Wednesday, December 18, 2013

Summary of 6th Irish One-Day Conference on Economics and Psychology

The 6th in the series of conferences on economics and psychology in Ireland took place on November 29th in NUI Maynooth co-organised by Liam Delaney (Stirling) and Richard Roche (NUIM). The event took place in the Glenroyal hotel which is adjacent to the Maynooth campus. Below is a summary of the day. Thanks to all the attendees and we will contact in the New Year about next year's workshop. 

Programme and Summary

The conference was opened at 9am by Liam Delaney.

9am - 9.30am 

Title: A behavioural examination of the forward rate unbiasedness hypothesis in precious metals markets
Author: Fergal O'Connor, (Trinity College Dublin)

We offer the first examination of whether the gold forward market is an unbiased predictor of the future gold spot rate and find evidence that it is not, especially at longer maturities. We then examine whether this can be explained by behavioural factors such as market optimism and the strength of the market’s reaction to news, developing Aggarwal and Zong’s (2008) approach to allow for investor risk aversion.We show that the gold market generally suffers from overreaction to historical spot price changes over the full period of our sample. The forward premium is found to be optimistic. The market’s forecast errors are sometimes found to be pessimistic but this disappears once we allow for investor risk aversion. Revisions to the market’s forecasted spot price consistently overreact to observed forecast errors. Finally, some of these findings are shown to be dependent on the sample length used.

930am - 10am 
Title: Policy vs Politics in voluntary recycling
Author: Marie Briguglio, (Behavioural Science Centre, Stirling Management School, University of Stirling)

The study explores the role of politics in determining voluntary contributions to public goods, using voluntary recycling in Malta as a case study. Earlier literature provides us with some fairly robust findings on the determinants of recycling:  voluntary participation is driven by moral motives and is suppressed by constraints that households may face. Although some studies have explored the role of political orientation as a determinant of voluntary contributions to the environment, none have attempted to parse out the effect of political attachment to the party in government from ideology. We test the hypothesis that loyalty to the party in government matters, and that it does so independently of ideology or environmental moral motives:  individuals give more to public goods, if their political party is in government and responsible for providing such goods. This, in turn, may be underpinned by stronger efficacy beliefs, trust, in-group identification or even feelings of reciprocity and gratitude to one’s own party. To test this hypothesis, we generate data on recycling behaviour and  intent as well as political behaviour and attitudes from a dedicated nation-wide representative survey (n=1000) conducted in Malta (using Computer-Assisted Telephone Surveys) shortly after the change in government in 2013.  We set out to measure political attachment, political orientation, and environmental moral motives along with other controls necessary to identify their separate impact on voluntary contribution. We also embed a randomised experiment to test the impact on recycling intent (among different political groups) of a 7-word political statement.  These findings start to unpack what much of the literature to date has referred to as “moral motives” and offer practical insights for interventions targeting voluntary participation in the recycling interventions.

10.00am - 10.30am
Title: Notches as Nudges: arbitrary thresholds operate as meaningful targets for promoting home energy efficiency
Authors: David Comerford, Mirko Moro and Ian Lange, (Behavioural Science Centre, Stirling Management School, University of Stirling)

For reasons of efficiency, public health and environmental protection, improving home energy efficiency is a policy goal. Previous research has analyzed the effectiveness of subsidies and tax breaks as incentives. This paper considers the effect of a policy change that was purely informational - the introduction of energy performance certificates (EPCs) for houses from 2007. Before the introduction of EPCs, energy performance was measured in SAP (Standard Assessment Procedure) scores, on a 0-100 scale that gives no normative information. EPCs converted SAP scores to a colour-coded letter grade scale, from A-G. We find using the English Housing Survey that there has been an upward shift in home energy efficiency since the introduction of EPCs, with a disproportionate number of houses clustering at the lowest point on the D scale.


10.45am - 11.30am 
Title: Money, Well-Being, and Loss Aversion: Does an Income Loss Have a Greater Effect on Well-Being Than an Equivalent Gain? 
Author: Christopher Boyce, (Behavioural Science Centre, Stirling Management School, University of Stirling)

Higher income is associated with greater well-being, but do income gains and losses affect well-being differently? Loss aversion, whereby losses loom larger than gains, is typically examined in relation to decisions about anticipated outcomes. Here, using subjective-well-being data from Germany (N = 28,723) and the UK (N = 20,570), we found that losses in income have a larger effect on well-being than equivalent income gains and that this effect is not explained by diminishing marginal benefits of income to well-being Our findings show that loss aversion applies to experienced losses, challenging suggestions that loss aversion is only an affective-forecasting error. By failing to account for loss aversion, longitudinal studies of the relationship between income and well-being may have overestimated the positive effect of income on well-being. Moreover, societal well-being might best be served by small and stable income increases, even if such stability impairs long-term income growth.

Link to paper

11.30am to 12.15pm 
Title: Price your Vice: The Action Dynamics of Delay Discounting in a Public Setting
Authors: Denis O'Hora, Maciej Dabrowski, David Crowley, Rachel Carey, Aoife Kervick, (NUI Galway)

Delay discounting, the tendency to discount rewards or losses that occur in the future, is a reliably observed characteristic of human behaviour and the degree to which an individual discounts future rewards and losses has been linked to many behavioural and health problems including smoking, over-eating and alcohol abuse. The current experiment was based in the RISK lab exhibition hosted by the Science Gallery at Trinity College Dublin.  Over 700 participants played a short computer game in which they chose first between amounts of euro and later between amounts of a chosen vice at various delays.  Participants completed the domain-specific risk-taking scale (DOSPERT) and provided demographic details to facilitate an investigation into whether or not degree of discounting predicted risky behaviour.  Participant movement during choice was also tracked to investigate whether conflict during initial decisions was sensitive to the discounted value of the delayed euro/vice reward.  Findings will be discussed in the context of dynamic models of decision making.

12.15pm - 1pm 
Title: How accurately can people resolve trade-offs? 
Authors: Pete Lunn and Marek Bohacek, (ESRI)

We develop and experimentally test an idealised model of how people judge trade-offs between two product attributes, where overall value is determined by their linear combination.  The experimental method employs the standard techniques of forced-choice psychophysics. Subjects value a hypothetical product (a golden egg) the value of which is objectively determined by a consistent formula, i.e. experimental subjects are effectively price-takers. Performance is measured for forced-choice comparisons between the product and a price, where subjects must decide which is worth more, and between two simultaneously presented products. The experiment requires subjects initially to judge the product based on a single dimension (e.g. larger size means higher value), then to judge the product based on a second dimension (e.g. finer texture means higher value), and finally to judge the product based on both dimensions simultaneously. The results reveal that product attributes are mapped onto prices imprecisely and, furthermore, that precision decreases sharply once a trade-off is involved. The accuracy of valuations further deteriorates with the size of the trade-off. Overall, our findings suggest capacity limits in the ability to make apparently simple trade-offs.

2pm - 2.45pm 
Title: Dimensional Limits in Multi-Attribute Valuations
Authors: Marek Bohacek and Pete Lunn, (ESRI)

How many attributes can decision-makers simultaneously combine into an overall assessment of value? This question is investigated using a novel experimental design that employs a hypothetical product (a golden egg) the value of which is objectively determined, i.e. experimental subjects are effectively price-takers. The product’s attributes consist of standard visual stimuli, such as size, texture, shape etc., where overall value is determined by a simple linear equation that assigns a weight to each attribute. The task is to learn to value these products over repeated forced-choice trials in which the subject compares a product against a price and must decide which is worth more. We measure performance as a function of the number of attributes that subjects must simultaneously consider. Experiment 1, which employs a representative sample of Dublin consumers (n=36), uses a within-subject design to show that the accuracy of valuations declines rapidly once value is determined by more than one attribute. The results show that it is the number of attributes that governs performance, rather than the nature of them. Experiment 2 then uses a between-subject design to examine whether a group of highly educated and financially literate individuals (n=24) can learn to value these multi-attribute products given exposure to one consistent task, with plenty of practice and feedback. The results confirm the difficulty of combining information across multiple dimensions and reveal that learning is modest. Overall, our findings suggest that there may be important cognitive limits to the ability to make multidimensional judgements of value.

2.45pm - 3.15pm 

Title: "Childhood self-control and unemployment over the lifespan"

Authors: Michael Daly, Liam Delaney, Mark Egan

Abstract: The capacity for self-control may underlie successful entry into the labor force and job retention, particularly in times of economic uncertainty. In an analysis of two large-scale, nationally representative cohort studies of British children (N = 16,676), we found that childhood self-control influenced the emergence and persistence of patterns of unemployment across four decades. A 1 SD increase in self-control reduced unemployment by a quarter or 1.5 percentage points and led to a substantial reduction in the lifetime duration of unemployment, after adjustment for intelligence and social class. Our analysis of monthly unemployment data from before and after the onset of the UK early 1980s recession showed that those with low childhood self-control suffered the greatest increases in unemployment during this period. Whilst the self-controlled avoid unemployment and are resilient to the labor market effects of recession, this group were found to suffer the largest aversive well-being effects from prolonged periods of unemployment. Our results uncover a critical role of self-control in shaping lifespan trajectories of occupational success and in determining how macroeconomic conditions shape population unemployment levels. Accordingly, we recommend a better integration of self-control into labor market activation programmes and a greater focus on self-control in research that aims to understand individual differences in responses to existing programmes.


3.30pm - 4.15pm 
Title: “Measuring Investment in Human Capital Formation: An Experimental Analysis of Early Life Outcomes”
Orla Doyle (University College Dublin)
Colm Harmon (University of Sydney and IZA)
James J. Heckman (University of Chicago, University College Dublin, NBER and IZA)
Caitriona Logue (University College Dublin)
Seong Hyeok Moon (University of Chicago)

The literature on skill formation and human capital development clearly demonstrates that early investment in children is an equitable and efficient policy with large returns in adulthood.  Yet little is known about the mechanisms involved in producing these long-term effects. This paper presents early evidence on the nature of skill formation based on an experimentally designed, five-year home visiting program in Ireland targeting disadvantaged families - Preparing for Life (PFL). We examine the impact of investment between utero to 18 months of age on a range of parental and child outcomes. Using the methodology of Heckman et al. (2010a), permutation testing methods and a stepdown procedure are applied to account for the small sample size and the increased likelihood of false discoveries when examining multiple outcomes. The results show that the program impact is concentrated on parental behaviors and the home environment, with little impact on child development at this early stage. This indicates that home visiting programs can be effective at offsetting deficits in parenting skills within a relatively short timeframe, yet continued investment may be required to observe direct effects on child development. While correcting for attrition bias leads to some changes in the precision of estimates, overall the results are quite similar.

Link to paper 

4.15pm - 5pm 
Title: The Person in Context: How the individual interacts with their socio-economic environment to determine behaviour and wellbeing
Alex M. Wood, (Behavioural Science Centre, Stirling Management School, University of Stirling)
Christopher J. Boyce, (Behavioural Science Centre, Stirling Management School, University of Stirling)
Gordon D. A. Brown, (Department of Psychology, University of Warwick)
Silvio Aldrovandi, (Department of Psychology, University of Warwick)
Michael Daly, (Behavioural Science Centre, Stirling Management School, University of Stirling)

This talk promotes better understanding of the socio-economic determinants of well-being and behaviour through studying how the person interacts with their environment. The programme presented aims to integrate behavioural science which focuses on the person (e.g., psychology) with the social sciences which focus on the structure of society (e.g., economics and management). First, defining "the person" through measurable individual differences, three prospective analyses of  over 6,000 people show that personality characteristics prior to major life events affect reaction and adaptation (e.g., conscientious people gain more happiness following increases in income, but lose greater well-being following unemployment, and more agreeable people recover well-being faster after the onset of disability). Second, defining "the person" through core characteristics that everyone share, evidence is presented from evolutionary biology and cognitive science showing that people have an inherent sensitivity to rank position within a hierarchy. This core rank sensitivity is then used to explain phenomena across economics, health policy, and marketing. The converging evidence shows (a) how people make judgments in each of these fields, (b) why apparent relative judgements effects such as anchoring occur, (c) why income is related to health and well-being, (d) how this research can be used in interventions to promote healthy behaviour. Taken together, the talk illustrates why it is important to incorporate a focus on how individual differences and core human characteristics interact with environment in both research and practice, and more broadly, why it is important to integrate the behavioural and social sciences.

Link to Professor Wood's webpage with many of the papers 

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