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/
Wednesday, August 08, 2007
Tuesday, August 07, 2007
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.
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.
Saturday, August 04, 2007
genes and environment
a fascinating discussion of the relationship between genes, environment and outcomes from Richard Lewontin
http://video.google.com/videoplay?docid=7320126698292379909
http://video.google.com/videoplay?docid=7320126698292379909
Friday, August 03, 2007
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?
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.
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?"
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?"
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