) may be another explanation for lower levels of job satisfaction. However, measures of over-education and skills-mismatch may affect job satisfaction differently depending on how individuals interpret those measures.

In light of this, researchers at Geary have been working to develop anchoring vignettes to enhance the comparability of self-reported matching and over-education amongst Irish researchers. If you want to see how these questions get developed, you can participate in this pilot-test which should take less than 5 minutes, as there are only 9 questions - split over two pages. These are questions that I am planning to work on in a Ph.D. paper.

All responses are 100% anonymous, and I disabled the surveymonkey.com option to store your IP address with your answers. I'm hoping to get 100 responses, and once I hit this target, the survey will be closed.

Maynooth Economic Psychology Event

Just a few brief notes about the event on Friday. An updated schedule is below

http://geary.ucd.ie/behaviour/index.php/Home/One-Day-Symposium.html

For those taking behavioural economics in TCD or UCD next term, the event covers a number of the topics and feel free to come along.

Some of the themes that will be covered include:

- the early childhood development of preference parameters

- the neuroscience of decision making and ability

- how loss aversion drives decision making

- the biology of time preferences

- identity and economics

- experimental economics