Sunday, April 24, 2016

Bryan, Adams, and Monin (2012), on Cheating and Cheaters

Christopher J. Bryan, Gabrielle S. Adams, and Benoît Monin, “When Cheating Would Make You a Cheater: Implicating the Self Prevents Unethical Behavior.” Journal of Experimental Psychology: General 142(4): 1001-1005, 2013 [pdf].

• People who engage in unethical behavior like to weaken the connection between their behavior and their identity. They might cheat, but they don’t want to be a cheater. Similar distinctions might surface with litter/litterbug, vote/voter, or drunk driving/drunk driver. 

• The authors run an experiment that involves a frame of “cheat” versus a frame of “cheater.” Many more people (apparently) cheated when the frame was about cheating, than when the frame was about cheaters. A follow-up, internet-based experiment had similar results. 

• The results do not imply that we should always try to adopt the “identity” (cheater) framework, even if that frame does diminish the number of people cheating. Maybe if you cheat despite being told not to be a cheater, your cheating will be even worse!

Engel and Kurschilgen (2014) on Introspection

Christoph Engel and Michael Kurschilgen, “The Jurisdiction of the Man Within – Introspection, Identity, and Cooperation in a Public Good Experiment.” Max Planck Institute for Research on Collective Goods, 2015/1, December 2014 [pdf].

• This paper features a lab experiment involving a repeated public good game, where groups of four players individually decide each round how much of their endowment they will invest in a public good. The choices of every player in every previous round are known to everyone. In such games, contributions tend to fall over time, and a significant minority of people never contribute. The modal behavior is “conditional cooperator,” where people contribute something as long as others do.

• Each round features a second stage as well, where the players are asked about their expectations or beliefs. The various “treatments” in the game differ based on the question that is posed. 

• “Introspection” for the authors involves a comparison of your own behavior with a normative goal. The authors contend that introspection can be induced in the players via the right sort of belief question. 

• One question aims at making salient the “normative ideal,” asking players what they think everyone should contribute. A second treatment attempts to direct focus to the “normative minimum,” where players are asked what is the least amount that players should be expected to contribute. 

• The authors suggest that players will have an element of their utility connected to their “identity.” This term lowers a player's utility to the extent that the player's actual behavior falls short of her ideal. But the extent of such potential lowering depends on how clear it is that the player has not lived up to her professed ideal. 

• Any sort of introspection might increase the mental clarity concerning how a player's behavior falls short of her own ideal. But the Normative Minimum question will, the authors hypothesize, go the furthest in reducing her “moral wiggle room.” Any contribution that does not at least match what she think is minimally required will be a stark piece of hypocrisy. 

• Sure enough, the “normative minimum” question leads to substantially more cooperation, and furthermore, greatly slows down the erosion of cooperation over time.

Quasi-Hyperbolic Discounting and Dynamic Inconsistency

OK, this one is not an outline. Rather, it is a simple three-period example that is meant to give some flavor for quasi-hyperbolic discounting and dynamic inconsistency, in comparison with exponential discounting and dynamic consistency.

Consider a three-period horizon (though the ideas apply to any longer timeframe): the current period (period 0), period 1, and period 2. How do you decide, among all available three-period consumption bundles, which one to choose? Presumably you have some utility function, U(x0, x1, x2), which represents your preferences over the three-period consumption streams, which for our purposes will be treated as dollar amounts.

Exponential discounting: If you are a standard, exponential discounter, your utility over consumption bundles can be written as U(x0, x1, x2) = u(xo) + δu(x1) + δ²u(x2), where your per-period discount rate, δ, typically would be some number less than one. Let’s say it is .9, so that utility from consumption to be received next period is worth, right now, only .9 of what it would be worth if received immediately: U(x0, x1, x2) = u(xo) + .9u(x1) + .81u(x2).

Quasi-hyperbolic discounting: To get to quasi-hyperbolic discounting, start with our exponential discounter, with U(x0, x1, x2) = u(xo) + δu(x1) + δ²u(x2). A quasi-hyperbolic person has an additional present bias, such that every delayed utility counts even less from the point of view of today: U(x0, x1, x2) = u(xo) + βδu(x1) + βδ²u(x2). If β=1, then we are back at exponential discounting, but for β<1,we have both time discounting and a present bias. Let β=.5, say, and stick with δ=.9: U(x0, x1, x2) = u(xo) + .5(.9)u(x1) + (.5)(.9)²u(x2) = u(xo) + .45u(x1) + .405u(x2). Again, what is added by quasi-hyperbolic discounting is the notion that the current period is in a different league from all the rest, or maybe that all the rest are in a different league from the current period: they are additionally discounted thanks to the present bias. 

Dynamic Inconsistency: A quasi-hyperbolic consumer is at risk of making plans for current and future consumption – plans that are optimal when they are made, at the present moment – that he or she will not follow as time passes. This future unwillingness to abide by optimal plans (in a world where no new information or options become available as time goes on) would never occur with an exponential discounter. 

Consider an example. Let u(x)=x; assume there is no standard discounting (δ=1), and consider two consumption bundles. Bundle A involves (x0, x1, x2) equal to (10, 10, 10), whereas bundle B involves (10, 14, 4). These consumption bundles have identical consumption in the initial period, which is an important element of the argument that follows, though not necessary for the larger point (beyond this example) about time inconsistency. 

For an exponential discounter (β=1), at time 0, U(A) = U(10, 10, 10) = u(xo) + δu(x1) + δ²u(x2) = 10 + 10 + 10 = 30 utils, whereas U(B) = U(10, 14, 4) = 10+14+4 = 28 utils, and A is preferred. Now imagine that one period has passed, and our consumer already has consumed her x=10 (which she would get with either A or B). The remainder of bundle A is now (with the new “current” period) (x0, x1) = (10, 10), and the remainder of bundle B is (x0, x1) = (14, 4). U(10, 10) = 20, and U(14, 4)= 18, and bundle A still remains preferred, as it should, one might think, since it was preferred before and the original initial period, now gone by, involved the same consumption with A or B. 

Continue to assume that there is no standard discounting (δ=1), but allow for the existence of present bias: β=.5. For our quasi-hyperbolic discounter, at time 0, U(A) = U(10, 10, 10) = u(xo) + βδu(x1) + βδ²u(x2) = 10 + .5(10) + .5(10) = 20 utils, whereas U(B) = U(10, 14, 4) = 10+7+2 = 19 utils, and A is preferred. 

Now again imagine that one period has passed, and our consumer already has consumed her x=10 (which she would get with either A or B). The remainder of bundle A is now (with the new “current” period) (x0, x1) = (10, 10), and the remainder of bundle B is (x0, x1) = (14, 4). U(10, 10) = 10 + .5(10) = 15, and U(14, 4) = 14 + .5(4) = 16, and now bundle B is preferred! Are you appropriately amazed? [One could imagine this another way, where our consumer is told she will get 10 this period, and has to decide whether she wants 10 and 10 in the subsequent two periods, or 14 and 4. She replies, 10 and 10. But one period later, when asked if she will stick with her original plan, she says no, she wants 14 and 4. This is an example of dynamic inconsistency, and it would not occur with an exponential discounter.]

Saturday, April 16, 2016

Helliwell, et al. (2014) on Good Government and Well-being

John F. Helliwell, Haifang Huang, Shawn Grover, and Shun Wang, “Empirical Linkages between Good Government and National Well-being.” NBER Working Paper No. 20686, November 2014.

• The World Bank provides Worldwide Governance Indicators, with six components: “government effectiveness, regulatory quality, rule of law, and the control of corruption;” “voice and accountability;” and “political stability and absence of violence.” The first four are about delivery of services, the last two about the state of democracy. 

• Does good governance boost subjective well-being (SWB)? If so, through what channels? Beware of misleading correlations: more educated people are happier, but when controlling for health, etc., the effect of education goes away or reverses. It seems that education leads to things that improve happiness, but is not happiness boosting per se. 

• Nonetheless, low corruption and high trust seem to directly boost happiness, as well as making government more efficient. 

• Approximately one quarter of changes in SWB are income-related, while the rest are due to other factors. The determinants of SWB around the world seem to be quite similar. 

• Will a lost wallet be returned? International variation in answering this question is much higher when asked if police will return the wallet than when asked if a stranger will return it. 

• Trust reduces traffic deaths and suicides! 

• The quality of delivery of government services tends to have a greater association with SWB than does the extent of democracy: improvements in government service quality add considerably to SWB, even controlling for the higher GDP that they bring about. For countries that have a high quality of service delivery, however, a stronger democracy improves SWB.

Frey and Stutzer (2014) on Mispredicting Utility

Bruno S. Frey and Alois Stutzer. “Economic Consequences of Mispredicting Utility.” Journal of Happiness Studies 15: 937–956, 2014 [pdf].

• People systematically mispredict the utility that they will receive from their consumption choices: intrinsic needs (competence, autonomy, and so on) are undervalued, while extrinsic rewards (money, status) are overvalued. 

• Utility mispredictions stem from mistakes concerning hedonic adaptation. Goods that satisfy internal needs are not as subject to adaptation as goods satisfying external rewards. People adapt to higher incomes, but not to commuting – indeed, they become slightly sensitized to the pains of commuting. 

• Frey and Stutzer model misprediction as arising from a change in the salience of an attribute between the ex ante choice to consume a good and the ex post consumption. Extrinsic attributes (salary, say) tend to be more salient than intrinsic features (time with friends) at the time of decision making. 

• Perhaps people adapt less to intrinsic characteristics because they get a reminder with each repetition, they are gifts that keep giving: each additional meeting with a friend brings new joy. 

• People do not adapt all that well to chronic health problems, unemployment, or the death of close relatives. Income increases are adapted to (but only 60% of the hedonic boost is lost). 

• Forecasts of utility are based on memories of past experiences, so the most memorable parts of an experience dominate. This leads to the peak-end rule, where the utility that lives in memory is roughly approximated by the average of the best moment and the quality of the ending. Intrinsic elements often involve duration, which is undercounted in memory. 

• Learning about mispredictions is surprisingly limited. 

• People like to provide a rational accounting for their actions; further, it is easier to explain to oneself and others the advantages of extrinsic dimensions than of intrinsic ones. 

• Markets tend to make prices and related attributes more focal. 

• Commuting time is a negative intrinsic dimension that receives short shrift in decision making. Lower rents and higher income do not, in practice, fully compensate for the pains of commuting, nor do other family members seem to gain from your long commute. Though a long commutes hurts life satisfaction, unemployment is much worse.