The Macroeconomic Cost of Industrial Conflict

While not wishing to express an opinion about the merit of today's strike action in the U.K. (or indeed, the merit of the reasons for the action), I am interested in discussing the likely impact upon the U.K. economy. This is motivated somewhat by a discussion that I had with Kevin Denny on this year's Royal Wedding - and its impact on the U.K. economy. (Kevin, of course, has conducted research on unions in the past; and he has blogged recently about strike action in Ireland).

Overall, analysts who examined the economic impact of the Royal Wedding felt that the benefits of the event would be offset by lost production: "Philip Shaw, an economist at Investec financial group, said that allowing most workers a day off could knock some 0.25 percent from British gross domestic product (GDP) in the second quarter. Investec noted that growth had suffered as a result of Queen Elizabeth II’s Golden Jubilee celebrations in 2002... industrial production fell by over 4 percent and services by over 2 percent. Output in both sectors did not return to pre-June levels for some time… In 1981, when Prince Charles married Diana, the economy contracted by 1.2 percent despite the boost to tourism that the July wedding brought... The Confederation of British Industry reckons an extra public holiday typically costs the economy around 6 billion pounds in lost output."

While today's strike action was obviously different to a public holiday (as no private sector workers were involved in the conflict; and some balloted workers did not take part); there is still good reason to expect a detrimental impact on economic output. This story on the BBC website says that there were two million walkouts by public sector workers today; and it emphasises that parents of children whose schools were closed -- were also affected by the action. It says: "Ministers conceded that the economic impact would be no greater than that of a one-day holiday to celebrate the Royal Wedding."

Indeed, the economic impact is likely to be less than that of the Royal Wedding; even after considering that some private sector workers may have been forced to stay home today: to look after their kids (as well as there being other knock-on effects on the private sector). This article in the Wall Street Journal says that 58% of England's 22,000 state schools were shut today; and at least another 13% were partially affected (no figures were mentioned for the rest of the U.K.). The WSJ article also mentions that 2.6 million workers were balloted, suggesting (following on from other estimates) that 0.6 million public sector workers would not or could not participate in the action.

The cost of today's action was estimated to be in the region of £500m, according to U.K. Government ministers, as reported in The Guardian last week. However, according to the aforementioned BBC article, "there were indications that some businesses may have benefited from the strike action, with reports that some shopping centres had seen increased business." Nonetheless, one might wonder if the money spent in the retail sector today would have been spent before Christmas anyway. All told, the estimate for the (negative) economic impact arising from today's strike action is much lower in comparison to the Royal Wedding. Even using the estimate by the Confederation of British Industry that an extra public holiday typically costs the U.K. economy around £6 billion in lost output; it seems that one day of industrial conflict (in the public sector only) is not as damaging as one public holiday.

To conclude, it has been suggested by Mick Hume that it does not "help to compare the current action to the Winter of Discontent, when the public-sector unions went on strike against the Labour government’s policies of pay restraint. In 1979, 29 million working days were lost due to industrial action. Last year, the estimated figure was 365,000 days - not much more than one per cent of the 1979 record. Indeed, there have been fewer strike days in the past 20 years added together than in 1979 alone. So, claiming ‘the biggest strike in decades’ does not take much – and means even less." Furthermore, as Matt Cole notes, "trade unions have only half the members they had in 1979, and far fewer in the private sector in particular"; although: "the total number of union members on strike in one co-ordinated campaign is, at approaching 2 million, higher than on any one day since the General Strike".

Individual and Family Consent for Organ Donation

I presented some initial thoughts on the conflict between individual and family consent for organ donation at Friday’s conference, which I will briefly detail here.

Ireland has an organ donation rate of 21.2 donors per million population (pmp), higher than the United Kingdom (16.3 donors pmp) but lower than the current world leader, Spain (33.8 donors pmp). Despite these figures, in 2009 there were 515 people on the waiting list for donations. Of the 154 donors available for referral in 2009, 90 ultimately donated their organs, 42 were deemed medically unsuitable and in 22 cases the family refused consent.

There are three main systems of eliciting individual consent for organ donation. The first is informed consent, wherein consent is not assumed and individuals must consciously decide to become donors by opting into the system - for instance, by getting a donor card, telling their relatives or signing up to a registry. Ireland, the UK and Germany all operate informed consent systems. An alternative system is presumed consent, wherein consent for donation is assumed, and individuals must opt-out by signing a register or informing their next of kin if they do not wish to donate. Spain and Austria currently use a presumed consent system. Finally, mandated choice makes no assumptions about consent, and instead simply requires that individuals make a choice either way. Such a system is currently being trialled in the UK. When applying for driver’s licenses, applicants are now required to answer a question about donation before they can proceed with their application.

Behavioural economics research has suggested that changing from an informed consent to a presumed consent system would increase the number of donors available for transplant by harnessing the tendency people have to stick with a default. For instance, in a UK Transplant survey, 17 per cent of respondents intended to sign up to the register but 'hadn't got around to joining', as the default option is not to be on it.  It is argued that presumed consent systems avoid the low levels of take up seen in opt-in systems, which are a product of procrastination or inertia. By assuming consent while allowing those who object to opt out of donating, you should increase the number of donors by including those who would otherwise put off signing up into the system automatically. Some research papers have found 25-30 per cent differences in rates between informed and presumed consent countries, even controlling for other factors which may influence rates (Abadie and Gay, 2006).

However, a closer analysis of consent for donation carried out by Healy (2006) suggests that the solution to increasing donor rates may not be so simple. In all but one OECD country investigated, the family of the deceased are offered a veto in deciding about donation; their consent is sought before any harvesting takes place. As a result, ultimately, it is the next of kin who decide whether the deceased’s organs will be transplanted or not. Indeed, Minister for Health James Reilly recently stated that “No organ removal will ever happen against the wishes of a family. Full Stop." Research on family consent suggests that actions like signing up to a registry or getting an organ donor card may serve as important signals to family members about donation preferences, UK data shows that families refuse consent in 10 per cent of cases when they knew the wishes of the deceased, but in 40 per cent of cases where they did not know.

These findings have a number of implications. Firstly, the role of insights from behavioural economics in a family consent framework compared to an individual consent structure is less clear; cultural factors such as the role of family in society may play a more important part in determining levels of donation. Abadie and Gay (2006) suggest that the two different systems may still produce different donation rates, as they provide different cues for families, and thus influence consent levels. If most people in these two systems stick with the status quo, families in informed consent systems may infer that if the deceased did not opt-in, they did not have strong preferences to donate, whereas under a presumed consent system those who did not opt-out are not likely to have had strong preferences not to donate. Families may be more likely to conclude that the deceased would have consented to organ donation in a presumed consent system because of the framing.

Secondly, it is an open question as to whether it is possible or desirable to eliminate the role of the family in decision making around consent. It is hard to imagine a doctor knowingly going against the wishes of a family, particularly during what is surely a very stressful, high-pressured environment. However, the scope for individual autonomy in such a system is unclear; as it does not seem to be possible to ensure that your organs are or are not transplanted in the event of death, beyond asking family members to honour your wishes. Is it possible to retain a sense of individual autonomy within a system that also allows for family consent? Pete Lunn suggested at the conference that organ donor cards or registries could allow for people to state whether they wish for their family to have a right to make a decision about donation for them.  Again, it is not certain whether this would make doctors more likely to follow the wishes of the individual over those of the family in the event of conflict, but it may reduce instances of such conflict by convincing the family of the deceased’s wishes.  

Finally, the extent to which people are aware of the organ donation system (and a recent Eurobarometer survey would suggest that they are not - only 25 per cent of Europeans know the regulations governing organ donation in their own country) in place may also influence individual opinions on this issue. Many people I have discussed this with are unaware that their wishes regarding organ donation do not have to be upheld.  The role of organ donor awareness campaigns could also be rethought, is it worth launching campaigns which aim to increase levels of family consent rather than individual consent, given the current system?

We are currently building on this work by designing surveys to get a better understanding of the feelings of members of the public about consent for donation. The Fine Gael/Labour Programme for Government contains a commitment to introducing a presumed consent system in Ireland, though a 2009 consultation on such a change indicates that most bodies that deal with organ donation oppose such a change. Any thoughts or opinions are most welcome. 

Like, you know...?

We often take language for granted. Sharing a building with the Linguistics Department here and the occasional awkward lost in translation moment has made me appreciate the importance of communication to society. Grown-up economists have considered it too: Ariel Rubinstein has a book entitled 'Language and Economics', which you can download for free from his rather unique website.

Bart Lipman is a theorist in Boston University. In 2002 he wrote a paper on language and economics which memorably opened with "I find myself in the rather awkward position of trying to survey a literature which (as I will feel compelled to define it) almost doesn't exist." He has continued the fine tradition with a 2009 working paper:

Why is language vague?

Barton L. Lipman

Department of Economics

Boston University

Current Draft: November 2009

Abstract: I don't know.

Funny abstract aside, the conclusion may strike a chord with this blog's readership:

"Put differently, the vastness of even very simple sets of options suggests it is ludicrous to think a real person would have well defined ideas, much less well behaved preferences ... In short, it is not that people have a precise view of the world but communicate it vaguely; instead, they have a vague view of the world."

(H/T: Jeff Smith)

Addendum: this Father Ted clip is apt.

Ph D opportunities at EUI Florence

The European University Institute has just advertised that it will be providing 160 PhD grants in the next academic year. Particularly, given the general lack of funding here this looks like an excellent opportunity to study in a very good institution. And Tuscany is pretty nice too.

Oireachtas Members for Pieta House

The need for addressing mental health in Ireland been mentioned a few times on this blog. Lucan's Pieta House, which seeks to prevent self-harm or suicide, is one charity no doubt saving many lives.

Members of both Houses of the Oireachtas have teamed up to raise funds for and awareness of Pieta House. They're releasing a rendition of 'Bridge Over Troubled Water'. It's heartening and encouraging to see cross-party support for this.

Musically, it's atrocious. Thankfully the Gospel Choirs in the background salvage our earbuds to some extent. Nonetheless, it'd be nice if this made it to Christmas #1.

UCD School of Economics Research Bulletin

The UCD School of Economics has started a periodic research bulletin, edited by me. The first edition is here. I hope you enjoy it. The main article is a very interesting interview with our distinguished colleague Cormac Ó Gráda.

Programme for November 25th: Tomorrow

A slightly revised programme for tomorrow. 

November 25th Economics and Psychology Event Geary Institute

9.00: REGISTRATION

9.45: Credit Cards: Friend or Foe. 
Yvonne McCarthy - Central Bank of Ireland. 

10.15: Understanding Taxpayer Behaviour – New Opportunities for Tax Administration.
Keith Walsh- Revenue Commissioners

10.45: BREAK

11.00: Organ Donation and Individual Consent- The role of Family Consent in Donation Systems.
Clare Delargy- UCD Geary Institute

11.30: The Role of Economic Psychology in Students' Term-Time Employment and Academic Achievement.
Martin Ryan- UCD Geary Institute

12.00: LUNCH

13.00: Corruption and Well-Being
Rob Gillanders - University College Dublin

13.30: Subcultures in Household Financial Decision-Making: An Exploratory Study of Risky Asset Ownership in the Netherlands.
Michael Dowling- DCU

14.00:BREAK

14.15: Political Determinants of Participation in a Recycling Programme
Marie Brugligio- University of Malta

14.45: Behavioural Economics and Policymaking: Learning from the Early Adopters.
Pete Lunn, ESRI

15.15: BREAK

15.30: Behavioural Economics and the Irish Pension System
Liam Delaney- Stirling University and Geary Institute

16.00: Is the health impact of socioeconomic status explained by objective financial resources or subjective social status?
Michael Daly - Manchester and Aberdeen. 

16.30: Panel Discussion

Some useful resources on behavioural finance

I am opening up this as a static post and will add to it over time. It's basically a handy way of avoiding having to send the same email. These links are broad links to give people a representative introduction.

Robert Shiller's course in Yale, including lectures on behavioural finance, is available here.

This paper by Baker and Wurgler is a neat overview of the effect of investor sentiment on the stock market

Survey paper by Thaler and Barberis

Website called Behavioralfinance.net

Journal of Behavioural Finance 

William Forbes textbook on Behavioural Finance is available here

Update on the Economics of Child Benefit

Following on from my post yesterday on the economics of child benefit; I read today in the Irish Times that: "An advisory group established by (Joan Burton) earlier this year to examine ways of mean-testing or taxing the benefit has concluded in a preliminary indication that taxing the benefit is not possible. Its full report is not due out until March 2012."

For now, the preliminary indication from Burton's advisory group would seem to leave the medical card option (as suggested in yesterday's blog-post) as the only remaining possibility for reform (besides means-testing, self-declaration of income, or cross-referencing against tax records). As discussed yesterday, means-testing can have socially undesirable consequences. Furthermore, self-declaration of income (and voluntary abstention from claiming benefit) may be ineffective. Also, cross-referencing against tax records may be unsuitable for the Irish case: due to the preliminary indication from the group reporting to Burton. However, I would hope that cross-referencing against tax records is considered as a separate option to benefit taxation: in the report due out in March of next year.

Of course, the medical card option would have to involve a link between the computer-systems in the Health Service Executive and the systems in the Department of Social Protection. With respect to logistical IT concerns, Joe Carthy, from the UCD School of Computer Science and Informatics, was on NewsTalk radio before lunch-time today: suggesting that it is very much possible to make the computer-systems at Social Protection and Revenue "talk to each other". Carthy suggested that he could set this up easily himself, within a month. I wonder if he could set up a link between the systems in the HSE and Social Protection as easily? So that only medical card holders with children of a certain age would receive child benefit. Medical card holders are exempt from paying the income levy and the health levy; should they not also be (exclusively) entitled to child benefit?

The Economics of Child Benefit

Today the Irish media was full of speculation that there may be a cut to child benefit in the upcoming Budget. Also, following on from the speculation: debates around means-testing and universality surfaced again. The last time I can remember this topic (and associated issues) being discussed was when Liam posted on the Irish Economy blog: more than a year ago at this stage. Liam mentioned George Osborne's decision to axe child benefits from top-rate taxpayers in the UK. Effective from 2013, George Osborne said that his measure would affect people earning more than £44,000 a year.

For a re-cap on Osborne's initiative, this BBC story is useful. As to how Osborne will implement the clawback, the story says that: "any higher-rate taxpayers in receipt of child benefit may be asked to declare this fact on their self-assessment tax returns, implying they would then face an extra tax charge. It might be simpler for HM Revenue & Customs (HMRC), which administers the child benefit system, simply to cross-reference claimants against their tax records." These are two approaches which would be distinct to means-testing; the former is a self-declaration; the latter assumes automatic enrolment into eligibility-assessment. Another way of thinking about the latter approach is that it involves parents being automatically enrolled into the scheme; and the onus being on the government to de-enrol parents. I tried to find more up-to-date information about the potential implementation strategy for the UK; but nothing else has come to my attention so far.

To re-cap on the Irish situation, the following excerpt from Liam's Irish Economy post is useful:

"Rates in Ireland are approximately €150 per child per month (but vary with family size) and are paid universally regardless of family income for each child aged under 16 or under 18 and in full-time education. Like any universal payment of this nature, there is the obvious question as to why people on higher incomes should be receiving a transfer payment from the state. A less obvious question is what we mean by higher incomes and where the threshold should be set. Expenditure on this scheme is approximately €2.3 billion in Ireland... If we do have to cut, then I would rather it be from... schemes like child benefit that don’t have an obvious reason to be universal -- rather than from well-targeted schemes."

In the comments below Liam's post, Kevin (Denny) makes an argument against means-testing: "When you means-test, benefits take-up falls significantly: in other words people who are entitled to benefits... end up not receiving them, see for example Blundell, Fry, Walker (EJ 1988); which reports take-up rates for housing benefits between 50-70%. The Institute for Fiscal Studies has done a lot of work on this... Stigma may play a part in (the) non-take up." There is also a more recent paper in Social Science and Medicine (Stuber and Schlesinger, 2006) which produces a similar result: that there may be stigma attached to means-tested government programs.

The topic of child benefit was also raised on the Irish Economy blog by Philip Lane, almost two years ago at this stage. Philip links to an Irish Times article by Tim Callan and Brian Nolan. Unfortunately the Irish Times article (Tax on Child Benefit Fairest for Low-Income Families) is behind a pay-wall. However, it is essentially a comparison of the options for cutting the cost of child benefit: that have been considered by An Bord Snip Nua and the Commission on Taxation. These are: making the benefit taxable, reducing the payment rate for everyone, or means-testing the benefit. Callan and Nolan argue that taxing child benefit has superior distributive properties. David Madden provides detailed feedback in a comment on the post; here is an excerpt:

"Child benefit (or childrens allowance as it used be called) was originally paid via a tax allowance to the main earner in a household (almost always the father)... It was then changed to a direct payment to the mother. The belief was that mothers would be more sensitive to the needs of children and hence in that regard the payment would be better targetted. I did some research on this a few years ago, looking at HBS data to see whether expenditure from child benefit differed from expenditure from general income (UCD Economics WP: 99/26). I found that it was generally more targetted towards children but that this was due more to its labelling effect (as a direct payment labelled as a child benefit) rather than because it was paid to the mother... Any reform (and as I say I don’t disagree with the basic Callan/Nolan argument) should try to retain child benefit as a direct payment. If it becomes too closely integrated into the tax system then the danger is that it will be less effective in fulfilling its role, which is to benefit children."

Other Irish commentary on the economics of child benefit was made on the Cork Economics Blog last October; by Declan Jordan:

"I posted my views on potential options some time ago on this blog – favouring the taxation route as more efficient and equitable approach... However, there is a very straightforward way to make some savings in child benefit and that would be to remove the increase in payment for third and subsequent children. The Annual SWS Statistical Information Report 2008 shows that there are 41,397 children who are the third or subsequent child in their family and for whom €187 per month is paid rather than €150 for the first two children. It is difficult to understand why the third and subsequent children should cost more than the first two. Economies of scale are surely relevant here as well as the concept of ‘hand-me-downs’. Reducing the payment to third and subsequent children to €150 would immediately save €18m annually. Not a significant amount but not to be sneezed at. Reducing subsequent payments to €100 would generate €43m – which is approximately equivalent to a 2% cut in the payment across the board."

Declan Jordan supports the (taxation) approach suggested by Tim Callan and Brian Nolan. In addition, Jordan makes the observation that household economies of scale are totally ignored in the current design of the Irish scheme. In fact, the Irish scheme is designed in such a way that it seems to anticipate diseconomies of scale. This is in stark contrast with the design of the UK scheme. Payments for subsequent children is an issue than could be tackled in the current design of the Irish scheme... before making a decision about the scheme's distributional approach.

Other Irish commentary that is relevant to this debate was produced by Ferdinand von Prondzynski, while he held the presidency of Dublin City University. Ferdinand focused on a critique of universalism; this excerpt summaries the crux of his argument:

"Should social benefits be ‘universal’ (i.e. made available to everyone) or should they be ‘targeted’ (with the resources directed specifically at those most in need of them)? The idea of universal benefits is a product of the development of the welfare state in the period after the Second World War... The major advantage of universal benefits is that they are easy to administer and can be efficiently delivered. The major disadvantage is that they are very expensive, because they are delivered to those who do not need them as much as to those who do.

As society becomes more prosperous and fairer, universal benefits become much more questionable. The major priorities of social policy... should no longer be directed towards transforming society as a whole, but rather to target those pockets in society which have still not caught up... It is, therefore, perhaps now time to discuss whether universal benefits are an efficient way of achieving further progress. Indeed, it could be asked whether they are even a fair way of doing it, since people who are less well off also contribute to the cost of making contributions to those who are wealthy."

The Economist produced a very in-depth piece on the issues that Ferdinand discusses above, back in an edition from May 1999. The piece discusses how the New Labour government set about reducing the extent of universality in the UK. An excerpt is as folows: "The left has traditionally supported universal benefits. Many on the left argue that unless the middle class benefits from the welfare state, it will refuse to pay the taxes to subsidise welfare for the poor... On the other hand, the left is also concerned about beating poverty and reducing inequality. The more state benefits go to everyone, the less generous they are. The more they are directed at the middle classes, the less they will do to redistribute wealth... The politics of getting rid of universal benefits are fraught. But British voters, whatever they tell opinion pollsters, seem to balk at paying more than 40% of their incomes in tax."

There are also academic articles in peer-reviewed journals: addressing a very similar set of issues to that discussed above by The Economist. One example is Besley (Economica, 1989): "Means Testing Versus Universal Provision in Poverty Alleviation Programmes". Besley produces an analytical framework: where universal provision "entails a cost in the form of a leakage of some of the benefit to the non-poor. On the other hand, means-tested programmes may be costly to administer since they require a test of eligibility for claimants. They also impose costs (psychic and pecuniary) on the poor who have to claim, which may deter some of them from claiming."

The point about psychic costs is relevant to the issue of stigma that was raised by Kevin. The Besley paper proposes a trade-off between the costs of means-testing and the leakage in universal provision. What it doesn't suggest though: is a third way: such as the taxation of benefits as recommended by Callan and Nolan; and mooted in the Osborne initiative (as described by the BBC): "declare this fact (high-income) on their self-assessment tax returns, implying they would then face an extra tax charge. (Or)... it might be simpler for HM Revenue & Customs... simply to cross-reference claimants against their tax records."

Finally, I think it is worthwhile drawing attention to the fact that there is already a well-established means-testing scheme in Ireland: the medical card scheme. Anne Nolan of the ESRI notes that: "In Ireland, approximately 30 per cent of the population (medical card patients) are entitled to free GP care, while the remaining 70 per cent (private patients) must pay the full cost. Eligibility for a medical card is primarily decided on the basis of an income means test, but individuals may also be granted a medical card on the basis of age (since July 2001, all over 70s are automatically entitled to a medical card), particular health needs or participation in certain Government-sponsored employment and training schemes."

One could attempt to isolate the sub-sample of households that are eligible for a medical card using the scheme's income means test; and provide child benefit only to those households. However, there is good reason to argue that any household which is eligible for a medical card (for whatever reason the card is authorised): should be in receipt of a child benefit payment. The main point is that the existing distinction of being eligible for a medical card is a possibility for targeting that seems to have been overlooked to date: in considering how child benefit might be targeted towards those who need it most. Of course, there may still be potential for stigma; but it should only arise through a reluctance to take up eligibility for a medical card (which is arguably less likely to occur than a reluctance to claim child benefit).

Addendum: In summary, there are well-developed arguments that universal benefits may not be an efficient way of achieving further progress for the welfare state. From 2013, there will be a clawback of child benefit in the UK: affecting people earning more than £44,000 a year. How this clawback will be achieved is unclear; a self-declaration mechanism has been suggested; aswell as the cross-referencing of claimants against their tax records. What we do know is that there are evidence-based concerns that means-testing of government programs can lead to (at least perceptions of) stigma. However, means-testing is not the only way to achieve a non-universal approach.

Besides self-declaration, and cross-referencing against tax records; there is also the possibility of taxing child benefit (which presumably would also have to involve linking to tax records). This was suggested for the Irish case by Tim Callan and Brian Nolan, in 2009. As a cost-reducing measure, Declan Jordan suggested that there be recognition of household economies of scale; the initiative that Jordan describes could lead to a saving of €43m (which could cover the cost of any wider reform initiative; such as the one suggested by Callan and Nolan).

Finally, it is suggested in this post that providing child benefit on the basis of medical card-eligibility is an alternative to the taxation (of benefit) approach suggested by Callan and Nolan. This could reduce the cost of the current scheme by two thirds (or approximately €1.5 billion); based on a very rough estimate. Approximately 30 per cent of the population hold medical cards; but of course: there may be multiple medical cards per household (which would mean a cost-reduction of 66% is very much an over-estimate).

Postscript: An update is available here.

Whatever Will Tweet Will Be?

A story on China Daily USA came to my attention this evening: about Zhong Lin, a graduate of Tsinghua University; and Zhao Siqi, from Hong Kong University. Both are engineers at Rice University, who designed a computer program that analyses tweets in real time. They hope to use it to predict the winner of the next US presidential election. To date, Lin and Siqi have been working on a project called SportSense, which examines tweets posted by NFL fans to infer what is happening in a game, and how excited the fans are. "It does so in real-time and provides visualized results for live games."

"SportSense is part of a larger project that aims to utilize people as sensors to infer what is happening in the physical world and what people feel about it." SportSense is not the first project to harness the power of Twitter, of course. I posted on the old Geary blog about a Dublin-based start-up called "WePredict". Kevin posted on this blog a few months ago about a study in Science which shows that work, sleep and the amount of daylight people are exposed to all affect mood. There has also been work (by InboxQ) on where the highest concentration of tweeters with the most knowledge about a specific topic are located. WiseWindow is a marketing firm that uses social-media activity to forecast demand for products.

Another group to keep an eye on is Derwent Capital Markets. They use Twitter sentiment to manage their hedge fund. There's been a lot of demand for the fund, according to this article. The strategy is based on an academic study by Johan Bollen (Indiana University), Huina Mao (Indiana University), and Xiao-Jun Zeng (University of Manchester) that established the connection between emotion-related words appearing in Twitter posts and subsequent movements in the Dow Jones Industrial Average. Here's the original research paper.

This article is critical of the approach taken by Derwent. It makes a number of points, one of which is: "Beyond the difficulty of assigning sentiment to tweets, there's a much bigger issue at play. If you look at the patterns of tweets what you find is that most are reactive rather than proactive... Twitter sentiment is likely to be a lagging indicator, at least in the real-time world of algo trading."

Nonetheless, this is an area which has garnered a lot of interest. This BBC story mentions a PhD student at Munich who has done similar work on predicting the stock market (and elections) with Twitter sentiment. The Economist had a piece on the topic in their second Technology Quarterly for this year. That article raised a number of interesting issues; such as the role of meaning in Twitter updates:

Humans excel at extracting meaning and sentiment from even the tiniest snippets of text, a task that stumps machines. To a computer, a tweet that reads “Feeling joyful after my trip to the dentist. Yeah, really” says that the author has been to the dentist and is now happy. Researchers have recently made strides in teaching machines to recognise such sarcasm, as well as double meanings or cultural references. In February Watson, a supercomputer devised by IBM, trounced two human champions at “Jeopardy!”, an American quiz show renowned for the way its clues are laden with ambiguity, irony, riddles and puns. But, for the most part, processing natural language remains a challenge.

While there may be skepticism about the predictive power of Twitter (especially for use in the domains of marketing and finance), there is no doubt that the medium produces a lot of user-generated information. While I am not (yet) a Twitter user, I have been keen to tap into it as a source of information for some time now. Recently, I found the means to do so: inagist is a Twitter-based news-service; probably as useful to both Twitter users and non-users alike. Even better is TweetMinster (due to its automatic updating): it's essentially a twitter-feed about current affairs (London-orientated). I'm following their live feed on breaking news.

TweetMinster tracks "the content most shared between expert users on Twitter and (we) use that data to discover and organise content for our news platform... this is what politicians, civil servants, activists, academics, business analysts and journalists think is the most important news of the day... We also feature live feeds of relevant twitter posts by the expert networks we track, so that you can follow the breaking news stories, big events and trending topics live – even if you’re not on Twitter..."

Addendum: It turns out that Twitter is only part of the story. I just read about a company called "Recorded Future" and blogged about them here: Using the Internet to Predict the Future.

Paddy Irishman, Paddy Englishman, Paddy Scotsman ...

Cultural finance research hasn't advanced much beyond looking for differences in national characteristics and testing whether this is linked to differences in cross-country financial behaviour. Country financial-stereotyping, if you will.

The paper I'll be presenting at Friday's Economic and Psychology conference seeks to rectify that a bit by looking at subcultures within a country and whether these are linked to financial decision-making.

Actually the paper began two years ago at this conference in 2009 when Marcel Das of Tilburg presented on the excellent LISS panel survey dataset his team have collected for the Dutch population. This ended up providing the data for the paper.

The paper is available for download on SSRN and the abstract is below. Hopefully I'll have a chance to edit the paper more before Friday, but need to juggle that and the arrival of the mother-in-law which might be quite time-draining! Looking forward to Friday!

Subcultures in Household Financial Decision-Making

Michael Dowling

Dublin City University

Abstract:

Research into cultural influences on financial decision-making is increasingly delivering interesting and novel findings on how households make their financial decisions. This study utilises a large population-representative survey of households in the Netherlands to investigate whether World Values Survey cultural dimensions are related to intra-national differences in household financial decision-making. The main finding is that subcultures characterised as Self-Expressive are more than twice as likely to own risky assets as those on the opposite end of the cultural dimension (Survivalists). These findings are robust to checks for confounding factors such as gender and income.

Rates of Unemployment

Discussions of Irish unemployment generally focus on the standard ILO unemployment rate, currently 14.3%, and youth unemployment rates, for example 27.7% for those aged 20-24. However these rates are merely a lower bound for the excess labour supply that currently exists.

Similarly to the Bureau of Labour Statistics in the US, the CSO produces a number of alternative measures to the ILO unemployment rate. These are contained in Table S7 here (this table is not contained in the usual QNHS release). The alternative measures are:

S1: Unemployed plus discouraged workers as a percentage of the Labour Force plus discouraged workers.

S2: Unemployed plus marginally attached plus others not in education who want work as a percentage of the Labour Force plus marginally attached plus others not in education who want work.

S3: Unemployed plus marginally attached plus others not in education who want work plus underemployed part-time workers as a percentage of the Labour Force plus marginally attached plus others not in education who want work. From Q3 2008 part-time underemployment was calculated in a new way, by removing the condition that the respondent be actively looking for an additional or replacement job.

These rates are shown in the following figure (click to enlarge).

So under S3, the widest measure, unemployment is currently 24% and steadily increasing. The individual elements of S3 are shown in Table 1A of the QNHS; underemployment appears to be the main driver of the measure at present.

When this is combined with the skills lost by those who are unemployed, the experience forgone by those who would have jobs in times of “normal” employment levels and the psychological costs incurred by the long-term unemployed, we can see that the standard unemployment rate falls short of describing the true extent of losses due to unemployment.

Cross-posted at http://irisheconthoughts.wordpress.com/.

Networks, Crowds, and Markets: Reasoning About a Highly Connected World

Stephen Kinsella pointing this out to me (link here). Tremendously interesting and the authors very altruistically make the pre-publication chapters available as links. Next in the queue after Thinking Fast and Slow for a bookclub.

Networks, Crowds, and Markets: 
Reasoning About a Highly Connected World

By David Easley and Jon Kleinberg

Over the past decade there has been a growing public fascination with the complex "connectedness" of modern society. This connectedness is found in many incarnations: in the rapid growth of the Internet and the Web, in the ease with which global communication now takes place, and in the ability of news and information as well as epidemics and financial crises to spread around the world with surprising speed and intensity. These are phenomena that involve networks, incentives, and the aggregate behavior of groups of people; they are based on the links that connect us and the ways in which each of our decisions can have subtle consequences for the outcomes of everyone else.

Networks, Crowds, and Markets combines different scientific perspectives in its approach to understanding networks and behavior. Drawing on ideas from economics, sociology, computing and information science, and applied mathematics, it describes the emerging field of study that is growing at the interface of all these areas, addressing fundamental questions about how the social, economic, and technological worlds are connected.

The book is based on an inter-disciplinary course entitled Networks that we teach at Cornell. The book, like the course, is designed at the introductory undergraduate level with no formal prerequisites. To support deeper explorations, most of the chapters are supplemented with optional advanced sections.
The book is published by Cambridge University Press (2010); for more information, please see Cambridge's page for the book.

Mental Health Across Europe

Liam has been posting recently about mental health. One source of data on this is international surveys which allow cross country comparisons. Share is especially useful in this regard. The following graph demonstrates that there is a considerable amount of variation in Europe with respect to depressive symptoms. This index is derived from 12 binary variables measuring the presence or absence of the following: depression, pessimism, wishing death, guilt, sleeplessness, disinterest, irritability, loss of appetite, fatigue, lack of concentration, lack of enjoyment, and tearfulness. The EURO-D scale has been previously validated (Prince et al., 1999), and seems like it should be less susceptible to the usual problems associated with self assessments as it directly measures the presence of these symptoms. I have just pooled the data from the first two waves and some countries are in here only once, and I have ordered the countries in the sample according to the mean of this scale. Nevertheless, the spread is pretty striking. At the individual level anything above 3 is potentially indicative of clinical levels of depression, which is very worrying for Italy, Israel, Spain and Poland. One explanation for these differences relates to the prevalence of different types of social networks, a topic I will post about again at some stage.

Of course this is before the recession. Angus Deaton’s paper on wellbeing and the financial crisis has already been mentioned here.

Student Effort, Educational Attainment and the World Cup

There was a paper delivered today by Simon Burgess (Bristol University); on international football tournaments, study effort and GCSE exam performance; at the UCD Geary Behavioural Seminar Series. Today's seminar paper, "Student Effort, Educational Attainment and the World Cup" (with Rob Metcalfe and Steven Proud) is not online yet, but readers can investigate further research by the speaker: here.

An abstract for today's paper is available here on the website of the Institute for Social and Economic Research (ISER). The authors "use a sharp, exogenous and repeated change in the value of leisure to identify the impact of student effort on educational performance. Performance is measured using the universal high-stakes tests that students in schools in England take at the end of compulsory schooling. The treatment arises from the fact that the world’s major international football tournaments overlap with the exam period in schools in England, well known to be a nation obsessed with football."

Professor Burgess is Director of the Centre for Market and Public Organisation (CMPO). For those interested in research on the economics of education (and other domains of applied micro), the CMPO blog and twitter feed are worth following.

Economics and Mental Health

In the preliminary stages of putting together a session on Economics and Mental Health to be held in NUI Galway in June. Please feel free to get in touch with suggestions if you are interested in this area.

Weekend Links

1. Full video of April's RES session on Foundations of Revealed Preferences. Blundell, Afriat, Varian, Diewert - Includes Varian describing how the google ad auction was designed.

2. Dolan and Metcalfe paper on the role of subjective well-being measures in public policy -

3. Influencing Behaviour: The MINDSPACE way - forthcoming paper in the Journal of Economic Psychology

4. Came across the 2009 RES video sessions. Some very good presentations there for people interested in behavioural economics, microeconomics and so on. Includes talks from Laibson on financial crisis, a session on experimental and non-experimental approaches to development and a session on higher education.

5. Conference on bounded rationality in London December 8/9. 

6. Via Colm Harmon, a summary of the Mirrlees tax review provided by Richard Blundell

Programme for November 25th

If you intend going to this and haven't RSVP'd yet, please drop geary@ucd.ie an email,.

November 25th Economics and Psychology Event Geary Institute

9.00: REGISTRATION

9.15: Organ Donation and Individual Consent- The role of Family Consent in Donation Systems.
Clare Delargy- UCD Geary Institute

9.45: Credit Cards: Friend or Foe.
Yvonne McCarthy - Central Bank of Ireland.

10.15: Understanding Taxpayer Behaviour – New Opportunities for Tax Administration.
Keith Walsh- Revenue Commissioners

10.45: BREAK

11.00: Deity and Development: A Study of the Impact of Religious Culture upon Social and Economic Development.
Ryan McKee- Queen’s University Belfast

11.30: The Role of Economic Psychology in Students' Term-Time Employment and Academic Achievement.
Martin Ryan- UCD Geary Institute

12.00: LUNCH

13.00: Corruption and Well-Being
Rob Gillanders - University College Dublin

13.30: Subcultures in Household Financial Decision-Making: An Exploratory Study of Risky Asset Ownership in the Netherlands.
Michael Dowling- DCU

14.00:BREAK

14.15: Political Determinants of Participation in a Recycling Programme
Marie Brugligio- University of Malta

14.45: Behavioural Economics and Policymaking: Learning from the Early Adopters.
Pete Lunn, ESRI

15.15: BREAK

15.30: Behavioural Economics and the Irish Pension System
Liam Delaney- Stirling University and Geary Institute

16.00: Is the health impact of socioeconomic status explained by objective financial resources or subjective social status?
Michael Daly - Manchester and Aberdeen.

16.30: Panel Discussion

A Little Gem

The following gem is attributed to the Lord Mayor of Dublin, Andrew Montague, in today's Irish Times:

“The more people we can get to cycle, the calmer the city centre traffic is, and that actually reduces fatalities, and the research shows that the safest cities in the world are the cities with the most cyclists”

http://www.irishtimes.com/newspaper/breaking/2011/1111/breaking9.html?via=mr

Michael Lewis Article on Kahneman

I had a quick read of Kahneman's new book and will read it more carefully over the weekend. Looks wonderful from first reading. Michael Lewis's article on Kahneman from Vanity Fair is linked here (thanks to Dave Madden for sending link).

Derren Brown: The Experiments

Tomorrow sees the conclusion of a recent series of Channel 4 programmes put together by the illusionist Derren Brown: The Eperiments. According to the Wikipedia entry, it is a series of "ambitious sociological experiments, in which the unwitting subject is a single person, a crowd, or even an entire town."

The first episode, entitled "The Assassin"... consists of Brown successfully hypnotising an unwitting member of the public to 'assassinate' a celebrity revealed to be Stephen Fry. This technique was used as a comparison to conspiracy theories regarding the assassination of Robert Kennedy by Sirhan Sirhan, who claims to have no memory of the event... In the second episode, "Remote Control"... Brown hosted a game show, asking a masked audience to vote for the escalating outcome of the fate of one contestant in an attempt to demonstrate the effect of deindividuation. The theory is that taking away individuality from someone turns them from themselves to just part of a crowd, and makes them act in a way that would sometimes go against their morals... In the third episode, "The Guilt Trip"... Brown attempted to find out if he could convince someone through association to admit to a crime they didn't commit. He worked through tricking a participant into distrusting their own memory and having excessive feelings of guilt, to the extent where he confessed to the murder of an actor whom he had interacted with and was later told had been murdered... In the fourth episode, "The Secret of Luck"... (due to air tomorrow)... Brown spreads a rumour of a lucky dog statue throughout an entire town and documents the consequences.

These experiments should be of interest to behavioural economists in the context of the Nudge theory (and the impact of Nudge on public policy; especially Thaler and Sunstein's discussion of libertarian paternalism). In particular, Brown's "Gameshow" experiment is evocative of the Stanford Prisoner Experiment. Brown's experiments can be investiagted further on YouTube or 4OD. Below is a trailer for the "Gameshow" episode.

ESRI Paper on Active Labour Market Programmes

A summary of the potential for active labour market policies by Eilis O'Brien, Seamus McGuinness and Philip O'Connell of the ESRI is linked here Abstract below:

Ireland faces a crisis of mass unemployment. More than 14 per cent of the labour force is unemployed, and long-term unemployment is growing rapidly. Active labour market policies (ALMPs) - consisting of a range of assistance, training and employment programmes to support the unemployed back to work - have been held out as an essential part of the policy response to unemployment. This paper examines a wide range of national and international research on the
effectiveness of ALMPs to ask: i) what do ALMPs do for the unemployed?, ii) are some programmes more effective than others? iii) what can we expect ALMPs to achieve in a recession? The paper shows that while research on the impact of active labour market programmes is far from conclusive and faces a number of difficult methodological challenges, it does provide a basis on which to identify the types of programmes that have been found to enhance the employment prospects of their unemployed clients

Nudging Back

Henry Farrell (a graduate of UCD Economics, as it happens) raises reasonable questions about the conflict between democracy and the technocracy inherent libertarian paternalism.

Libertarian paternalism is seductive because democratic politics is a cumbersome and messy business. Even so, democracy is far better than even the best-intentioned technocracy at discovering people’s real interests and how to advance them. It is also, obviously, better at defending those interests when bureaucrats do not mean well.

On a side note, Cass Sunstein is married to an Irish woman and is therefore entitled to citizenship. I wonder if the Royal Irish Academy might learn something from the FAI in this regard.

Assorted Links

1. A useful documentary ("The Flaw") on the economic crisis aired last night. Featuring the likes of Robert Shiller, Robert Frank, Joseph Stiglitz and Dan Ariely. See http://theflawmovie.com/.

2. In reference to the above, the Slingbox is a very useful invention for anyone traveling frequently or living abroad who wants to be able to watch tv in their home country.

3. Interesting paper combining the important areas of price elasticity of demand with respect to health expenditure and myopia.

Moral hazard in health insurance: How important is forward looking behavior?
Aviva Aron-Dine, Liran Einav, Amy Finkelstein, and Mark Culleny

Abstract

We investigate whether individuals exhibit forward looking behavior in their response to the non-linear pricing common in health insurance contracts. Our primary empirical strategy exploits the fact that employees who join an employer-provided health insurance plan later in the calendar year face the same initial (spot) price of medical care but a higher expected end-of-year (future) price relative to employees who join the same plan earlier in the year. Our results reject the null of completely myopic behavior; medical utilization appears to respond to the future price, with a statistically signi…ficant elasticity of (initial) medical utilization with respect to the future price of -0.2 to -0.6. To try to assess the extent of forward looking behavior, we develop a stylized dynamic model of individual behavior and calibrate it using data from the RAND Health Insurance Experiment. Our calibration exercise suggests that the elasticity we estimated is substantially smaller than the one implied by fully forward-looking behavior, yet it is sufficiently high to have an economically signi…ficant effect on the response of annual medical utilization to a non-linear health insurance contract. Overall, our results point to the empirical importance of accounting for dynamic incentives in analyses of the impact of health insurance on medical utilization.

4. Paper on the consumption value of higher education.

The Consumption Value of Postsecondary Education
Brian Jacob, Brian McCall, Kevin Stange,

http://isites.harvard.edu/fs/docs/icb.topic964076.files/College%20Consumption%20Nov%202%202011.pdf

Abstract
Education provides both investment and consumption benefits; the former being realized after schooling is completed but the latter accruing only while schooling is actually taking place. In this paper, we quantify the importance of consumption value considerations to schooling decisions in the context of higher education and examine the implications for colleges’ strategies for attracting students. To do so, we estimate a discrete choice model of college demand using micro data from the high school classes of 1992 and 2004, matched to extensive information on all four-year colleges in the U.S. We find that most students do appear to value college attributes which we categorize as “consumption,” including college spending on student activities, sports, and dormitories. In fact, students appear to be more willing to pay for these non-academic aspects of colleges than typical academic aspects, such as spending on instruction. Estimates suggest that this taste for consumption amenities is broad-based among many student groups, whereas taste for academic quality is confined only to the high achieving. Consequently, policies that reallocate financial resources away from these non-academic aspects to instruction would not enable most schools to attract more or better students, as some policy-makers suggest. However, since student preferences for college attributes are very heterogeneous different colleges face very different incentives for changing their characteristics depending on their current student body and those they are trying to attract.

Our empirical approach makes a number of improvements on existing literature, including accounting for unobserved choice set variability created by selective admissions, controlling for fixed unobserved differences between schools and price discounting, and permitting greater preference heterogeneity.