I have already posted a short "microeconometric resources" post. This post links to Stata training available mostly either online or in Europe. Suggestions most welcome.
1. STATA net courses are worth looking at. They progress from beginner level to advanced programming.
2. The UCLA STATA website is justly widely used as a resource for many students. It contains many helpful online tutorials across the range of Stata functions. The Princeton site is also useful.
3. The menu of courses offered by Stata distributor Timberlake is well worth consulting.
4. Cameron and Trivedi's "Microeconometrics using Stata" is an applied companion to their widely used textbook. It contains a wealth of information about how to compute the main microeconometric models using Stataand interpret the coefficients.
5. STATA Press contains many publications on Stata and econometrics.
6. The STATA mailing list is well worth consulting. There is also a Stata journal mostly aimed at very advanced researchers.
7. Baum's "An introduction to modern econometrics using Stata" is a very good introduction.
8. Here is a list of video resources for learning Stata
9. This list of PPTs from Stata meetings around the world contains many outstanding materials
Monday, February 25, 2013
Workshops and Seminars at the Behavioural Science Center
Posted by
Liam Delaney
Workshops
and Seminars at the Behavioural Science Center
A prominent feature of the activities of the center
is the organisation of regular workshops where research from internal and
external faculty members as well as PhD students is presented. These workshops
take place in Stirling University and we welcome participation from staff and
students in Stirling as well as from other universities. Below are details of the four workshops we have held to date.
Fourth
Behavioural Science Center Workshop: February 22nd 2013
The fourth in our Stirling series of workshops on
Economics, Psychology and Policy takes February 22nd in the Stirling Cottrell
Building. The workshop was attended by researchers from Stirling University,
Aberdeen University, Max Plank Institute Jena and University of Leeds. A range
of talks from PhD students, Stirling faculty and external faculty were presented
across the day. The themes of the workshop included financial decision-making,
higher education, time preferences and environmental economics. The new MSc
programme in Behavioural Science was also outlined by course director Michael Daly.
Programme:
9.30 am - 10.00 am: Bernardo Nunes (Stirling) "Pension Autoenrolment"
10.00 am - 10.30 am: Jovan Vojnovic (Stirling) "Time Preferences and Socioeconomic Status".
Coffee
11.00 am - 11.40 am: Martin Ryan (DIT) "Behavioural Economics and Higher Education"
11.40 am - 12.20 pm: Michael Daly (Stirling) "Overview of new MSc in Behavioural Science"
12.20 pm - 1.00 pm: Georgios Panos (Stirling) "Financial Literacy and Retirement Planning"
Lunch
2.00 pm - 2.40 pm: Christopher Boyce (Stirling). "Loss Aversion and well-being: Does a loss in income have a greater effect on life satisfaction than an equivalent income gain?"
2.40 pm - 3.20 pm: Frans De Vries (Stirling) "The Agglomeration Bonus and Spatial Coordination Failure on Local Networks: Implications for Ecosystem Services Delivery"
Coffee
3.40 pm - 4.20 pm Leonhard Lades (Jena) "Impulsive consumption and reflexive thought: Nudging ethical consumer behavior"
4.20 pm - 5.00 pm: Rob Ranyard (Bolton) "Personal borrowing and repayment decisions: Mental accounting, future orientation and anchoring effects"
2.00 pm - 2.40 pm: Christopher Boyce (Stirling). "Loss Aversion and well-being: Does a loss in income have a greater effect on life satisfaction than an equivalent income gain?"
2.40 pm - 3.20 pm: Frans De Vries (Stirling) "The Agglomeration Bonus and Spatial Coordination Failure on Local Networks: Implications for Ecosystem Services Delivery"
Coffee
3.40 pm - 4.20 pm Leonhard Lades (Jena) "Impulsive consumption and reflexive thought: Nudging ethical consumer behavior"
4.20 pm - 5.00 pm: Rob Ranyard (Bolton) "Personal borrowing and repayment decisions: Mental accounting, future orientation and anchoring effects"
Third
Behavioural Science Center Workshop: October 26th 2012
The third in our series of workshops on Economics, Psychology and Policy took place from 9am to 5pm on October 26th in the Stirling Cottrell Building. The workshop brought together researchers working on a range of exciting topics spanning disciplines including economics, psychology, and mathematics. The aims of the new Behavioural Science Center were presented to faculty from across the university.
Schedule:
9.00am -9.30am: Liam Delaney (Stirling) "Measurement-Induced
Behavioural Change"
9.30am - 10.15pm: Mirko Moro (Stirling). "Behavioural Economics,
Labelling and Energy Decisions"
10.15am - 10.45am: Marie Briguglio (Stirling and Malta). "Voluntary
waste separation: policies, politics and promotion."
10.45am - 11am: Coffee
11am - 11.45am: David Comerford (Stirling): "Polls apart: The
Consumer Sentiment Index looks very different when perceived change is measured
indirectly"
11.45am - 12.30pm: Michael Daly (Stirling); "Understanding the
interrelations between self-control, education, and health behaviour"
12.30pm- 2pm: Lunch
2.00pm - 2.30pm: Launch of Research Center
2.30pm - 3.15pm: Gary Lewis (Stirling) "Origins of social preferences: Insights from behavior genetics and neuroimaging"
3.15pm - 4pm: Alex Wood (Manchester). "Concern for social rank: An
integrative account of money, happiness, anchoring, and purchase behaviour?"
4pm: Keynote Speaker: Professor Stephen Lea (University of Exeter).
Second
Behavioural Science Center Workshop: June 15th 2012
The second in our series of workshops on Economics,
Psychology and Policy took place from 9am to 5pm on June 15th in the Stirling
Cottrell Building. The workshop brought together researchers working on a range
of exciting topics spanning disciplines including economics, psychology, and
mathematics.
Schedule
9.00 Clare Delargy (University College Dublin)
"Gender and SES differences in earnings expectations: survey and field
experiment evidence".
9.30 Professor Nick Hanley (University of Stirling)
"Information effects in random utility models"
10.00 Dr. David Comerford (Duke University)
"Cigarette substitutes or Nicotine Replacement Therapies? Implications for
public health"
10.30 BREAK
10.40 Eimear Crowe (University College Dublin and
St. Vincent's Hospital, Dublin) "Examining social interaction effects on
mood using Day Reconstruction"
11.10 Dr. Alberto Montagnoli & Dr. Mirko Moro
(University of Stirling). "Mood and Decision Making"
11.40 Professor Roger Sugden & Malida Mooken
(University of Stirling) "Capabilities approach to academia"
12.10 LUNCH
13.10 Dr. Adam Kleczkowski & Dr. Savi Maharak
(University of Stirling) "Controlling epidemic spread by responding to
risk: Do it well or not at all"
13.40 Dr. Aniko Biro (University of Edinburgh)
"An analysis of mammography decisions"
14.20 Dr. Michael Daly (University of Aberdeen)
"Self-control, smoking and policy effectiveness".
14.50 BREAK
15.00 Dr. Georgios Panos (University of Stirling).
"Risk tolerance and entrepreneurship"
15.30 Professor Liam Delaney (University of
Stirling) "The scarring effect of unemployment on psychological distress
17 years later: estimates controlling for pre-unemployment distress and
childhood psychological factors"
16.00 Dr. Pete Lunn (The Economic and Social
Research Institute, Dublin) "A Good Deal on My Mind: Experiments on
Willingness to Exchange”
17.00 END
First
Behavioural Science Center Workshop: April 20th 2012
On April 20th, Stirling hosted a SIRE Workshop on
Value, Well-Being and Decisions. The workshop brought together researchers at
different career stages to discuss work in this growing cross-disciplinary
area. There will be a strong emphasis on discussing potential future
collaborative research in this area, and also a particular emphasis on the
interplay between well-being research and research on the behavioural economics
of time discounting. Scottish-based PhD students in SIRE institutions are
eligible to receive their travel expenses. The venue was the management center
in Stirling University.
9am - 9.30am: Coffee and Introductions
9.30 - 10.15: Liam Delaney (Stirling) "Stress
and Financial Decision-Making"
10.30 - 11.15: Marjon Van Pol (Aberdeen):
"Socioeconomic Status, Time Preferences and Health"
11.15 - 12.00: Marie Briguglio (Stirling and
Malta): "Determinants of Recycling Behaviour".
Lunch and break-out session
2pm - 2.45: Matt Dickson (UCD): "Education,
Preferences and Well-Being"
3pm - 3.45: Mirko Moro (Stirling):
"Environment and Well-Being".
3.45: Panel Discussion on Future Directions in
Well-Being and Decision Research
Sunday, February 24, 2013
Nudges.gov: Behavioral Economics and Regulation
Posted by
Liam Delaney
Nudges.gov: Behavioral Economics and Regulation
Cass R. Sunstein
Harvard Law School
February 16, 2013
Forthcoming, Oxford Handbook of Behavioral Economics and the Law (Eyal Zamir and Doron Teichman eds.)
Abstract:
Behavioral economics is influencing regulatory initiatives in many nations, including the United States and the United Kingdom. The role of behavioral economics is likely to increase in the next generation, especially in light of the growing interest in low-cost, choice-preserving regulatory tools. Choice architecture -- including default rules, simplification, norms, and disclosure -- can affect outcomes even if material incentives are not involved. For example, default rules can have an even larger effect than significant economic incentives. Behavioral economics has helped to inform recent and emerging reforms in areas that include savings, finance, distracted driving, energy, climate change, obesity, education, poverty, health, and the environment.
Number of Pages in PDF File: 46
Keywords: behavioral economics, nudge, regulation, energy efficiency
JEL Classification: D003, D10, D11, D18, D60, D80, K0, K2
Cass R. Sunstein
Harvard Law School
February 16, 2013
Forthcoming, Oxford Handbook of Behavioral Economics and the Law (Eyal Zamir and Doron Teichman eds.)
Abstract:
Behavioral economics is influencing regulatory initiatives in many nations, including the United States and the United Kingdom. The role of behavioral economics is likely to increase in the next generation, especially in light of the growing interest in low-cost, choice-preserving regulatory tools. Choice architecture -- including default rules, simplification, norms, and disclosure -- can affect outcomes even if material incentives are not involved. For example, default rules can have an even larger effect than significant economic incentives. Behavioral economics has helped to inform recent and emerging reforms in areas that include savings, finance, distracted driving, energy, climate change, obesity, education, poverty, health, and the environment.
Number of Pages in PDF File: 46
Keywords: behavioral economics, nudge, regulation, energy efficiency
JEL Classification: D003, D10, D11, D18, D60, D80, K0, K2
Thursday, February 14, 2013
Journal Session on Financial Incentives in Smoking Cessation
Posted by
Liam Delaney
The next journal session will be on Monday 25 February and will examine the recent literature on the use of financial incentives in smoking cessation.
1. The first paper is a protocol for conducting a randomised control trial in this area for pregnant women in Scotland.
2. The second paper "Patients as Mercenaries? The Ethics of Using Financial Incentives in the War on Unhealthy Behaviors" considers the ethical issues in the use of financial incentives to quit smoking.
3.The third paper is on public acceptability of using financial incentives and the factors that determine that.
Some potential discussion points include:
1. What is the rationale behind offering incentives to get people to quit smoking?
2. How might such incentives be targeted? Will they have different effects for different age groups and people with differing levels of self-control?
3. What is the difference between such incentives and the use of taxation in general?
4. What are there ethical issues involved in using cash as an incentive in this fashion?
5. What does behavioural economics potentially contribute to the design of such incentive mechanisms?
6. What principles should be kept in mind when designing an economic evaluation of the effects of such policies?
7. Are there potentially unintended negative consequences of offering incentives in this manner? What are they and how can they be tested for and/or minimised?
1. The first paper is a protocol for conducting a randomised control trial in this area for pregnant women in Scotland.
2. The second paper "Patients as Mercenaries? The Ethics of Using Financial Incentives in the War on Unhealthy Behaviors" considers the ethical issues in the use of financial incentives to quit smoking.
3.The third paper is on public acceptability of using financial incentives and the factors that determine that.
Some potential discussion points include:
1. What is the rationale behind offering incentives to get people to quit smoking?
2. How might such incentives be targeted? Will they have different effects for different age groups and people with differing levels of self-control?
3. What is the difference between such incentives and the use of taxation in general?
4. What are there ethical issues involved in using cash as an incentive in this fashion?
5. What does behavioural economics potentially contribute to the design of such incentive mechanisms?
6. What principles should be kept in mind when designing an economic evaluation of the effects of such policies?
7. Are there potentially unintended negative consequences of offering incentives in this manner? What are they and how can they be tested for and/or minimised?
Tuesday, February 12, 2013
February 22nd Research Workshop
Posted by
Liam Delaney
The fourth in our Stirling series of workshops on Economics, Psychology and Policy takes place from 9am to 5pm on February 22nd in the Stirling Cottrell Building. The purpose of this workshop is to bring together researchers working on a range of topics spanning disciplines including economics, psychology, and mathematics. Details of the previous session are here. Please contact lennie(dot)jing(at)stir(dot)ac(dot)uk to register.
9.30 am - 10.00 am: Bernardo Nunes (Stirling) "Pension Autoenrolment"
10.00 am - 10.30 am: Jovan Vojnovic (Stirling) "Time Preferences and Socioeconomic Status".
Coffee
11.00 am - 11.40 am: Martin Ryan (DIT) "Behavioural Economics and Higher Education"
11.40 am - 12.20 pm: Michael Daly (Stirling) "Overview of new MSc in Behavioural Science"
12.20 pm - 1.00 pm: Georgios Panos (Stirling) "Financial Literacy and Retirement Planning"
Lunch
2.00 pm - 2.40 pm: Christopher Boyce (Stirling). "Loss Aversion and well-being: Does a loss in income have a greater effect on life satisfaction than an equivalent income gain?"
2.40 pm - 3.20 pm: Frans De Vries (Stirling) "The Agglomeration Bonus and Spatial Coordination Failure on Local Networks: Implications for Ecosystem Services Delivery"
Coffee
3.40 pm - 4.20 pm Leonhard Lades (Jena) "Impulsive consumption and reflexive thought: Nudging ethical consumer behavior"
4.20 pm - 5.00 pm: Rob Ranyard (Bolton) "Personal borrowing and repayment decisions: Mental accounting, future orientation and anchoring effects"
Programme:
9.30 am - 10.00 am: Bernardo Nunes (Stirling) "Pension Autoenrolment"
10.00 am - 10.30 am: Jovan Vojnovic (Stirling) "Time Preferences and Socioeconomic Status".
Coffee
11.00 am - 11.40 am: Martin Ryan (DIT) "Behavioural Economics and Higher Education"
11.40 am - 12.20 pm: Michael Daly (Stirling) "Overview of new MSc in Behavioural Science"
12.20 pm - 1.00 pm: Georgios Panos (Stirling) "Financial Literacy and Retirement Planning"
2.00 pm - 2.40 pm: Christopher Boyce (Stirling). "Loss Aversion and well-being: Does a loss in income have a greater effect on life satisfaction than an equivalent income gain?"
2.40 pm - 3.20 pm: Frans De Vries (Stirling) "The Agglomeration Bonus and Spatial Coordination Failure on Local Networks: Implications for Ecosystem Services Delivery"
Coffee
3.40 pm - 4.20 pm Leonhard Lades (Jena) "Impulsive consumption and reflexive thought: Nudging ethical consumer behavior"
4.20 pm - 5.00 pm: Rob Ranyard (Bolton) "Personal borrowing and repayment decisions: Mental accounting, future orientation and anchoring effects"
Monday, February 11, 2013
Some links on eudaimonic well-being
Posted by
Liam Delaney
Following from some discussion on twitter, I promised to put up some links to papers on eudaimonic well-being. Below is a good sample.
1. Carol Ryff (University of Wisconsin-Madison) has a large volume of papers on this topic.
2. There are many papers employing eudaimonic measures based on meaning as opposed to life satisfaction and happiness measures. Paper on the Whitehall II cohort examining relationship between sleep quality and eudaimonic well-being.
3. Benjamin, Daniel J; Heffetz, Ori; Kimball, Miles S; Rees-Jones, Alex. "What Do You Think Would Make You Happier? What Do You Think You Would Choose?" American Economic Review 102.5 (2012): 2083-2110. This paper doesn't measure eudaimonic utility directly but argues that happiness may be something people trade off as part of a better life measured on their own scale.
4. An example of a paper using exploratory factor analysis by our colleague Alex Wood and others to attempt to delineate the different aspects of well-being, including eudaimonic well-being.
5. Ryan and Deci, 2001 "On happiness and human potentials: A review of research on hedonic and eudaimonic well-being": Very highly cited Annual Review of Psychology paper.
1. Carol Ryff (University of Wisconsin-Madison) has a large volume of papers on this topic.
2. There are many papers employing eudaimonic measures based on meaning as opposed to life satisfaction and happiness measures. Paper on the Whitehall II cohort examining relationship between sleep quality and eudaimonic well-being.
3. Benjamin, Daniel J; Heffetz, Ori; Kimball, Miles S; Rees-Jones, Alex. "What Do You Think Would Make You Happier? What Do You Think You Would Choose?" American Economic Review 102.5 (2012): 2083-2110. This paper doesn't measure eudaimonic utility directly but argues that happiness may be something people trade off as part of a better life measured on their own scale.
4. An example of a paper using exploratory factor analysis by our colleague Alex Wood and others to attempt to delineate the different aspects of well-being, including eudaimonic well-being.
5. Ryan and Deci, 2001 "On happiness and human potentials: A review of research on hedonic and eudaimonic well-being": Very highly cited Annual Review of Psychology paper.
Overview of Economics and Psychology
Posted by
Liam Delaney
These are originally speaker notes for an introductory talk at the Trinity Economic Forum on Saturday 9th February 2013, but they serve as an effective overview for the MSc Module "Behavioural Economic: Concepts and Theories" I am teaching in Stirling University in the 2013-14 period. You can see the follow up lectures on the widget in the top-left of the blog.
Preface:
The world is complex and our attention is limited and often distracted so that others can manipulate us. We see the world through a glass darkly. Look at the nobleman in front gazing at the conjurer in Bosch's famous print. Now look at the conjurer's partner behind him stealing his money purse. Much of economic behaviour has this feature of our perception and beliefs leading us into jeopardy, with the thief often being ourselves.
Introduction
This is a very interesting time to be Economics and Psychology students. These two expansive disciplines are hitting off one another in ways that are creating fascinating new ideas that are changing how we think about human interactions and having immediate effects on how all of us live our lives in multiple, often hidden, ways. The history of psychology can be traced to scholars in Germany and the US in the 19th century who began to directly investigate mental processes in an empirical manner not hitherto formalized in philosophy. Economics, as a discipline, had no real separate identity in antiquity but finds various expressions throughout the medieval period. While it is almost disrespectful to set the date of its founding, a t-shirt I once saw that read "Economists: confusing people since 1776", of course, bears out the fact that after Adam Smith's epic tome "The Wealth of Nations", it was no longer possible to be considered in the running to be the founder of economics as a discipline.
History of Economics and Psychology
Given that both disciplines regularly lay claim to be the science understanding human behaviour, you would have thought the interactions would be regular and intensive. And in some sense, they have been. The late 1800s saw widespread attempts to ground Economics in real empirical evidence about the causes of pleasure and pain. The question of utility was examined in many settings and a number of major thinkers including Fechner attempted to place the study of human behaviour on an empirical footing. Marshall famously referred to these attempts at Hedonomics, a phrase he used as a mild put-down.
The portrait of an Economist as a young man
So the question arises as to why you, mostly Economics students, study Economics the way you do and why the Psychology students study Psychology the way they do. I have some advantage in answering this question. I began studying both Psychology and Economics in my local library as a teenager trying to understand the effect the type of massive societal transformations going on around me were having on people. I studied both psychology and economics in Trinity and you will even find one of my first attempts to summarise the link between the two in the Student Economic Review.
Behaviourism in 20th Century Psychology
Two major events in US academia explain a large part of the disjunction between the two fields we see at undergraduate level very starkly. On the one hand, Psychology began to strive more for empirical realism, culminating in the dominance of behaviourism as an overarching paradigm for the field. Armed with an array of experimental paradigms and the development of a set of laws of association and conditioning, the behaviourists, led by John Watson, set out to explain all human behaviour as the product of associations built up over life through conditioning.
Economics as Axiomatic Science
Meanwhile, economists were beginning to suffer physics envy, with many of the leading US academics seeking to set Economics on a sound axiomatic footing. The publication of major works such as Samuelson's formulation of discounted utility theory, the development of Arrow-Debreu equilibrium theory, the development of game theory and many related intellectual advancements propelled Economics and rational-choice Economics, in particular, into the forefront of Western thinking, guiding thought about how markets should be organised and regulated even questions such as how cold-war strategy should be played.
The Economics we teach
And so it came to pass that Economics textbooks were increasingly populated with axiomatic proofs built up from elementary concepts of human behaviour, using notions of optimality and equilibria that could be applied to a range of economic problems. You study Economics very much as a discipline where rational, utility and profit-maximising individuals and firms strategically interact under different market structure constraints. Such models then took on a life of their own. Feedback loops between Economics and the real-world led to many of these models being thought about and increasingly taught as if they were naturally occurring phenomenon and not models that theorists had invented to solve particular problems at particular times.
Why Economics textbooks tell only part of the story
And, even worse, all of this is a very shallow description of what many of these people actually wrote. Samuelson never believed that individuals performed the type of calculations required in his discounted utility theory. Reading the textbook IS-LM model would make one believe that Keynes was a fairly mild figure with a constrained view of how humans interacted. And yet reading Keynes directly, and you are struck with how intensely he thought about the psychology of investment and consumption. The General Theory is as much what we would call behavioural economics today as any modern work. And, shock horror, even Adam Smith's other major work "The Theory of Moral Sentiments" is a lengthy meditation on how people behave in social situations, with whole chapters on altruism, morality, convention and all of those other things we assume away quite early in an Economics education.
The cognitive revolution collides back with Economics
Most excitingly, the 60s and 70s saw the emergence of thinkers directly challenging the dominance of rational choice models in Economics. The seminal work of Herbert Simon opened up the formal study of bounded rationality that has had implications across science.
The psychologists Daniel Kahneman (who would later win the Economics Nobel in 2002) and Amos Tversky also did seminal work during this period, most famously with their "Prospect Theory" paper, which acted as a descriptive model of peoples behaviour in contrast to the normative approach of Expected Utility.
Rethinking our assumptions
Thinking through these issues raises profound questions. I urge you to look back at the assumptions made in Economics and use them as rocket ships to explore the vast universe of economics and policy.
1. Preferences are complete.
2. People discount the future exponentially.
3. People make rational judgements with the information available.
4. People prefer more choice to less in all circumstances.
5. People seek to maximise utility.
6. People value losses and gains symmetrically.
7. People care for their own/family utility only.
But, there are so many challenges to these assumptions:
1. Can we ever say preferences are complete? In some market, this may be more realistic than others but the set of options is a variable and never fully known.
2. Exponential discounting increasingly looks a poor account of how people process the future.
3. The extent to which people prefer more options may also be a variable dependent on interactions between their own characteristics and the choice envrionment.
4. Loss aversion is heavily observed both in humans and animals and places important constraints on markets and trade.
5. Identity considerations can lead to patterns of behaviour that look completely at variance with an attempt to live a long, healthy and wealthy life.
6. Depending on context, we may also value others utility to a higher degree than suggested in the standard model.
Pensions and the Life-Cycle model of consumption
One of the best examples of this area is pension policy. In 2014 Ireland is scheduled to become one of the first countries to move toward a national automatic enrolment pension system for the private sector. All non-covered private sector workers will be automatically enrolled into a default privately provided pension scheme, further incentivised by mandatory employer co-contributions and tax incentives.
Benartzi and Thaler (2004) is one of the most cited examples of intervention in private pension provision. Save More Tomorrow (SMarT) is a savings plan that attempts to overcome behavioural biases in saving for retirement; these biases include: hyperbolic discounting, loss aversion, and inertia. The perceived need for intervention in private pensions arises from a shift to defined-contribution (DC) pensions, with DC pension plans supplanting defined-benefit (DB) schemes, with the onus increasingly being on employees to provide for retirement.
One seminal paper on automatic enrollment is Madrian and Shea (2001). The authors analyse a firm that changed its pension enrollment criteria from employees choosing to opt-in after one year in the firm, to a scheme where, upon being employed by the firm, employees are automatically enrolled. The reason for changing their enrollment policy was due to the firm continually failing non-discrimination tests, and thus needing to make costly ex-post refunds to ‘highly compensated’ employees.
Figure 10 below shows the increase in participation by Ethnicity and Race, with the left block representing the cohort of employees who took the decision to enroll in the firm’s pension plan upon becoming eligible, with 3 to 15 months of tenure, and the right block represents those employees who were automatically enrolled, again with 3 to 15 months of tenure. The most dramatic effect is on the Black and Hispanic workers, with enrollment nearly quadrupling for these groups.
Identity and Motivation
The key paper for this is Economics and Identity by Akerlof and Kranton. This paper takes the view that looking at identity is vital to understand a wide range of economic phenomenon such as welfare dependency, ghettos, integration into the labour market, globalization and economic growth.
Identity emerges from the social categories we identify with or are members of by default. They outline a very simple model, which we will cover in the lecture, where membership of social categories enters directly into utility functions and use this to explain a range of economic phenomena such as gender discrimination.
Politics and Policy
The political implications of this type of policy has not gone unnoticed. In the UK, the Conservatives have brought behavioural economics right to the heart of government with the development of the behavioural insights team. And it does raise very fundamental questions about the relationship between individuals, large corporations and government. If people make mistakes in decisions (e.g. by being confused, misjudging risk etc.,) then their decisions may no longer be a good guide to their actual welfare. This would imply that the market system itself may not necessarily yield the best outcomes for consumers. It also potentially implies that giving consumers more information, framing that information them more clearly etc., might improve their welfare. Thus the main public policy implication would be that it might be possible to improve people's welfare through some of these mechanisms, something that would be explicitly ruled out by a model where people fully rationally interpret risk.
People like Thaler and Sunstein have used the phrase “Libertarian Paternalism” to get at the idea that it is possible to shape policy such to make it easier for people to make optimal choices from their own perspective (e.g. taking out a pension) without forcing them to do. The pension opt-outs are an example of this type of policy though in the Irish case, it is somewhat more forceful as you are opted back in every two years, a type of Catholic church style nudge.
Economics and intellectual exploration
In conclusion, Economics is an intense questioning of how people behave and how we can design institutions. Each of the sometimes dry assumptions we make in microeconomic textbooks emerged from centuries of debate. They are living and moving assumptions. Each one potentially unlocks the key to new institutions and new ways of living. I wont, like Robin Williams, ask you to tear up your textbooks. They are too expensive. But do tear up your assumptions. Participate in this debate.
References:
1. Ariely (2008), Predictably irrational.
Preface:
The world is complex and our attention is limited and often distracted so that others can manipulate us. We see the world through a glass darkly. Look at the nobleman in front gazing at the conjurer in Bosch's famous print. Now look at the conjurer's partner behind him stealing his money purse. Much of economic behaviour has this feature of our perception and beliefs leading us into jeopardy, with the thief often being ourselves.
![]() |
Fig 1. The Conjurer |
Introduction
![]() |
Fig 2. Adam Smith, father of economics |
History of Economics and Psychology
![]() |
Fig 3. Gustav Fechner |
The portrait of an Economist as a young man
So the question arises as to why you, mostly Economics students, study Economics the way you do and why the Psychology students study Psychology the way they do. I have some advantage in answering this question. I began studying both Psychology and Economics in my local library as a teenager trying to understand the effect the type of massive societal transformations going on around me were having on people. I studied both psychology and economics in Trinity and you will even find one of my first attempts to summarise the link between the two in the Student Economic Review.
![]() |
Fig 4. Ireland's Net Emigration Rate |
Behaviourism in 20th Century Psychology
Fig 5. John Watson |
Economics as Axiomatic Science
![]() |
Fig 6. Paul Samuelson |
The Economics we teach
And so it came to pass that Economics textbooks were increasingly populated with axiomatic proofs built up from elementary concepts of human behaviour, using notions of optimality and equilibria that could be applied to a range of economic problems. You study Economics very much as a discipline where rational, utility and profit-maximising individuals and firms strategically interact under different market structure constraints. Such models then took on a life of their own. Feedback loops between Economics and the real-world led to many of these models being thought about and increasingly taught as if they were naturally occurring phenomenon and not models that theorists had invented to solve particular problems at particular times.
![]() |
Fig 7. John Maynard Keynes |
The cognitive revolution collides back with Economics
![]() |
Fig 8. Daniel Kahneman |
The psychologists Daniel Kahneman (who would later win the Economics Nobel in 2002) and Amos Tversky also did seminal work during this period, most famously with their "Prospect Theory" paper, which acted as a descriptive model of peoples behaviour in contrast to the normative approach of Expected Utility.
Rethinking our assumptions
Thinking through these issues raises profound questions. I urge you to look back at the assumptions made in Economics and use them as rocket ships to explore the vast universe of economics and policy.
1. Preferences are complete.
2. People discount the future exponentially.
3. People make rational judgements with the information available.
4. People prefer more choice to less in all circumstances.
5. People seek to maximise utility.
6. People value losses and gains symmetrically.
7. People care for their own/family utility only.
But, there are so many challenges to these assumptions:
1. Can we ever say preferences are complete? In some market, this may be more realistic than others but the set of options is a variable and never fully known.
2. Exponential discounting increasingly looks a poor account of how people process the future.
3. The extent to which people prefer more options may also be a variable dependent on interactions between their own characteristics and the choice envrionment.
4. Loss aversion is heavily observed both in humans and animals and places important constraints on markets and trade.
5. Identity considerations can lead to patterns of behaviour that look completely at variance with an attempt to live a long, healthy and wealthy life.
6. Depending on context, we may also value others utility to a higher degree than suggested in the standard model.
Pensions and the Life-Cycle model of consumption
One of the best examples of this area is pension policy. In 2014 Ireland is scheduled to become one of the first countries to move toward a national automatic enrolment pension system for the private sector. All non-covered private sector workers will be automatically enrolled into a default privately provided pension scheme, further incentivised by mandatory employer co-contributions and tax incentives.
Benartzi and Thaler (2004) is one of the most cited examples of intervention in private pension provision. Save More Tomorrow (SMarT) is a savings plan that attempts to overcome behavioural biases in saving for retirement; these biases include: hyperbolic discounting, loss aversion, and inertia. The perceived need for intervention in private pensions arises from a shift to defined-contribution (DC) pensions, with DC pension plans supplanting defined-benefit (DB) schemes, with the onus increasingly being on employees to provide for retirement.
The authors cite four principles on which their plan is based:
1) An employee should be approached as early as possible before a scheduled pay increase, with a commitment to save more. This exploits hyperbolic discounting in favour of the plan, where the ‘loss’ is not immediate, but will occur in the future.
2) The increased contributions should take place immediately after a pay increase to mitigate a ‘loss aversion' effect.
3) For each scheduled pay increase, the contribution rates rises until it reaches a specified maximum. This utilises employee inertia in favour of the savings plan.
4) An employee can opt-out of the plan at any time.
Three firms used the SMarT programme, with some heterogeneity in implementation. The first (and most comprehensive) implementation was at a midsize manufacturing firm, where employees on lower income were not saving sufficiently in the view of management of the firm. This dearth of saving created a problem for executives: they could not contribute the maximum tax allowable amount to their pension plans due to U.S. Dept. of Labor non-discrimination laws—non-discrimination laws try to prevent the tax benefits of pension savings schemes accruing disproportionately to higher paid employees, defined as those earning above $110,000 per annum in 2010.
Employees were given a time slot to discuss their retirement plan with a financial consultant (FC in Fig 9 below). Out of 315 eligible employees, only 29 chose not to meet the FC. Employees were offered a savings plan based on their conversation with the financial consultant, where a maximum of 5 per cent savings rate was proposed for those who stated financial difficulty in increasing their contribution, or a rate specified by commercial software if the employee was in a better position and appeared willing to increase their savings rate beyond 5 per cent, in which case the amount given was usually the tax-allowable limit. The SMarT plan was offered to those who rejected the financial consultant’s advice, which carried a rise of 3 per cent in savings rate with each future pay rise.
Figure 9 below (derived from figures in the paper) summarizes the outcome of different choices by workers in the first company before and after pay rises; the first bar cluster represents savings rates prior to employees meeting with the financial advisor, with subsequent clusters being savings rates between the first and fourth pay raises. The jump from 3.5 per cent to 13.6 per cent savings rate for those who entered the SMarT plan is substantial. Furthermore, 80 per cent of SMarT plan participants stayed on to the fourth pay rise.
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Fig 9. Save More Tomorrow |
One seminal paper on automatic enrollment is Madrian and Shea (2001). The authors analyse a firm that changed its pension enrollment criteria from employees choosing to opt-in after one year in the firm, to a scheme where, upon being employed by the firm, employees are automatically enrolled. The reason for changing their enrollment policy was due to the firm continually failing non-discrimination tests, and thus needing to make costly ex-post refunds to ‘highly compensated’ employees.
Figure 10 below shows the increase in participation by Ethnicity and Race, with the left block representing the cohort of employees who took the decision to enroll in the firm’s pension plan upon becoming eligible, with 3 to 15 months of tenure, and the right block represents those employees who were automatically enrolled, again with 3 to 15 months of tenure. The most dramatic effect is on the Black and Hispanic workers, with enrollment nearly quadrupling for these groups.
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Fig 10. Madrian & Shea's automatic enrollment |
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Fig 11. Identity Economics |
Identity emerges from the social categories we identify with or are members of by default. They outline a very simple model, which we will cover in the lecture, where membership of social categories enters directly into utility functions and use this to explain a range of economic phenomena such as gender discrimination.
Politics and Policy
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Fig 12. Nudge |
People like Thaler and Sunstein have used the phrase “Libertarian Paternalism” to get at the idea that it is possible to shape policy such to make it easier for people to make optimal choices from their own perspective (e.g. taking out a pension) without forcing them to do. The pension opt-outs are an example of this type of policy though in the Irish case, it is somewhat more forceful as you are opted back in every two years, a type of Catholic church style nudge.
In conclusion, Economics is an intense questioning of how people behave and how we can design institutions. Each of the sometimes dry assumptions we make in microeconomic textbooks emerged from centuries of debate. They are living and moving assumptions. Each one potentially unlocks the key to new institutions and new ways of living. I wont, like Robin Williams, ask you to tear up your textbooks. They are too expensive. But do tear up your assumptions. Participate in this debate.
References:
1. Carroll et al. (2009), Optimal Defaults and Active Decisions, Quarterly
Journal of Economics.
2. Benartzi & Thaler, How Much is Investor Autonomy Worth?, The Journal of Finance.
3. Benartzi & Thaler, Save More Tomorrow: Using BehavioralEconomics to Increase Employee Saving, Journal
of Political Economy.
4. Choi et al. (2006), Reducing the Complexity Costs of 401(k) Participation Through Quick Enrollment, NBER Working Paper.
5. Madrian & Shea, The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior, Quarterly Journal of Economics.
Popular texts: 4. Choi et al. (2006), Reducing the Complexity Costs of 401(k) Participation Through Quick Enrollment, NBER Working Paper.
5. Madrian & Shea, The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior, Quarterly Journal of Economics.
1. Ariely (2008), Predictably irrational.
2. Kahneman (2011), Thinking, fast and slow.
3. Thaler & Sunstein (2008), Nudge: Improving Decisions About Health, Wealth, and Happiness
Textbooks:
1. Camerer, Loewenstein & Rabin (2004), Advances in Behavioral Economics
1. Camerer, Loewenstein & Rabin (2004), Advances in Behavioral Economics
2. Frey & Stutzer (2007), Economics and Psychology: A Promising New Cross-Disciplinary Field.
3. Loewenstein (2007), Exotic Preferences: Behavioral Economics and Human Motivation
4. Shafir (2013), The Behavioral Foundations of Public Policy
Policy-related documents:
1. Dolan et al. (2012), Influencing behaviour: the mindspace way, Journal of Economic Psychology.
1. Dolan et al. (2012), Influencing behaviour: the mindspace way, Journal of Economic Psychology.
2. Haynes et al. (2012), Test, Learn, Adapt: Developing Public Policy with Randomised Controlled Trials. London: Cabinet Office.
3. House of Lords Science and Technology Select Committee (2011), Behaviour Change Report, London: TSO.
4. Sunstein (2011), Empirically informed regulation, University of Chicago Law Review.
Website Links:
My reading list on behavioural economics and policy
TED Talks on behavioural economics
Most cited papers in behavioural economics
Website Links:
My reading list on behavioural economics and policy
TED Talks on behavioural economics
Most cited papers in behavioural economics
Friday, February 01, 2013
The End of History Illusion
Posted by
Anonymous
Science
4 January 2013:
Vol. 339 no. 6115 pp. 96-98
DOI: 10.1126/science.1229294
Vol. 339 no. 6115 pp. 96-98
DOI: 10.1126/science.1229294
The End of History Illusion
Jordi Quoidbach, Daniel T. Gilbert and Timothy D. Wilson
Abstract
We measured the personalities, values, and preferences of more than 19,000 people who ranged in age from 18 to 68 and asked them to report how much they had changed in the past decade and/or to predict how much they would change in the next decade. Young people, middle-aged people, and older people all believed they had changed a lot in the past but would change relatively little in the future. People, it seems, regard the present as a watershed moment at which they have finally become the person they will be for the rest of their lives. This “end of history illusion” had practical consequences, leading people to overpay for future opportunities to indulge their current preferences.
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