The biological basis of expected utility anomalies

Matsushita, Raul. Baldo, Dinora. Martin, Bruna & Da Silva, Sergio

URL: http://d.repec.org/n?u=RePEc:pra:mprapa:4520&r=cbe
We assess the biological basis of expected utility anomalies through an experiment of the Allais paradox. A questionnaire study of 120 subjects replicates the anomalies and further gathers information about the respondents’ bio-characteristics, such as gender, age, parenthood, handedness, second to fourth digit ratio, current emotional state, past negative experiences, and religiousness. We find that some of those bio-characteristics matter for the anomalies

McWilliams Sparks Off A Debate on Labour Market Mismatch

In a recent article, "A little less accountancy and a little more carpentry is what we all need", David McWilliams has sparked off a debate on occupational mismatch. McWilliams paints a very vivid picture of corporate drudgery, where expectations for exciting work are often unmet, and sometimes financial rewards also fall short of what people expect. "Thousands of our graduates leave university, many qualified to do nothing, and they find themselves in a corporate cul de sac. Rather than being independent, they are trapped, funnelled into institutions that immediately close off rather than expand their options".

This, of course, points to a problem that is fast being conceived of as "mismatch" in the economics literature i.e. students pursue a certain course of study for a number of years, then end up in a job where what they have studied is completely irrelevant to their occupation. I have thought about various angles on the problem, such as:

- Can financial satisfaction compensate for labour market mismatch?
- Is financial satisfaction less likely with labour market mismatch?
- Is it possible to avoid labour market mismatch?
- Do occupational preferences evolve over time?
- Do we need a much better career guidance system?

A series of comments on McWilliam's article are pasted below. This takes up a large amount of space, but the comments are so insightful, I thought people would appreciate getting to read them. Of course, interpretation of what the comments mean is subjective, but I definitely see a theme of regret amongst those individuals who have not pursued their occupational preference, whether they knew what their preference was at the start of their occupational pursuits or not. The themes running throughout these comments have really made me appreciate the importance of the research that I have planned - to evaluate occupational preferences and decision-making, as nothing can be more frustrating than a lifetime's regret.


"I come from PhD land, those idiots sucked in by the apparent kudos of being a Dr, except we are a fopish herd of vocational Dr’s ie we don’t get paid properly. Post Docs is this country pay just above the minimum wage, there are no pensions or benefits, yes you can work in industry (in America) but there are few opportunities in this country. My advice is simple, don’t invest your life capital in anything that the government recommends, run far away (very far) from anything those idiots suggest. I have solved my situation by moving away from ’science’ and into industry but not research; the PhD helped but is not worth loosing 4 yrs of your youth (unless you are rich and enjoy witless conversations)"


"I completely agree with Restless in what he said. The only reason for pursuing a post-graduate education is purely for the appreciation of knowledge, not for making a career. I spent 4 years earning my BSc in Physics and another 2 years earning my MSc in Medical Physics. When I graduated, there was pretty much only one company that could have provided me work relevant to my studies, they weren’t hiring though, so I ended up becoming a store manager at Aldi. Don’t get me wrong, I love the job; it’s challenging in it’s own right. I would dearly have loved to have pursued a career in my degree subject though".


"Great article David. I have a primary degree and two postgrad degrees (including a ’silver bullet’ MBA). I am pretty sure that somebody without a degree could do my job as well if not better. The effort it took to do the Leaving Cert and then an engineering degree was far in excess of anything I have been confronted with at work. I earn good money but I have zero satisfaction with what I do, I am already focusing everything on making sure that my children don’t end up like me. My view is that a university education should be about expanding your intellectual horizons so the American collegiate model is the way to go. How can a 16 or 17 year old possibly know that they really want to be a lawyer or an electronic engineer?"


"When I think back on many of the biggest decisions in my life, I feel now that there was always a huge burden of restraint which limited my choices, mostly unecessarily. Whether it be chosing a career, buying a house, or other. In that sense, our society is in real need of another “opening up”. We need a kind of human emancipation to liberate us from our self-imposed intellectual chains. (The German philosopher, Habermas, has written about this, but much of his writing is extremely obscure and I have never had the guts to take him on). This doesn’t mean tear down society in some form of revolution. Merely retrain people to think for themselves. And camaign for a more open minded approach. We hear so much about flexibility these days, but always in a very narrow economic sense. Real flexility would be truly liberating".


"Good point. I filled in my CAO form in Jan 1991. I was 17. I chose my preferred course and therefore career - engineering. Not only did I know very little about what life as an engineer really entailed, but I didn’t come close to realising that my choice would one of the most significant I would take for the rest of my life. If I had had three extra years, or possibly even two, I would have made an entirely different choice. I attended a small school which at the time had practically no career guidance. But even if there had been such guidance, it is doubtful if I could have fully comprehended its significance at that age... Those who are in careers that are well chosen after mature reflection are going to prosper. Their productivity will be much higher. Their level of innovation will be higher, and so on. Socially too, this must have consequences. If people are more fulfilled (and probably richer!) there will be a knock on effect. I wonder if any sociologist has ever studied this".


To conclude, I don't think a sociologist has studied this topic. Some economists have begun the task. This one is going to get to devote a PhD to it.

Warriors against Rational Choice - Part IV

Actually, no better time to celebrate one of our economics anti-heroes. An economic model that explained this type of behaviour would be interesting

http://www.rte.ie/news/2007/0829/devinep.html

the new economic psychiatry

if psychiatry is really dead then perhaps it will be economics not psychology that will replace it. Not likely, but Bryan Caplan's paper below is still well worth a read (thanks Sarah). in general, there has been a decent literature in the last few years examining the political and economic preferences of those who have been diagnosed with mental illnesses. it is interesting that even economists like Friedman were willing to concede that some classes of mental diagnoses required paternalistic involvement with the persons life. this is the first full economic statement that ive read saying that mental illness is simply an expression of preferences. as i said a fascinating article, but i cant see the APA rewriting the DSM with this in mind. although, it would be a fun task.

http://rss.sagepub.com/cgi/content/abstract/18/3/333

When the need to belong goes wrong

Baumeister has discussed in detail the need to belong and how it compels people to seek out social encounters in order to improve their well-being. Having disturbed social needs or a desire for connectedness is often associated with negative affect and poor functioning (experimental studies have examined causation here). The authors of this study focus on two disruptions of the need to belong: social anxiety where people feel the need to belong but are impeded due to fears of rejection or embarrassment, and social anhedonia where people are disinterested, withdrawn, and demonstrate little desire to belong.

They use the Experience Sampling Method ("repeatedly assesses subjects in their normal daily environment, thereby enhancing ecological validity; assesses subjects’ experiences in the moment, thereby minimizing retrospective bias; allows for an examination of the context of experiences; and allows the use of sophisticated multilevel analyses.") to show that people higher in social anxiety are more likely to experience negative affect even though they want social contact. They are comfortable with a certain trusted group of friends and interaction with those outside this group is characterised by anxiety and a desire to withdraw to be alone. Those characterised by social anhedonia on the other hand did not fear rejection and had a preference for being alone due to their global deficits in interest and affect.

It would be worthwhile to track the prevalence of social anhedonia in particular in the general population. It is traditionally associated with schizophrenia and schizotypal personality but may be widespread in the normal population due to the ease of choice of an isolated pattern of living. Whilst it is not associated with increased negative affect it does mean diminished positive affect in everyday life. Recent use of the Day Reconstruction Method has pointed to the finding that the vast majority of people present as being more or less happy whereas most unhappiness is due to 10% of the population. This has lead to arguments such as those put forward by Avner Offer, to focus on removing ill-being rather than improving well-being which becomes resistant to change beyond a certain income level.

However, it is important also to consider the emotionally destitute who are neither distressed or excited by life but flat-lining towards poorer and poorer involvement and functioning. Society has failed to inspire these people into the generation of value and meaning. There are theories which point to habituation, or a low reward value on interaction. Perhaps this is basic learning and the opportunities for reliable, consistent social interaction and the associated rewards are declining due to parental working hours, divorce, and are being surpassed and replaced by other more dependable forms of reward.

On the Expression of Social Anhedonia and Social Anxiety in
Daily Life

Comtemporary Ethical Issues in Psychology

This article reviews the new ethical challenges facing the profession of psychology. In particular the article focuses on 'telepsychology' which is not watching Pamela Connolly on a Friday night but an emerging response to facilitate societal need through technological changes. The author points to the importance of discussing services, agreeing a therapeutic contract, and ensuring measures for consent and confidentiality. The later is interesting in that the increasing use of electronic media endangers client privacy. Carnivore an FBI e-mail screening system is mentioned as is the slightly more disturbing case of Theresa Squillacote. The FBI Behaviour Analysis Program team prepared a document to use in the investigation of Theresa for espionage based on analysis of monitored phone conversations between her and her psychotherapist. This case points to the possibility of monitoring of any electronic communication.

What drew my attention to this article is the section entitled "Witnessing the Demise of Psychiatry". I've heard tell of mud slinging between psychologists and psychiatrists but this is quite surprising:

"The specialty of psychiatry has long stood at the lowest
rung of the medical hierarchy ladder in terms of both
scientific prestige, professional recognition, and institutional
authority within medical institutions. Recent developments
in psychiatric practice have accelerated a decline
in the profession, and psychologists should take note of the
key contributory factors and learn."

The main reasons for the proposed decline are that physicians are ever increasingly prescribing psychotropic medication and the author also points to the drawbacks of largely on the job training in comparison to psychologists training in the methods of behavioural science. Having taken some nice stabs at psychiatrists the author takes one at physicians in general warning of the terrible dangers of "self-medication hazards". So psychologists are recommended to avoid the "slippery slope of pharmaceutical company seductions". Personally, I've been trying hard to do this but sometimes it's just not worth it..

He does make a good point in locating future success in "translating behavioral science into valuable applications to advance human health and welfare" though this could be anything. Overall, it's interesting to see the ways in which psychologists such as the author at the highest level still define psychology in terms of what it is not (those guys reaching permanently reaching for their prescription pads) and also that schadenfreude is alive and well!


Twenty-First Century Ethical Issues for Psychology

The Dark Art of Econometrics

This is an interesting article from this week's Sydney Morning Herald on the age-old debate about the conflcit between commercial incentive and scientific reporting: "Does anyone believe it's possible to buy an independent (econometric) report? That Mr Murphy would in no way have moulded his findings to what he knew his paying customers were looking for?"

There's also an interesting opening salvo in the article: "I doubt if the economics profession has ever worried much about ethics - its own or anyone else's - but perhaps it should. A profession with no disapprobation of dubious conduct is asking to have its reputation trashed".

This journalist has obviously failed to talk to economists doing primary research in university departments and research institutes!

I found the article on the Economists' View Blog - this seems like quite an energetic blog, with several posts a day.

The Great Slowdown in the American Education System

I recently discovered a paper by David Card and Thomas Lemieux (NBER, 2000): Dropout and Enrollment Trends in the Post-War Period: What Went Wrong in the 1970s?

Apparently, enrolmant rates in US higher education courses plumetted throughout the 1970's. The authors say that "for women, our results suggest that the slowdown in education in the 1970s was a temporary response to large cohort sizes and low returns to education. For men, however, the decline in enrollment rates in the 1970s and slow recovery in the 1980s point to a permanent shift in the inter-cohort trend in educational attainment that will affect U.S. economic growth and trends in inequality for many decades to come".

I find this quite fascinating, and it is the start of what I hope will be a better understanding of the American education system, to be developed over the coming years.

Mismatch Between Future Drivers of the Irish Economy and Subject Choices

I've touched on this before on the blog, but its interesting to hear Matt Moran, director of IBEC's Pharmaceutical Ireland, warning of a 'clear mismatch' between economic policy encouraging the growth of key sectors such as pharmaceuticals, medical devices, biotechnology and information technology, and fewer young people leaving school with the requisite skills and interest.

He said growth in the high-tech information technology sector was contingent upon top quality numerate school-leavers going on to take science and engineering at third level.

"The IDA has predicted that biotechnology will prove to be the next big driver of Ireland's knowledge-based economy, and this is reflected in the government's stated goal of establishing Ireland as a centre of excellence in the area.

"Virtually no quality career will be available in the high tech sectors without a high-level knowledge of science."

Its interesting to think about what way the dynamic should work between aggregated occupational choices and industriual policy. Obviously biotech, pharma and ICT are global growth opportunities, so Ireland should focus on reaping them.

However, in an analysis of Leaving Cert subject choice at an earlier date on this blog, I emphasised the numbers of Leaving Cert students taking biology and geography, and for this reason suggested that Ireland's industrial policy should be primarily geared towards biotechnology, geographic information systems, and other related information technology. This would seem to be a meeting-ground between aggregated occupational choices and industrial policy.

See the story in the Irish Independent with Matt Moran's comment here.

Irish Council For Bio-Ethics

worth reading through these guidelines on the storage of tissue collected for research

http://www.bioethics.ie/pdfs/BioEthics_fin.pdf

Assessment of biological function in psychosocial research on health

In this chapter entitled "Tools of psychosocial biology in health care research" Andrew Steptoe outlines the main types biological measurements which should be included in psychosocial research on health. The review points to the importance of "non-specific biological markers of stress-related activation or resistance to disease". Biological measures which fall into this category include: (1) neuroendocrine factors such as cortisol, the steroid hormones DHEA and DHEA sulphate, the catechlomines adrenaline and noradrenaline, and insulin-like growth factor and gonadal hormones such as testosterone and oestrogen, (2) cardiovascular measures such as blood pressure (author recommends self-measurement as a more cost-effective alternative to ambulatory monitoring systems), and measures of heart rate variability, (3) measures of inflammation such as C-reactive protein, fibrinogen and the proinflammatory cytokines IL-6 and tumour necrosis factor a (TNFα), (4) measures of immune function such as T cells, cytotoxic T cells, B cells, natural killer cells can be made via blood or saliva sample, (5) musculoskeletal problems which can be assessed via self-report, physical examination, or through surface electromyography (EMG). Sweat gland activity and forced respiratory volume are also discussed in brief. Steptoe also suggests that combining biological measures with mental stress testing and naturalistic monitoring is a useful advance in evaluating the extent to which individual differences in acute stress reactivity generalize to everyday life situations.

see also Psychobiological Processes: Pathways Linking Social Factors with Disease a presentation by Steptoe which includes a model of where brain, neuroendocrine, autonomic and immune responses fit into the relationships between social structure various other factors (work, social environment, genes, health behaviours) and well-being.

The built environment and collective efficacy: Environmental determinants or correlates?

A new study by Cohen, Iganami, & Finch (In press) has found that having more parks and less off-licences leads to a greater sense of social cohesion and more informal social control. The later two concepts together form “collective efficacy”. The authors discuss how collective efficacy is frequently considered a “cause”, but they have hypothesized "that environmental features might be the foundation for or the etiology of personal reports of neighborhood collective efficacy, independent of the composition of the people who lived in the neighborhoods and their concomitant socio-demographic characteristics".

However, to what extent are such built environment variables causal? Longitudinal data is needed to answer this. Even still it is possible that demand for alcohol or even for parks may be driving the built environment- collective efficacy relationship... It is not surprising that number of alcohol outlets dropped out as a predictor when disadvantage was including in the analysis. I would like to have a seen a breakdown of the parks-collective efficacy relationship into the social cohesion and informal social control items.

I would guess that less pesky youths loitering on the street are producing the park-collective efficacy relationship. Loitering or "groups of three or more adults not waiting for scheduled activities or businesses" is the most frequently cited problem in regard to social disorder (Samson & Raudenbush, 1999). Less loitering (with intent) means less frequency of disrespect, graffiti, and by definition hanging out which may mean that such a rare event would provoke a response of informal social control thus the high endorsement. Whereas if you're habituated to these conditions you are less likely to intervene. So it is important to also assess perceived social norms for loitering and social disorder in order to determine the real likelihood of intervention, more room for anchoring vignettes here. The evidence points to perceptions of government responsiveness and neighbourhood attachment and social ties as key determinants of informal social control. It's possible that any loitering filters such as internet shops, video game halls, community centres, could improve collective efficacy. Alternatively, there may be something distinct about the broad demographic range of usage of parks that acts to engender civility. Perhaps informal social control is supported by a space of mutual ownership where others are likely to support an intervention and thus the park acts as a nursery for the formation of neighbourhood power relations.

Read Cohen et al (In press)

Neuroeconomics and Ageing

The U.S. National Institute for Ageing seem quite interested in neuroeconomics and are offering grants for research in the area.

Some documents from their site:

Neuroeconomics and Ageing: Directions for research- Commentry by Camerer, Loewenstein, Slovic, Cacioppo...

Neuroeconomics workshop- commentry from leading academics

early start to econometrics

the following 3-page paper is required reading

http://academic.reed.edu/economics/course_pages/354_s06/Siegfried_JPE_70.pdf

What is excessive drinking?

Another quote from the Ferriter book comes from Kevin O'Higgins in the Dail in the 1920's and is relevant to our excessive drinking paper. Here he answers the question of what is excessive drinking. Linked below is the modern students answer.


"That of course is a question of angles. What is excessive drinking? I do not take it that excessive drinking means that you fall over a man every five yards on your way home. If we are drinking beyond our resources there is excessive drinking. 17.5 million was spent across the counter on drink in the financial yeat 1925-6. Is that excessive drinking? Some people would say no. Some people would say very differently. At any rate I object to the criterion that drunkenness and drunkenness alone is to be the test of whether or not there is excessive drinking"

http://geary.ucd.ie/images/Publications/WorkingPapers/GearyWp200712.pdf

Pioneering Behavioural Intervention from 1940s Ireland

Just read a remarkable passage from diarmuid ferriters book on the pioneers. The chaplain to collins barracks in dublin in the forties suggested "that the button which closes a soldier's breast pocket have the pioneer emblem imprinted on it, so that the soldier must cut it out if he wishes to drink" -

Those of you familiar with the recent literature on "opt-in" behavioural interventions will appreciate this. behavioural economics, irish style. Truly a pioneering intervention.

Interview with Avner Offer

Avner Offer suggests that rising incomes do not make us happier as we have a difficult time postponing gratification. This is one of numerous interesting ideas which Offer proposes in his book 'The Challenge of Affluence' which he gives a nice overview of in this interview.

the 17th century nightime economy

"The Irish aquavitae, vulgarly called usquebag... refresh the weake stomacke with moderate heate and a good relish... both men and women use excesse therin ... not to speake of the wives of the Irish Lords or to refere to it the due place, who often drink till they be drunken, or at least till they voide urine in full assemblies of men. I cannot (though unwilling) but note the Irish women more specifically with this fault which i have observed in no other part to be a womans vice, but only in Bohemia"

Fynes Morrison, early 17th century travellor, in Ferriter (1999)

Feeling the squeeze? Subliminal incentives and their effects on effortful performance on a grip-strength task

The use of incentives can improve performance in almost any domain. Even performance on intelligence tests can improve by a full standard deviation amongst those with low IQ through rewarding performance. However, new research suggests that we need not even be aware of such motivating factors for them to have an effect on behaviour. Pessiglione et al (2007) show that people will exert greater force on a hand-grip to earn a pound rather than to earn a penny when the amount they will be receiving is presented subliminally for 20ms prior to exertion. Participants did not know which coin they had been presented with but behaved as if they were exerting more force in order to receive the larger amount. The authors also identified a specific brain area, the pallidum "as a key node in brain circuitry that enables expected rewards to energize behavior, without the need for the subjects`awareness". This finding ties in well with a previous post on the blog discussing the psychological consequences of being primed with money in terms of inducing people to distance themselves from others. It seems that money can successfully increase motivation at a subconscious level but that its action on fundamental reward circuitry may reduce interpersonal focus. A study which combined subliminal presentation of varying amounts of money with subsequent evaluation of individual performance and spontaneous group interaction would help support this contention.

Temporal Self-regulation Theory and Health Psychology Review

The Theory of Planned Behaviour which posits that beliefs and attitude valence and the approval of others determine intentions which in turn determine behaviour is good for explaining the fairly obvious. So we can explain why it is people intend to do what they do which is of course very useful. However, being able to construct knowledge which explains why people engage in 'maladaptive' behaviour that they do not intend to engage in and to understand fluctuating intentions and their relation to circumstance is more impressive. Time preference and self-regulation theory are relevant to both behavioural economics and health behaviour and combining key insights from both would be an excellent advance. This is exactly what Hall and Fong (2007) have done in their article entitled "Temporal self-regulation theory: A model for individual health behaviour".

Health Psychology Review is a new biannual journal as of this year and one to look out for. The other two articles in March's version are also worth a read: Health benefits: Meta-analytically determining the impact of well-being on objective health outcomes and Health and goal-directed behavior: The nonconscious regulation and motivation of goals and their pursuit.

"Obese people are often simply greedy" - head of the British Medical Association

Obese people are often simply greedy and should not always be treated with pills, the head of the British Medical Association said last week.

Dr Hamish Meldrum believes an obsession with medical labels may be stopping overweight people addressing their own problems.

He said the obesity epidemic is being mistakenly targeted with medical treatments and doctors' appointments.

See more on this story here.

Is the above statement a discriminatory attack on people suffering from obesity? Are obesity problems better expalined by the absence of self-control, or even biological factors? Michael easily knows most about the research in this area, so he might have some comments.

In relation to the self-control perspective, a new IZA paper, Limited Self-Control, Obesity and the Loss of Happiness, proposes that "the economics of happiness" is an approach that can be used to study the phenomenon. The authors say that "based on proxy measures for experienced utility, it is possible to directly address whether certain observed behavior is suboptimal and therefore reduces a person's well-being. It is found that obesity decreases the well-being of individuals who report limited self-control, but not otherwise".

This approach, of using proxies for experienced utility, is similar to that undertaken by Jonathan Gruber and Sendhil Mullainathan (NBER, 2002): "Do Cigarette Taxes Make Smokers Happier?" In this paper, the authors match information on cigarette excise taxation to separate surveys from the U.S. and Canada that contain data on self-reported happiness. They "find consistent evidence in both countries that excise taxes make predicted smokers happier" with the explanation that... "smokers are made better off by taxes, as they provide a valuable self-control device".

The comparison of these two papers (IZA 07 and NBER 02) opens up a debate as to whether excise taxies can be used as a proxy for self-control. To be fully semantic, excise taxes should not necessarily enhance self-control, but should simply restrict individual freedom. The self-control problem could very well still be there except that it can't be acted upon due to financial constraints. Sometimes constrained self-control problems are acted upon e.g. thieving by addicts to feed narcotics habits.

Getting back to obesity and self-control, and focusing just on the diet perspective, the "Food Dudes" programme aims to instil healthy eating habits in children at a young age; could this be perceived as a preventitive measure against self-control problems (related to diet behaviour) that are driven by unhealthy eating habits at an early age? Is it the "habit" of eating unhealthily that makes self-control progressively harder to achieve?

According to an article in last week's New Scientist (see here), the Food Dudes programme attempts to convince children to try fruit and vegetables again and again until they actually begin to like the taste. "If you eat a food repeatedly for 10 to 15 times, you learn to like it," says Fergus Lowe (who co-developed the Food Dudes programme at the University of Wales, Bangor). "It educates and habituates the taste buds, but you need to repeatedly eat the food for this to happen."

The New Scientist article also mentions the pioneering evaluation of the Food Dudes programme carried out by the Geary Institute last year: "So could the Food Dudes be the answer? The government of the Republic of Ireland is already sold on the idea. It was so impressed by results from an ongoing pilot trial of the programme in 150 Irish primary schools that in February it decided to end the trial prematurely after two years and launch it nationwide to all children aged 4 to 11. The full roll-out will begin in September. Trials are also under way in the UK and Italy, while California and Canada are preparing for pilot trials too".

Psychology podcasts

Some interesting & quirky podcasts of interviews about psychology from shrinkrapradio.com

really useful site for multilevel models

another one for the people in the group considering econometrics as a livelihood. A nice topic for one of the econometrics group sessions
http://www.gllamm.org/

Occupational Choice and the Spirit of Capitalism

This new IZA paper (Matthias Doepke, Fabrizio Zilibotti) offers a fresh perspective on the role of occupational choice in socio-economic classification. (Ken, I think you might be interested).

With a historical backdrop running along the lines that "the British Industrial Revolution triggered a reversal in the social order whereby the landed elite was replaced by industrial capitalists rising from the middle classes as the economically dominant group", the authors note the suggestion of values such as thriftiness and a strong work ethic among the middle class, while the upper class develop a disdain for work. (Veblen's 'Theory of the Leisure Class' springs to mind).

Again, Ken may have some comments to make here, I was thinking of something along the lines of how do we differentiate between values, attitudes and beliefs? I could put a lot of value on the principle of working hard, I could have a positive attitude towards hard work or I could believe that working hard is important. Do all of these things amount to the same result? Is delving deeper into possible differences just nitpicking over semantics?

The authors of the paper propose an economic theory of preference formation in which both "the divergence of attitudes across social classes and the ensuing reversal of economic fortunes are equilibrium outcomes. In our theory, parents shape their children’s preferences in response to economic incentives. If financial markets are imperfect, this results in the stratification of society along occupational lines. Middle-class families in occupations that require effort, skill, and experience develop patience and work ethic, whereas upper-class families relying on rental income cultivate a refined taste for leisure".

I am quite interested in how preferences for occupational choice emerge; indeed it is something I have been talking about a fair bit. So I would be keen to invite these authors over to get a historical perspective on the issue. There are also strong implications for how occupational choice may reveal am individual's preferred trade-off between labour and leisure, which is something that I hadn't considered before. The decision-making process about choosing an occupation is probably more complex, involving multiple trade-offs between (a) desired financial returns
(b) desired staisfaction on the job and (c) desired leisure time.

genes and environment

a fascinating discussion of the relationship between genes, environment and outcomes from Richard Lewontin


http://video.google.com/videoplay?docid=7320126698292379909

What Motivates Students in the USA To Choose Their Majors?

This is a fascinating question, that Freeman and Hirsch examine in a new IZA paper: "College Majors and the Knowledge Content of Jobs".

According to the authors, college students select their majors for a variety of reasons, including expected returns in the labor market. "Students’ choices of major and fields of study have varied considerably over time. Much of the prior work by economists on college majors has attempted to identify the returns on alternative choices. Such work is typically based on micro data sets containing both an individual’s current earnings and previous college major". This aspect of career decision-making will interest several researchers in the Higher Education Centre at the Geary Institute.

The authors use novel empirical methods that links a census of U.S. degrees and fields of study with measures of the knowledge content of jobs. The study combines individual wage and employment data from the Current Population Survey (CPS) with ratings on 27 knowledge content areas from the Occupational Information Network (O*NET), thus providing measures of the economy-wide knowledge content of jobs.

The Occupational Information Network (O*NET) is a relatively new government database providing hundreds of job descriptors on highly detailed occupations. A subset of O*NET descriptors (27 are used in the authors' analysis) include content areas
for which knowledge is required on the job, everything from philosophy and religion to physics to economics, finance, and accounting.

Fields of study and the corresponding BA degree data from the Digest of Education Statistics for 1976-77 through 2001-02 are linked to these 27 content areas. The authors find that "the choice of college major is responsive to changes in the knowledge composition of jobs and, more problematically, the wage returns to types of knowledge".

Further development of this area could help us to how understand how much efficiency exists in the markets for labour and education. If choice of college major is responsive to changes in the knowledge composition of jobs and the expected returns to education, then individuals must be choosing to invest in education based on the job that they want and the level of wages that they desire.

Of course, this is a massive generalisation, as some people pursue higher education for "consumption" reasons, while others do not make any firm decisions about occupational choice until they reach a point of absolute necessity to do so i.e upon leaving higher education. One potential inisght is that there may be sub-optimality in any procrastination related to occupational choice. If a decision about career trajectory will be forced upon entry to the labour market, surely it is better for those who might procrastinate to consider this decision fully upon entry to the market for higher education?

New Heckman Paper Examines the Unobserved Components of Thresholds in Ordered Choice Models

A new paper by Cunha, Heckman and Navarro examines the unobserved components of thresholds in ordered choice models.

They extend the ordered discrete choice model to "allow for thresholds that depend on observables and unobservables to jointly analyze discrete choices and associated choice outcomes and to accommodate uncertainty at the agent level".According to the authors, the defning feature of the classical ordered choice model is that choices are generated by ordered sections of the support of a scalar latent continuous random variable (e.g. durations or hours of work).

"In a number of contexts, it is plausible that the cutoff values differ among persons depending on variables that cannot be observed by the econometrician". The issue of hereogeneity in cutoff points is also being considered by researchers at the Geary Institute, but the approach being taken is somewhat different.

Cunha et al develop conditions for nonparametric identification of ordered choice models with stochastic thresholds. Researchers at the Geary Institute are using "anchoring vignettes" to re-weight the thresholds in ordered models of multiple response categories (in the context of self-reported status). Cunha et al do not examine self-reported sttaus in any of their applications, so it would be interesting to see how their approach compares to the use of anchoring vignettes in an application involving self-reported status.

Understanding the Odds Could Make Behaviour More Even

Dr Patrick Murphy, from the school of mathematical sciences in UCD had an article in the Irish Times last week "Greater chance of being hit by lightning than winning jackpot". Yiu can read it in full in the first comment attached to this post.

According to Murphy, the odds of winning the Lotto jackpot have increased from one in two million in 1988 to one in eight million today. Murphy tells how when the National Lottery began its Lotto game (known as 6-36) there were only 36 numbers in the game of which players chose 6 numbers. In 1992, the game changed from 6-36 to 6-39, and soon after in 1994 the game changed again to 6-42. Then more recently 6-45.

What have been the consequences of these changes to the game? Under the 6-36 game the probability of winning the jackpot on each play stood at 1 in 1,947,792. With the introduction of each successive new set of three numbers the probability of winning the jackpot decreased: first to 1 in 3,262,623, then 1 in 5,245,786 and presently (6-45) it stands at 1 in 8,145,060.

An interesting angle posed by Murphy is that "by reducing the chances of winning the National Lottery were themselves taking a gamble. Would players see the reduction in their chances of winning as a reason to stop playing?"

He says that "The company figured that people would not be so aware of the reduced probability of winning. Instead more people would be drawn to play by virtue of the larger jackpots that would inevitably follow... ". In behavioural economics, this mass psychological motivation could be explained using concepts such as probability neglect, the focusing illusion, risk perception and prospect theory.

Other issues such as an individual's ability to understand and appreciate probability are also important. It might be semantic, but this might be a better explnation of events than the theory of "probability neglect". Murphys says: "It is my opinion that the real reason people play the lottery is that most people just do not understand what a probability of 1 in 8 million means. Yes, we all can see that there is a small chance of winning, but just how small is it really?"