Wednesday, January 28, 2009

Weird symmetry: Happiness, housing and self-regulation failure

Irish house prices Apr-96 to Nov-08 (data from ESRI)
Diurnal Happiness Patterns 10am to 2am (data from student sample N=200)

There's some evidence to suggest that the dip in happiness that occurs in those who stay up late during the week is due to poor self-regulation, lack of self-imposed structure, and probably persisting in staying awake in the face of what is most likely a poor choice of television stations and an absence of conversation partners. Looking at the completely unrelated housing graph I wonder to what extent an analogous failure of self-regulation was involved. In psychological theory the benchmark for appropriate personal self-regulation incorporates ideals, goals, and standards, based both on internal factors and the perceived demands of society. The self is constantly help up against such standards in the face of having to behave flexibly in fluctuating personal and environmental conditions to achieve important goals. This monitoring process functions primarily to identify movement away from standards. Self-regulatory strength or "willpower" and motivation- caring about the goal of meeting standards, are then both required to make difficult changes to the self to insure that such standards are upheld. Self-regulation can be impaired if there is dysfunction in any of the three main processes: standards, monitoring, strength and motivation. The most common inhibitors of self-regulation in everyday life are lack of sleep, emotional distress, distraction, and alcohol consumption: perhaps prompting the recent "Wall Street got drunk" remarks!

6 comments:

Martin Ryan said...

Michael,

Parallels have certainly been drawn before between what happens in the housing market and psychological theories of behaviour. In this old blog post

http://gearybehaviourcenter.blogspot.com/2007/07/in-days-of-bulls-bears-and-tigers-do.html

I mention an article by McWilliams where he used the the five stages of dealing with death from the observations of bereavement discusssed by Elizabeth Kubler Ross in her 1967 book 'On Death and Dying'. The five stages are denial, anger, bargaining, depression and acceptance. McWilliams suggests that "the five stages also provide an interesting framework to analyse how societies react when they experience a significant fall in house prices and the consequent loss of wealth".

Last July he suggsted that we were in the denial phase; I'd like to think that we've come through to acceptance by now. But the question is - will we deny or accept the reality of further price falls if they occur in the coming years (which they are predicted to do).

You mentioned before Michael that there is empirics behind all of this:
http://jama.ama-assn.org/cgi/content/abstract/297/7/716
So it may have solid ground a a micro-level theory of behaviour.

The other thing I was going to mention is a possible link between self-control problems (and/or panic) and sub-optimal behaviour related to crashes in the housing market. If individuals sell their houses after going into negative equity, then they will probably lose out on future price appreciation (and have nothing to show for their debt service). I discussed this in a post: "What Goes Up Will Most Likely Come Up Again After Going Down":

http://gearybehaviourcenter.blogspot.com/2007/04/what-goes-up-will-most-likely-come-up.html

Martin Ryan said...

I don't want to be the cause of any self-control problems but all this talk about the housing market reminded me of a website I saw recently:

http://www.housepricecrash.co.uk/

Its a good source of news on the topic, and the website has an excellent collection of graphs.

Liam Delaney said...

Martin -

You have often reiterated the idea that people who sell up during slumps are possibly exhibiting poor self-control as they would be fine if they waited. I think this might work for a certain category of people but there are lots of standard rational reasons why you sell up even in negative equity (not being able to make the repayments being one) so its worth thinking a lot more about that.

Liam

Martin Ryan said...

Liam,

You're right. In the original blog-post I broached those issues but didn't bother to re-iterate them here. Here's the paragraph I had on standard rational reasons:

"There is a nuance (and possibly several) to this perspective that I'm peddling. If one doesn't want to lose out by selling or emigrating upon the occurrence of negative equity, then one has to stay in the same location until one's property recovers in value. This has some severe implications for labour market flexibility..."

Kevin Denny said...

Is this emphasis on self-regulation not a bit Nietzchean: triumph-of-the-will and all that?
Self regulating is fine but it gets a bit tiring.Has anyone modelled the optimal depletion of will power? The transversality condition would presumably having us go to our graves in a fairly dissolute state. Thats my plan anyway "Eat,drink and be merry...

Michael Daly said...

A paper just came out on the liberating effects of losing executive control. There's plenty of evidence that people off-load temptation to reduce the need for willpower also e.g. AER self-control paper. Gollwitzers work on implementation intentions suggests that we form if-then rules for ourselves as means of conserving willpower. Besides if standards for behaviour are personally and societally acceptable than you won't get negative feedback as long as you don't "eat, drink, be merry, and leave without paying"!