Stephen Lea

Professor Stephen Lea, head of the School of Psychology at Exeter, will speak at Geary on April 6th at 1pm. The title of his talk is "Materialism, Money and Myopia: The psychology of recession and recovery". Some details of Professor Lea's work are available here Details of his publications on economics and psychology stretching back to the early 1970s are available here

Behavioural Economics Books

One for internal folks. I am putting together a request list of books for behavioural economics to fill our library. Below is an old list (some of which we have). I am adding Animal Spirits, Nudge etc., I will add to this but please let me know if you have suggestions for the list. In particular, we want to make sure that good research-focused works on behavioural economics are available to students and staff here. Below is just to get the ball rolling and I will ask people individually also.

“Judgement Under Uncertainty: Heurisics and Biases” is a classic
http://www.amazon.com/Judgment-under-Uncertainty-Heuristics-Biases/dp/0521284147/ref=pd_sim_b_6

“Advances in Behavioural Economics” is still the best for me in the relatively recent field
http://www.amazon.com/Advances-Behavioral-Economics-Roundtable/dp/0691116822

“Nudge” is the recent work by Thaler and Sunstein that has created a great deal of discussion
http://www.amazon.com/Judgment-under-Uncertainty-Heuristics-Biases/dp/0521284147/ref=pd_sim_b_6

Ariely’s “Predictably Irrational” details much of his experimental work
http://www.amazon.com/Predictably-Irrational-Hidden-Forces-Decisions/dp/006135323X/ref=pd_sim_b_5

Camerer’s “behavioural game theory” is a tougher trip but worth it
http://www.amazon.com/Behavioral-Game-Theory-Experiments-Interaction/dp/0691090394/ref=pd_sim_b_1

Exotic Preferences by Lowenstein is a great overview of his and others work on preference formation, emotion and decision making
http://www.amazon.com/Exotic-Preferences-Behavioral-Economics-Motivation/dp/0199257086/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1218108620&sr=8-1

Frey and Stutzer’s book on economics and psychology is below
http://www.amazon.com/Economics-Psychology-Promising-Cross-Disciplinary-Seminar/dp/0262062631/ref=pd_sim_b_4

On the Irish front, Peter Lunn has recently a book lately called Basic Instincts
http://www.amazon.co.uk/Basic-Instincts-Human-Nature-Economics/dp/0462099202


An Introduction to Behavioural Economics by Nicolas Wilkinson  (textbook) 

The temptations of being abroad

Oscar Wilde was not alone in being able to resist anything but temptation. And if the sanctions that normally apply, whether legal or social, are absent then clearly there is a greater opportunity to party on, so to speak. This paper shows how the gambling behaviour of tourists depends on the legality of gambling in the home country.

When the Cat's Away, the Mice Will Play: Gambling Behaviour of Visitors in Australia Bin Dong, Benno Torgler
What happens if national legal laws or enforcements and social norms are no longer able to directly regulate individual behaviour? According to our knowledge, not much empirical evidence has emerged answering such a seemingly simple question. The challenge is to distinguish between the effects of social norm and of legal enforcement. One way to explore such a question in an almost natural quasi-experimental setting is to focus on tourists’ behaviour. Tourists are visiting another country for a relatively short period of time and are acting in a different (legal) environment where formal and informal rules are different to those found in their own country. Using data from Australia we focus on gambling activities since these are prohibited in some countries. We find that tourists from countries where gambling is prohibited spend a significantly larger share of their entertainment expenditure on gambling than those who come from countries where it is legalized.

http://www.crema-research.ch/papers/2010-05.pdf

Malta Readers

I gave two lengthy live video-conference sessions on Behavioural Economics to staff and students at the Department of Economics in Malta recently. Thank you to everyone for the many stimulating comments and questions. I hope those of you who followed us through to the blog find useful material here and feel free to comment or send emails to suggest topics of interest.

No fancy econometrics needed

The evaluation of labour market treatment effects is one of the most actively researched areas in applied econometrics. Getting good estimates of policy relevant parameters presents some quite technically challenging issues.
But sometimes you really don't need all that. The story below from yesterday's Sunday Business Post gave quite a staggering example of this. A program to get the long term unemployed back to work cost €39m with 46 participants (i.e. almost €900k each) and apparently did not get any of them back to work.
The article adds "Forfas said the state was spending €970 million on a number of jobs and training programmes, but found that there was ‘‘significant information deficit’’, in terms of being able to measure their ‘efficiency and effectiveness’ ".
Indeed. The resources necessary to do a first class evaluation of such programs would be trivial by comparison.

http://www.sbpost.ie/news/failed-work-programme-cost-state-almost-900k-per-person-48270.html

Efficiency in Higher Education across Europe

The European Commission has released a research paper comparing the efficiency of higher education institutions around Europe with the US & Japan included for comparison (h/t University Blog). The authors use Data Envelopment Analysis and Stochastic Frontier Analysis. The two methods give broadly similar results - always reassuring. Its a long and not always easy read but well worth a look. Aside from the core statistical analysis there is a lot of useful descriptive statistics. From what I can see its pretty well done. The paper is concerned with efficiency in research based on publications (allowing for citations) and in teaching, based on graduations and adjusted for employability of graduates (based on employer surveys). Having measured efficiency across country they go on to see what factors explain cross country differences and how these efficiency differences influence the effect of higher education on employability.
In terms of research efficiency Ireland is nothing special but in terms of teaching efficiency we do pretty well along with the UK. This is essentially driven by our universities being good at producing graduates & particularly ones that are valued by employers. One thing that UK and Irish universities have in common is that they produce English speaking graduates so I don't know how this is taken into account, if at all. Clearly this isn't something we can take credit for.
The authors draw a number of interesting conclusions as to what drives these differences in efficiency:
*When funding to institutions depends on outputs efficiency is higher
*Efficiency is higher when there is independent evaluation by stakeholders/independent agencies.
*Institutions ability to hire & fire staff & to set wages is associated with efficiency.

http://ec.europa.eu/economy_finance/publications/publication16267_en.pdf

Loury and Mullainathan - Behavioural Economics

I am going to give this its own post as it is important to watch this. Glenn Loury and Sendhil Mullainathan on behavioural economics. Loury grills Mullainathan on the importance of behavioural economics to economic theory and economic policy. Mullainathan offers a lot of food for thought on the implications of behavioural economics for regulation, health economics, welfare economics and development economics.

NBER Paper: Heckman and Jacobs: Polices to Create and Destroy Human Capital in Europe

Policies to Create and Destroy Human Capital in Europe

James J. Heckman, Bas Jacobs

NBER Working Paper No. 15742*
Issued in February 2010
NBER Program(s): ED LS PR

Trends in skill bias and greater turbulence in modern labor markets put wages and employment prospects of unskilled workers under pressure. Weak incentives to utilize and maintain skills over the life-cycle become manifest with the ageing of the population. Policies to promote human capital formation reduce welfare state dependency among the unskilled and offset inefficiencies in human capital formation. Skill formation features strong dynamic complementarities over the life-cycle. Investments in the human capital of children have higher returns than investments in the human capital of older workers. There is no trade-off between equity and efficiency at early ages of human development but there is a substantial trade-off at later ages. Later remediation of skill deficits acquired in early years often does not meet the cost-benefit criterion. Positive returns to active labor market and training policies are doubtful. Skill formation is impaired when the returns to skill formation are low due to low skill use and insufficient skill maintenance later on in life. High marginal tax rates and generous benefit systems reduce labor force participation rates and hours worked and thereby lower the utilization rate of human capital. Tax-benefit systems redistribute resources from outsiders to insiders in labor markets, which can be both distortionary and inequitable. Actuarially fairer early retirement and pension schemes reduce the incentives to retire early and strengthen incentives for human capital investment by increasing the time-horizon over which returns to human capital are harvested.

Angrist and Pischke: NBER Paper, The Credibility Revolution

The Credibility Revolution in Empirical Economics: How Better Research Design is Taking the Con out of Econometrics

Joshua Angrist, Jörn-Steffen Pischke

NBER Working Paper No. 15794*
Issued in March 2010

This essay reviews progress in empirical economics since Leamer’s (1983) critique. Leamer highlighted the benefits of sensitivity analysis, a procedure in which researchers show how their results change with changes in specification or functional form. Sensitivity analysis has had a salutary but not a revolutionary effect on econometric practice. As we see it, the credibility revolution in empirical work can be traced to the rise of a design-based approach that emphasizes the identification of causal effects. Design-based studies typically feature either real or natural experiments and are distinguished by their prima facie credibility and by the attention investigators devote to making the case for a causal interpretation of the findings their designs generate. Design-based studies are most often found in the microeconomic fields of Development, Education, Environment, Labor, Health, and Public Finance, but are still rare in Industrial Organization and Macroeconomics. We explain why IO and Macro would do well to embrace a design-based approach. Finally, we respond to the charge that the design-based revolution has overreached.

Weekend Links: 27-03-10

1. Thanks to Daniel Knoepfle for providing a link to his website that contains a link to the eye-tracking work spoken about last week.

2. Stutzer and Frey IZA Paper - Recent Advances in the Economics of Individual Subjective Well-Being

3. Glenn Loury interviews Sendhil Mullainathan. You really should watch this if you are interested in behavioural economics. (h/t Marginal Revolution)

4. IZA Paper on the causal effect of education on hypertension

5. IZA Paper : Strategies to achieve full employment in Germany

Cute babies, anxious daddys, cheating moms

Investment? Under uncertainty? Thats economics isn't it? Well yes but we don't have a monopoly of the subject and evolutionary biologists have long been interested in parental investment in offspring. Economists could do with looking at some of this stuff. The uncertainty arises because males can't be sure the little one's are actually their offspring. Because some females, well, you know...
So whats a guy to do? Well one theory is that males use facial resemblance: if the baby looks like you (& not the legendary milkman) then the return to your investment, in the sense of passing your genes on, is higher. The paper below test this theory and related ideas.

Are parents' perceptions of offspring facial resemblance consistent with actual resemblance? Effects on parental investment. Evolution and Human Behavior, 31 (2010) 7–15, Alexandra Alvergne, Charlotte Faurie, Michel Raymond

Geary Institute Events Calendar

One feature of the upgrade of the Institute website is the new events calendar. It is very handy. Have a look here It is great to see such a full range of events lined up for the next few months.

Lazear on class size effects

The link below has a nice summry of Ed Lazear's work on class-size effects (h/t Alan Fernihough)
http://www.hoover.org/publications/digest/3476106.html
A more technical version is at:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=194830

Class-size effects in PISA : further results

Further to my recent post, I show a somewhat detailed analysis above. The dependent variable is the students reading score which is an arbitrary function of class-size (i.e. in their English class, since this is data for Ireland) and of the teacher/pupil ratio in the school. In addition, I control linearly for the students sex, their age in months (they are all about 15), their birth order, their fathers education, school type (private/public) and a few measures of the home environment (like number of books). These controls don't actually make much difference.
So again we see a positive gradient with students in bigger classes doing better though it seems flatter than previously shown. The teacher/pupil ratio doesn't matter: using the absolute number of pupils gives the same result i.e. there are no economies or diseconomies of scale. Repeating the analysis for the maths score gives much the same results. The positive gradient is a puzzle though this is not the first time it has been found.

Girls... don't want you to have fun: daughters & risk taking

Understanding risky behaviour in health and other domains is an important topic and researchers in Geary are active in looking at this. The paper below has a novel take on this:

The Effects of Daughters on Health Choices and Risk Behaviour
N Powdthavee, S Wu, A Oswald
Little is known about why some human beings make risky life-choices. This paper provides evidence that people's health decisions and addictive actions are influenced by the gender of their children. Having a daughter leads individuals -- in micro data from Great Britain and the United States -- to reduce their smoking, drinking, and drug-taking. The paper's results are consistent with the hypothesis that human beings 'self-medicate' when under stress.
http://d.repec.org/n?u=RePEc:yor:yorken:10/03&r=cbe