Twitter shows we get up happy but get grumpier as the day wears on

Is there anything that we cannot learn from Twitter? It seems from a study of 509 million posts (wonder what p-value they used for the testing?) on Twitter that while we start the day happy, its downhill all the way. I am going back to bed.

Link and Ruhm IZA Paper: Human Capital and Creativity

Creativity and the Family Tree: Human Capital Endowments and the Propensity of Entrepreneurs to Patent
by Albert N. Link, Christopher J. Ruhm
(September 2011)

Abstract:
In this paper we show that the patenting behavior of creative entrepreneurs is correlated with the patenting behavior of their fathers, which we refer to as a source of the entrepreneurs' human capital endowments. Our argument for this relationship follows from established theories of developmental creativity, and our empirical analysis is based on survey data collected from MIT's Technology Review winners.
Text: See Discussion Paper No. 5988

Behavioural Economics in Song - Laura Branigan

How this escaped from previous versions of behavioural economics in song, I am not sure. Laura Branigan's intense meditation on beta-delta preferences contains such gems as:

"I, I live among the creatures of the night I haven't got the will to try and fight against a new tomorrow, so I guess I'll just believe it that tomorrow never knows"

Links 28-09-11

1. Have been trying out the simulator package on investopedia. Ultimately looking for a good way of taking students into a good real-world-like market environment. This is worth a look.

2. Kevin O'Rourke on the importance of economic history.

3. Princeton putting in place a rule that academics cannot hand over their copyright - link here

4. Short piece in Business Week by Dan Ariely on how to pay people

5. Binder and Coad JEBO article on using quantile regressions to analyse well-being distributions.

Efficient Markets Classroom Experiment: Example from Yale

Toward the last fifteen minutes of this class by John Geanakoplos in Yale, he conducts a simple classroom experiment on the efficient market hypothesis basically asking students to record willingness to accept and willingness to pay for tickets he distributes and then getting them to trade. The experiment takes a while to set up and to record the results (which is always nice to see as illustrates that it does take at least some effort to get markets working!) but, in general, a really nice demonstration of how markets work. The tatonnement process worked out among the students is interesting to watch.

Birth Weight and Later Outcomes In Ireland

A report published in 2006 by the Institute for Public Health in Ireland established that there were substantial inequalities in birth weight. Finding that there is a social gradient in this outcome is hardly surprising, it is the norm in other countries, and indeed the norm for most if not all health related outcomes, those with higher incomes tend to fare better. The recent Growing Up in Ireland study provides the opportunity to examine this issue in further detail. The following graph reiterates the differences in birth weight by family background using both income and mother’s education as indicators of SES. The mean birth weight is substantially higher in the later income quintiles, while a year of extra education for mothers is associated, on average with an extra 13 grams. Of course this is a simple linear fit but it turns out that controlling for other factors reduces this slightly, but not by a whole lot. Of course it’s hard to be sure that this is a causal relationship and that maternal education really affects birth weight (and is not just correlated with some other factor which does), but this result is consistent with studies which adopt more experimental approaches such as “Mother's Education and the Intergenerational Transmission of Human Capital: Evidence from College Openings”, Currie and Moretti, Quarterly Journal of Economics (2003) 118 (4): 1495-1532, and the Geary Working Paper “Mother's education and birth weight”, Chevalier, A. and V. O'Sullivan (2007).

A question that arises is whether these disparities in birth weight should be a cause for concern, or rather how much concern. Apart from the higher costs and increased risk of mortality which are associated with infant health, a growing literature has linked birth weight to a number of different outcomes in later life. In other words these inequalities in infant health are likely to persist. I also pursue this with the GUI data, and find that birth weight is predictive of various indicators at age 9, and not just health. The following graph depicts the relationship between Drumcondra maths/reading scores and birth weight. Again, controlling for the rich set of information available in the data does not alter this relationship substantially. Omitted variable bias is still a concern of course, however these results are entirely consistent with the literature, and in this context there is good reason to believe that there is at least some causal component to these effects. For a good review on the health side see the recent paper Almond, D. and J. Currie (2011). "Killing Me Softly: The Fetal Origins Hypothesis." Forthcoming in the The Journal of Economic Perspectives. Numerous twin studies also support this view, for example Black, S. E., P. J. Devereux, et al. (2007) "From the cradle to the labor market? the effect of birth weight on adult outcomes" The Quarterly Journal of Economics 122(1): 409-439.

I will be releasing a working paper on this shortly.

Behavioural Finance Class Experiment

Note: Below is intended to get some ideas going on good class-room experiments and not intended as a protocol for doing one. I will post at a later time on some existing experiments and also potential on some protocols if I can work some out. Suggestions welcome. 

Thinking of the following simple class experiment to illustrate both the efficient market hypothesis and the extent of overconfidence of being able to beat indices by lay people. Basic idea of the set up is below. Everything will be recorded anonymously though students will be able to identify themselves in the results session if they remember the stocks they picked.  Could potentially be conducted as a web survey, with the advantage that students would be able to look at the stock index in their own time and not have to remember the stocks.

1. Email the class a link to google finance and some simple instructions for how to look up prices of stocks on the NYSE.

2. Tell them that they will be asked to pick stocks on the NYSE in class as part of a classroom exercise. Tell them to write down the names of 12 stocks they would like to pick. (Hard to think of how to enforce this part without using online).

3. At start of class, hand each student a paper survey asking them to allocate a hypothetical 1000 dollars across 12 stocks in any proportion they wish. Tell them that they will hold this portfolio for one month at which stage it will be evaluated in terms of rate of return (excluding any dividends). Later these can be keyed into separate portfolios on the google finance toolbar.

4. Ask them how confident they are that they will outperform the overall market index for the NYSE

5. Ask them how confident they are that they will outperform the class average return

6. Elicit a few simple financial capability questions (and gender)

7. One month later:

- plot average rates of return across the class
- show correlation with degree of confidence of beating market; beating class average; gender and financial sophistication.

8. Basic prior is that picking 12 random stocks on the index should yield a normal distribution of average returns that are unrelated to any of the personal factors measured.

Deaton - the Financial Crisis and the Well-Being of Americans

 Very interesting new paper by Angus Deaton of Princeton (via Justin Wolfers on twitter)

The financial crisis and the well-being of Americans

Angus Deaton, Princeton University
ABSTRACT
The Great Recession was associated with large changes in income, wealth, and unemployment, changes that affected many lives. Since January 2008, the Gallup Organization has been collecting daily data on 1,000 Americans each day, with a range of self-reported well-being (SWB) questions. I use these data to examine how the recession affected the emotional andevaluative lives of the population, as well as of subgroups within it. In the fall of 2008, around the time of the collapse of Lehman Brothers, and lasting into the spring of 2009, at the bottom of the stock market, Americans reported sharp declines in their life evaluation, sharp increases in worry and stress, and declines in positive affect. By the end of 2010, in spite of continuing high unemployment, these measures had largely recovered, though worry remained higher and life evaluation lower than in January 2008. The SWB measures do a much better job of monitoring short-run levels of anxiety as the crisis unfolded than they do of reflecting the evolution of the economy over a year or two. Even large macroeconomic shocks to income and unemployment can be expected to produce only small and hard to detect effects on SWB measures. SWB, particularly evaluation of life as a whole, is sensitive to question order effects. Asking political questions before the life evaluation question reduces reported life evaluation by an amount that dwarfs the effects of even the worst of the crisis; these order effects persist deep into the interview, and condition the reporting of hedonic experience and of satisfaction with standard of living. Methods for controlling these effects need to be developed and tested if national measures are to be comparable over space and time.

Behavioural Insights Team Update

The Behavioural Insights Team within the UK Cabinet office has been working on the application of a number of literatures surrounding behavioural, including behavioural economics, to policy (brief summary from a previous post here). Their annual update, released recently, is available on this link. The report outlines policies they have been involved with in the areas of organ donation, healthy food consumption, consumer empowerment, tax and environment. There has been an ongoing debate in the UK about the rationale behind the approach including the recently released House of Lords report. Interestingly the Behavioural Insights team report gives a lengthy nod to Ben Goldacre's suggestion that they be sacked and replaced with a policy trials unit devoted to randomised control trials on unresolved policy questions. In essence, as they note, a fully worked out behavioural policy would have trial like this embedded into policy.

Blog Suggestions

Thanks for suggestions so far in the comments and by email. Will develop over the next week or two. Suggestions welcome. Url will change soon also. Will also develop the sidebars. The name might possibly change again but I am keen for the name to be simple and to reflect the interdisciplinary and policy aspects of the blog. So for now, this seems a very clear 'does what it says on the tin' approach to what will be up here.

Daniel Kahneman Master Class: The Marvels and Flaws of Intuitive Thinking

This is marvellous. From the Edge website below.

In July, Edge held its annual Master Class in Napa, California on the theme: "The Science of Human Nature" held its annual Master Class in St. Helena, California on the theme: "The Science of Human Nature". In the six week period that began September 12th, we are publishing the complete video, audio, and texts: Princeton psychologist Daniel Kahneman on the marvels and the flaws of intuitive thinking; Harvard mathematical biologist Martin Nowak on the evolution of cooperation; UC-Santa Barbara evolutionary psychologist Leda Cosmides on the architecture of motivation; Harvard psychologist Steven Pinker on the history of violence; UC-Santa Barbara neuroscientist Michael Gazzaniga on neuroscience and the law; and Princeton religious historian Elaine Pagels on The Book of Revelations.

Weekend Links

1. The Thinking Allowed archive on the BBC website has a really good range of social science interviews.

2. Negative news coverage and consumer confidence - Journal of Economic Psychology paper

3. Another JOEP paper looking at social capital and personal bankruptcy

4. Scotsman piece on the tuition fees pricing policy of Robert Gordon University. A lot of developments unfolding here in Scotland in this regard.

5. Central Bank event on the Irish mortgage market - some good speakers including John Muellbauer

6. Good list of social science academics on twitter

2012 Royal Economic Society Conference

Details below or at this link


2012 Annual Conference

26 March to 28 March 2012

University of Cambridge


Keynote Lectures

Elhanan Helpman Harvard University (EJ Lecture)

Nancy Stokey University of Chicago (Hahn Lecture)

Ariel Pakes Harvard University (Sargan Lecture)

Plenary Panel: Lessons from the European Debt Crisis

Ken Rogoff Harvard University

Guillermo Calvo Columbia University

Lorenzo Bini Smaghi ECB

Call for Papers

Join us at the Annual Conference of the Royal Economic Society 2012. The Programme Committee invites submissions of papers for General Sessions from academic, government and business economists in any field of economics and econometrics. Submissions can be made from 15 July 2011. The deadline for submissions is 15 October 2011. Notification of acceptance will be sent by mid-December 2011.

Visit this site to make a submission for the 2012 Annual Conference:

https://editorialexpress.com/conference/res2012

Further details on registration, accommodation and other matters – including information on financial support for postgraduate students attending the Conference – will follow.

Call for Special Session Proposals

The RES conference committee invites invites proposals for special sessions to be considered for inclusion in the RES 2012 conference programme. Proposals can be submitted to res2012@econ.cam.ac.uk by 15 October. Details can be found here.

Call for Young Talent Nominations

The Royal Economic Society is running a special session to showcase 'young talent' at the RES 2012 conference. If you would like to nominate someone to be considered for inclusion in this session e-mail the programme chair at res2012@econ.cam.ac.uk by 15 September. More details can be found here.

Programme Chair: Francesco Caselli (LSE)
Deputy Programme Chair: Chryssi Giannitsarou (Cambridge)
Local Organizers: Pramila Krishnan and Solomos Solomou (Cambridge)

EU Call for Proposals on Social Experiments

(Via Colm Harmon), it is interesting that the commission have put out this call. Text below from the document.

This call offers to applicants the possibility to develop social experimentation projects according to the following protocol/steps:

• Design of the policy intervention: a rigorous description of the logically structured set of actions envisaged as part of the policy reform should be provided. It should ensure that the different incentives, opportunities, or constraints to which the population will be confronted with are identified and described
• Design of the experimentation method: preference will be given to the random assignment method that randomly assigns the potential beneficiaries of the policy/interventions to either a treatment group or a comparison group. Other evaluation method such as the quasi-experimental design (non-randomized assignment) may be considered as long as the impact of the interventions being tested is credibly ascertained. The expected outcomes of the interventions should be stated in clear and measurable terms to serve as yardsticks for determining the extent of the
policy intervention's success.
• Lessons for policy design: a rigorous analysis and interpretation of the results should be put in place with a view to arriving at shared conclusions about the up-scaling potential of the tested policies taking into account elements such as the context, in which the policy has to be implemented, the feasibility, the acceptability and the timeliness of the proposed solutions.

Please note that a guide on the social experimentation protocol will be provided on the following website:

http://ec.europa.eu/social/main.jsp?catId=630&langId=en.

This call for proposals focuses on public policy interventions and is therefore addressed to policy-makers at national, regional or local levels. However, social experimentations cannot be conducted without the involvement of other stakeholders such as public authorities, civil society organisations, private business enterprises, scientists and practitioners in the design, the implementation and the evaluation of the project.

Given the considerable investment required to conduct a social experimentation or a rigorous quasi-experimental project, this call is intended to support no more than 3-5 major social experimentations. The Commission will ensure the dissemination of evidence gathered across the PROGRESS participating countries.

At the final stage of the project the promoter has to organise a peer review involving all project partner(s) including partner(s) from at least one other PROGRESS participating country. The European Commission may organise thematic workshops in order to publicise and disseminate the lessons learnt.

Apart from assessing the specific impact of the social experimentation on the target group and conducting peer reviews, the overall effectiveness, including cost-effectiveness, of the project should be assessed at the end of the activities.

That Seventies Feeling

Consumer confidence is an intriguing topic for economists. Firstly, confidence is psychological. And economists have recognised the importance of psychology at the micro and macro levels since George Gallup started measuring and reporting US consumer confidence back in 1938.

Secondly, confidence is emotional. As a concept it captures an array of feelings relating to optimism, pessimism, fear and hope. That a lot of feelings. And certainly a far remove from the straw man of utility maximizing home oeconomicus parodied by many of economics' critics.

Thirdly, confidence is predictive. Especially in relation to consumer behaviour - including spending, saving and borrowing. Crucially, measures of confidence can sometimes determine the near term outlook for economic recovery in recessionary times as it gauges the views of the general public about future prospects. Or lack thereof.

Though consumer sentiment indices can be used to anticipate developments 3-6 months ahead, they can also inform the longer term outlook as well. For example, Robert Shiller focuses on just one of the component questions used to create the Thomson-Reuters University of Michigan Consumer Sentiment Index. It is Question 4, namely:

“Looking ahead, which would you say is more likely – that in the country as a whole we’ll have continuous good times during the next five years or so, or that we will have  periods of widespread unemployment or depression, or what?”

Shiller's rationale, as set out recently, is as follows:

That question is usually not singled out for attention, but it appears spot-on for what we really want to know: what deep anxieties and fears do people have that might inhibit their willingness to spend for a long time. The answers to that question might well help us forecast the future outlook much more accurately.

So where does the index for Q4 stand in September 2011? That's the worrying thing. It certainly has Robert Shiller worried. I've updated a chart for the Q4 Index to end 2009 with the current September 2011 index = 48. It's back to levels last seen in the 1970s and early 1980s.

In America - as in Ireland - consumer sentiment is now bound up in a narrative about debt and risk that will reverberate far beyond just the next few months.  As Shiller sees it, the current, 'depression narrative' will need to be replaced with a more inspiring story. Who will do the replacing is not so clear.

Perhaps economists will have to become better storytellers?

Recent ESRI Publications

A number of recent ESRI publications will be of interest to some of the readers here (abridged titles).

Watson and Nolan - A social portrait of people with disabilities.

Richard Layte - Should we be worried about income inequality in Ireland?

McCrory and Layte - Breastfeeding and School Performance

Smith, Banks and Calvert - From Leaving Cert to Leaving School: A longitudinal Study

Energy Switching: why the consumer inertia?

Inertia is a major feature of the policy literature in behavioural economics. The BBC cover this area in relation to energy consumers. (via @davdittrich on twitter)

We're more likely to get divorced than move bank accounts. Four-fifths of people cannot be bothered to look for cheaper gas or electric bills despite the urging of numerous consumer gurus to switch.

In short we'd rather pay hundreds of pounds a year extra on phone, broadband and utility bills rather than have to enter the mind-numbing world of the price comparison websites.

The econometrics of the death penalty

The death penalty is an emotive and complex subject. The degree to which it is accepted in some countries, especially in the USA, seems bizarre to many Europeans. An argument for the death penalty is that it acts as a deterrent. But is this supported by the evidence? One would hope that if the state is going to kill people, that at least the decision should be evidence based. The analysis reported below shows that the evidence for the deterrence effect is not that robust and indeed there is even evidence that the death penalty could actually increase the murder rate.

Deterrence and the death penalty: partial identification analysis using repeated cross section

C F Manski , J V Pepper

Researchers have long used repeated cross sectional observations of homicide rates and sanctions to examine the deterrent effect of the adoption and implementation of death penalty statutes. The empirical literature, however, has failed to achieve consensus. A fundamental problem is that the outcomes of counterfactual policies are not observable. Hence, the data alone cannot identify the deterrent effect of capital punishment. How then should research proceed? It is tempting to impose assumptions strong enough to yield a definitive finding, but strong assumptions may be inaccurate and yield flawed conclusions. Instead, we study the identifying power of relatively weak assumptions restricting variation in treatment response across places and time. The results are findings of partial identification that bound the deterrent effect of capital punishment. By successively adding stronger identifying assumptions, we seek to make transparent how assumptions shape inference. We perform empirical analysis using state-level data in the United States in 1975 and 1977. Under the weakest restrictions, there is substantial ambiguity: we cannot rule out the possibility that having a death penalty statute substantially increases or decreases homicide. This ambiguity is reduced when we impose stronger assumptions, but inferences are sensitive to the maintained restrictions. Combining the data with some assumptions implies that the death penalty increases homicide, but other assumptions imply that the death penalty deters it.

NBER working paper W17455

Prediction is difficult, especially if you are depressed

A well known quip holds that “Prediction is difficult, especially about the future”. It is attributed to various people including Yogi Berra, Niels Bohr and, for all I know, Yogi Bear too. Nonetheless it has been widely observed that people are often pretty bad at making predictions. This is bad news for those economists who believe in the Rational Expectations hypothesis. Although they will probably say they expected to hear that.

So what factors might cause people to predict badly? In a new study, from INSEAD, researchers find that depressed individuals are particularly bad at prediction. The subjects consisted of 1,100 soccer fans asked to forecast how teams progressed in various competitions. In particular depressed people tend to over-weight unlikely events. So if you are a depressed individual and an Arsenal fan (and you can see why those two would go together) be prepared for disappointment.

David Comerford and Eibhlin Hudson

Congratulations to both David and Eibhlin who passed their respective PhD vivas recently. Dave is currently a postdoc in Duke and Eibhlin is a lecturer in RMIT in Melbourne.

Attenuating focalism in affective forecasts of the commuting experience: Implications for economic decisions and policy making

Attenuating focalism in affective forecasts of the commuting experience: Implications for economic decisions and policy making - David Comerford, Journal of Economic Psychology

Abstract
Focalism is a cognitive bias that overweights the contribution of certain attributes to the consumption experience. This paper proposes that focalism afflicts choice of transport mode for commuting. A field study and two experiments provide evidence that commuting by bus is estimated to be less enjoyable than it is experienced to be and that driving to work is estimated to be more enjoyable than it is experienced to be. To the extent that commuting behavior is informed by subjective expected utility, commuters will inflict unanticipated costs on themselves and on society. Transport mode choice has external and dynamic consequences. Focalism in this domain implies welfare distortions that are worthy of policymakers’ attention. This paper develops a novel debiasing technique, Affective Averaging, that reveals and attenuates focalism in affective forecasts of commuting.

Transition to 3rd level conference

A conference on the transition to 3rd level education was held in UCD today. The focus was on the possibility and desirability of changes to the present "poinst system". The papers are available from the web site and are worth studying.

Fulbright Ireland Awards

Details below and on the following link.

What's on offer

2012-2013 Awards will OPEN to applicants on Monday 5th September 2011

Student Awards in all disciplines
Maximum €20,000 plus insurance, J-1 visa and programming
6 – 12 months of post-graduate study or research in the US.


Who can apply

post-graduate students / PhD candidates with
excellent academic track records; minimum 2.1
leadership qualities
an understanding of Fulbright
a clear course of study
an application to a US institution
Irish / EU citizenship.


How to apply

complete and submit online application and supporting documentation submit hardcopies of application and supporting documentation by 12 noon Friday 18th November 2011.
be available for interview mid January - mid February 2012 if short-listed.

Suggestions for name

The url address is fine but I dont think "Dublin Microeconomics Blog" is going to work as a title. Answers on a postcard as to what would be a better one. Current default option is "Dublin Micro and Behavioural Blog".

Scottish Darien Collapse

This description of one of the most famous financial calamities - The Scottish Darien Scheme of the very late 1600s - below is worth watching, part of the BBC series on the history of Scotland. Basically, a frantic bubble to invest money in exploring part of the New World. It went badly, costing Scottish people about a quarter of their liquid assets by some estimates. According to the account here, it also drove political pressure to cement the union with England.

Gary Becker Lectures on Youtube

I have pointed to this a few times in various forums. 19 lectures on Human Capital by Gary Becker linked here. As yet not widely viewed, but clearly a great resource for a wide group of people. Description Below.

This series of lectures recorded during the Spring of 2010 are from ECON 343 -- Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. In total, there are 19 lectures. Each lecture includes a short description of topics covered as well as topical keywords. The interested viewer is also provided with references to books and journal articles from Gary Becker's own original research that bear on the topics discussed in each lecture. Additionally, the viewer is also referred to the appropriate section of a freely available and informal set of student notes. These lecture notes are provided as-is and the author, Salvador Navarro Lozano cannot accept responsibility for any typos or errors. Much of the lecture material already appears in one of Gary Becker's academic books and those remain the best source of information in case of any doubts. Over the years, thousands of graduate students in Economics, Sociology, Public Policy, and other fields have benefited from the teachings of Gary Becker in his Human Capital class. We hope that by providing these lecture videos and notes that people around the world can increase their own human capital and enjoy studying this fascinating subject of human capital as taught by Gary Becker. Filmed by: Joey Brown Lecture Summaries: Jorge L. Garcia Lecture Notes: Salvador Navarro Lozano Supported by: The Becker Center at the Booth School of Business at the University of Chicago

Gamekeeper turned poacher

This is my first foray into Microeconomics blogging: I've known Liam Delaney for many years and I worked alongside him at UCD Geary.

Although I'm a planner in advertising, I also keep up a lecturing and research sideline in Social Psychology so I'm hoping that this conjoint perspective will be useful & stimulating to this blog's community. For me, throwing the cat among the pigeons, a lot of the behavioural economics movement is standard 1950-1970s Psychology with better built models, but nothing particularly revelatory. That's not to say I'm not taken aback by the quality of some of the insights I've gleaned from this revolution in the social sciences.

I'll write something next week... 'til then , v glad to be on board.

Ken.

Suicide and the macroeconomy

The current macroeconomic and financial crisis provides quite a natural experiment, much as the oil crisis on the early 1970s did for an older generation. The data will generate many papers in the years to come. One grim aspect to this is that it sheds some light on the macroeconomic determinants of suicide. Brendan & Dermot Walsh have looked at this in the Irish case in a paper published in the Economic and Social Review.
A newspaper article today suggests there has been a recent spike in suicide in Greece. This isn't a scholarly study but then with pressing issues like this, one can't wait for the research to occur before addressing the public policy issues.

The McGurk Effect

Via Rob G, a really interesting demonstration of how visual input can influence our processing of speech and sound.

Links 20-09-2011

1. Daniel Kahneman's new book "Thinking Fast and Slow" is available for pre-order.

2. Seamus Coffey's post on irisheconomy.ie gives a simple but stark overview of unemployment in Ireland

3. Journal of Finance paper by Rooij et al on financial literacy and stock market participation

4. Kuhn and Mansour IZA paper showing that internet job search can be effective.

5. NBER Working paper on exercise and physical exertion over the business cycle

6. Philip Mirowski INET talk on the history of the Nobel prize in Economics 

7. Fulbright Ireland student scheme open. This is a fantastic opportunity for bright postgrads to spent 6 months to a year in the US. 

November 25th Economics and Psychology Event

The fourth one day conference on Economics and Psychology will be held in the UCD Geary Institute on November 25th. The purpose of these sessions is to develop the link between Economics, Psychology and cognate disciplines in Ireland. A special theme of this year’s event will be the implications of behavioural economics for public policy. Selected papers will feature in a special issue of the ESR policy section. A full programme will be available shortly.

Information on events held in previous years is available at the following links:

2008: http://geary.ucd.ie/behaviour/index.php/Home/One-Day-Symposium.html

2009: http://sites.google.com/site/econpsychireland/program

2010: http://dublinmicroblog.blogspot.com/2010/11/economics-and-psychology-one-day.html

Socioeconomic differences in early childhood time preferences

Socioeconomic differences in early childhood time preferences
Liam Delaneya, , , Orla Doyleb

a UCD Geary Institute, UCD School of Economics, & UCD School of Public Health and Population Science, University College Dublin
b UCD Geary Institute & UCD School of Public Health and Population Science, University College Dublin
Received 13 June 2009; revised 24 June 2011; Accepted 31 August 2011. Available online 17 September 2011.

Abstract
This article examines the extent to which early childhood socioeconomic differences emerge in hyperactivity, impulsivity and persistence, all of which are psychometric analogues to how economists conceptualise time discounting. We control for a wide range of factors including parental investment and proxies for maternal time preferences. Our results show substantial social class variations across measures at age 3. We find weak evidence that these measures are predicted by differential maternal behaviours (e.g. savings behaviour, smoking) but relatively stronger evidence that these traits are transmitted through the parents’ own non-cognitive skills (self-esteem, attachment) and parental time investments (time spent reading to the child and teaching the child to write, sing).

Highlights
► This paper examines socioeconomic differences in proxies for time preferences among 3-year old children. ► It finds marked socioeconomic differences across a wide range of measures of time preferences. ► Variables such as maternal depression and attachment, parental inputs and maternal behaviours also predict child time preferences. ► However, even controlling for this wide range of covariates, a large socioeconomic gradient exists. ► Further research should examine the extent to which child preferences are exogenously shaped by parental factors and home environments.

Keywords: D03 Behavioural Economics; D9 Intertemporal Choice

Irish Debate Sessions

A few months ago, I did a session on IrishDebate.com on the implications of behavioural economics for Irish public policy. This is reproduced below. The format allows for multiple contributors etc., I am currently putting together notes for two other sessions, one on unemployment and another on the theme of "irish abroad". It is a format worth thinking about for issues at the interface of academic and policy issues.

Time in the class and educational attainment: evidence from PISA

In the soul searching that has followed the release of the Leaving & Junior Certificate exams and particularly in the context of the maths results some commentators have pointed to the relatively low hours in class spent by Irish students. Does it actually matter? This paper shows that it does:

Do Differences in School's Instruction Time Explain International Achievement Gaps in Maths, Science and Language? Evidence from Developed and Developing Countries
Victor Lavy
There are large differences across countries in instructional time in schooling institutions. Can these differences explain some of the differences across countries in pupils' achievements in different subjects? What is the likely impact of changes in instructional time? While research in recent years provides convincing evidence about the effect of several inputs in the education production function, there is limited evidence on the effect of classroom instructional time. Such evidence is of policy relevance in many countries, and it became very concrete recently as President Barrack Obama announced the goal of extending the school week and year as a central objective in his proposed education reform for the US. In this paper, I estimate the effects of instructional time on students' academic achievement in math, science and language. I estimate linear and non-linear instructional time effects controlling for unobserved heterogeneity of both pupils and schools. The evidence from a sample of 15 year olds from over fifty countries that participated in PISA 2006 consistently shows that instructional time has a positive and significant effect on test scores. The effect is large relative to the standard deviation of the within pupil test score distribution. The OLS results are highly biased upward but the within student estimates are very similar across groups of developed and middle-income countries. However, the estimated effect of instructional time in the sample of developing countries is much lower than the effect size in the developed countries. Several checks for threats of identification support the causal interpretation of this evidence. I obtain very similar results when I use as an alternative data from primary and middle schools in Israel and a somewhat different identification strategy

Behavioural Characteristics and Financial Distress

Behavioural characteristics and financial distress
Yvonne McCarthy
Using a new nationally representative survey of financial capability and experience in the UK and Ireland, I investigate the key factors that cause individuals to experience financial distress. In this context, a key area that I focus on is whether individuals? behavioural traits, such as their capacities for self-control, planning, and patience, affect their ability to stay out of financial trouble. I find that the variables that proxy for these behavioural characteristics are both statistically significant and economically important for predicting both mild and extreme forms of financial distress, in a regression controlling for demographic and socio-economic factors. Furthermore, behavioural traits emerge as having a stronger impact on the incidence of financial distress than education or financial literacy. The results raise questions about whether policy can be oriented towards improving financial habits and mitigati ng the impact of behavioural characteristics on personal finances.

Ireland's National Pension Auto-enrolment Policy

One area that I want to use this blog to keep a discussion going on is the very important change in the pension system that will take place, according to the current plan in 2014. Below is an article from a recent Business and Finance edition, where we outline the basic issues at stake - full link here

Pensions: Making pension plans the default option

Studies have found that making the choice to enrol in a pension the default one for workers has a dramatic upward effect on participation. Can it work here? Liam Delaney, Colm Harmon and Keith O’Hara report.

Economics has long grappled with the question of why people do, or do not participate in pension plans. For most of the 20th century, economists viewed this problem through a model known as the life-cycle hypothesis, which suggests that people, using available information, rationally forecast their future income, then save and invest in a way such that their consumption will be smooth over their lifetime. A popular vehicle for this consumption-smoothing saving is participation in a pension plan, usually set up early in an employee’s career.

Work in behavioural economics, a field that combines economics and psychology, has been questioning this account. Contrary to life-cycle theory predictions, consumption seems to fall too much after retirement; people, in general, seem unaware of their options; and most importantly, many of us appear simply too lazy and prone to procrastination to achieve an optimal consumption-saving trade-off.

A seminal paper by two U.S.-based researchers, Brigitte Madrian and Dennis Shea, investigated what happened when employees were “autoenrolled” into pension plans, but were also given the choice to opt out. The results are quite striking. Despite no difference in the financial aspects of the plans, such as employer contributions, autoenrolling employees had dramatic effects on employee participation. Among groups who traditionally did not take out pensions (women, low-income groups, and ethnic minorities) the results were particularly pronounced; a near-quadrupling of enrolment numbers over self-selected entry for some cohorts.

This research has been followed-up by numerous other papers and the auto-enrolment feature seems a robust way of increasing participation in company contexts. In general, the active setting of default options is being debated across a wide range of policy areas. The question is whether such altering of default options can be a solution to low pension participation across whole populations.

In the next couple of years, based on this research, both the British and Irish governments will embark on ambitious programmes of changing the pension default options among private sector workers. In Ireland, as part of the 2010 national pensions framework, all private sector employees not currently covered by an employer-sponsored pension plan will be autoenrolled into a defined-contribution plan. Employees will contribute 4 per cent of income within defined income bands, the employer will contribute 2 per cent on a mandatory basis and the government will contribute a 2 per cent tax break.

The programme will begin in 2014, with the contributions being collected through the PRSI system.

There is a lot to be welcomed about this policy. Successive attempts at increasing pension participation throughout the Celtic Tiger period largely failed. Programmes, for the most part, targeted awareness and generally tried very soft tactics to address what is a more ingrained behavioural issue. Auto-enrolment has a strong evidence base and can, in the right conditions, change behaviour in a way that will ultimately benefit employees without coercing them or removing freedom of choice.

However, there are a number of issues that need to be thought through before implementation. Firstly, this is a forceful policy. In Ireland, employees who opt out will be re-enrolled after two years.  In essence, this makes the policy more of a shove than a nudge, and sets a precedent that government policy in this direction will be on the hard side.

Secondly, it is fully mandatory for employers to participate. There are obvious political reasons why the government would do this, but the necessity of employer contributions is not obvious at a time of tough labour market conditions. The potential knock-on effects to wages and to hiring should be given more thought, including any additional administrative burden placed on small employers arising from auto-enrolment.

A further issue is the potential that this scheme will target those who are already saving or would have saved anyway. The evidence is not yet conclusive from New Zealand, but early papers on the similar KiwiSaver initiative make it seem likely that a large degree of substitution took place from other savings sources rather than an actual increase in net savings.

Still more serious is the possibility that the 4 per cent contribution rates set by the government will be seen as tacit advice by the people being enrolled. 4 per cent is a small savings rate, even with the employer and government contributions. Recent evidence suggests that a whole cohort of employees enrolled at low-levels may rigidly stick to them, despite the fact that they would have contributed more had they been left alone. The Government should give serious consideration to enrolling at higher contribution rates and giving the option to reduce contributions, as well as devising mechanisms to encourage scaling up, particularly via pre-commitments from future pay increases, something that hopefully will be a feature of a post-2014 Irish economy.

When the mechanism is designed, the issue of how the funds will be presented to participants and, in particular, the allocation of the default fund will be the most pressing issue to decide. Evidence from Sweden suggests that employees, given more choice tend to diversify less and move, in particular, into domestic equities, achieving lower returns than if simply assigned a default well-diversified portfolio.

This is a major national experiment with implications for many other aspects of policy. There is much evidence that, conducted correctly, this policy can fix a major problem facing us in years ahead. But there are also many pitfalls and it is important that the roll-out be accompanied by a seriously conducted pilot-phase.

Liam Delaney is a research fellow at the Geary Institute and Professor of Economics at Stirling University. Colm Harmon is Professor of Economics and Director of Geary Institute. Keith O’Hara is a researcher at the Geary Institute.