Bell and Blanchflower (2018) on Underemployment and Happiness

David N. F. Bell and David G. Blanchflower, “The Well-Being of the Overemployed and the Underemployed and the Rise in Depression in the UK.” NBER Working Paper No. 24840, July 2018. [A later version appears in the May, 2019 issue of the Journal of Economic Behavior and Organization.]

• Unemployment is very detrimental to subjective well-being (SWB); but what about underemployment? 

• It turns out that in the UK, working fewer hours than you would like to work (at the same rate of pay) also undermines SWB – though not by as much as does poor health or unemployment.

• Overemployment also lowers well-being!

• Though unemployment in the UK has recovered from the 2008 crisis, underemployment has not recovered; earlier this year [2018], it stood at about 3% of the labor force. 

• Incomes and real wages also have not recovered, perhaps because underemployment is a sign of slack in the labor market. 

• Men are more likely than women to be underemployed, and lower wage workers are more likely to desire more hours.  

• Data are drawn from four subjective well-being questions that focus on different conceptions of life assessment: (1) satisfaction; (2) worthiness; (3) happiness; and (4) anxiety. The first three measures show improvements in well-being over the 2011-2017 period; not so for anxiety.

• The usual age effects show up, with well-being minimized at ages 50-54; things again head south after age 75 (but from global highs at 70-74). Retired people display high well-being. 

• Depression is fairly common (and much more so now than ten years ago), with 2.3% of workers being depressed and almost 10% of the unemployed being similarly situated.

Sherman and Shavit (2018) on Creative Effort at Work

Arie Sherman and Tal Shavit, “The Thrill of Creative Effort at Work: An Empirical Study on Work, Creative Effort and Well-Being.” Journal of Happiness Studies 19(7): 2049–2069, October 2018 [pdf].

• Maybe work isn’t just a means to the end of having money? Could it be that there are some non-pecuniary benefits of work? 

• Sherman and Shavit suggest that workers might invest creative effort to build up their “hedonic capital.” 

• They survey 922 Israeli adults who are salaried employees (that is, not self-employed). The idea is to see if those who invest more creative effort at work (for the purpose of making work more enjoyable) have higher subjective well-being. 

• The authors check four measures (on 0-to-10 scales) of subjective well-being: overall satisfaction; meaning and purpose; positive feelings; and, negative feelings. 

• The results indicate that creative effort (self-rated on a 1-to-7 scale) at work improves subjective well-being (SWB) when SWB is measured as life satisfaction, meaning and purpose, or positive affect. 

• Creative and intellectual work raises SWB. 

• Good health and financial satisfaction raise SWB; income does not aid meaning and purpose. 

• Having children does not raise SWB but does add meaning and purpose. 

• There are U-shaped age effects on SWB and positive affect (that is, there's a trough in midlife), but not for meaning and purpose. 

• Good health, financial satisfaction, and religiosity all seem to reduce negative affect.

Lindqvist, Östling, and Cesarini (2018) on Lottery Wealth and Happiness

Erik Lindqvist, Robert Östling, and David Cesarini, “Long-run Effects of Lottery Wealth on Psychological Well-being.” NBER Working Paper No. 24667, May 2018 [pdf of a similar version here]. 

• Adaptation might suggest that the (exaggerated?) hedonic benefits from a monetary windfall will be short-lived. 

• Lottery data can help us identify the extent to which wealth causes increased happiness or life satisfaction, in both the short and the long run. 

• The authors look at Swedish lottery winners 5 to 22 years after their stroke of good fortune. 

• The estimation undertaken here of how much happiness flows from wealth compares very similar people: they are all lottery winners, but the amounts they won differ. 

• Happiness and Life Satisfaction are reported on an 11-point scale. They are highly positively correlated, though are influenced differently by wealth. Other variables collected are Mental Health, and Financial Life Satisfaction.

• Life Satisfaction is raised by an extra $100,000, and the effect is lasting. 

• The source of the increased Life Satisfaction is improved Financial Life Satisfaction. (Yes, a financial windfall improves one's financial satisfaction!)

• Happiness and Mental Health are not improved (in the long run) by a lottery win. 

• This research was all pre-registered: opportunities to p-hack are minimal; N ≈ 3350 

•  Lottery winners in this sample tend to behave prudently – they don't squander their winnings in a short period of time. 

Cooke, Diop, Fishbane, et al. (2018) on Failure to Appear in Court

Brice Cooke, Binta Zahra Diop, Alissa Fishbane, et al., “Using Behavioral Science to Improve Criminal Justice Outcomes: Preventing Failures to Appear in Court.” ideas42 and the University of Chicago Crime Lab, January 2018 [pdf].

• In NYC in 2014, about 41% of summons to appear in court for minor infractions went unheeded.

• Missed court hearings are costly to the court and to the defendants, who have a warrant issued for their arrest.

• But perhaps behavioral factors, not preferences, are at the root of many missed court dates; maybe people forget, or fail to plan to miss work, or don’t understand the consequences, or just aren’t paying adequate attention. (Court dates can be months after the offense.)

• Perhaps present bias leads to failures-to-appear (FTAs): the benefits of skipping a court date are immediate and the (uncertain) costs are in the possibly distant future.

• “Mental models” (such as the belief that minor offenses do not warrant a court appearance) and perceived social norms (a belief that most people don't show up at court for minor matters) might also lead to FTAs.

• The researchers redesigned the summons form, to: (1) increase the clarity of the message that the form constitutes a summons to court; (2) highlight date, time, location for the court appearance; and to (3) foreground the consequence (an arrest warrant) for failing to appear. 

• The researchers also instituted a series of text message reminders about the court date. Some reminders focus on consequences of a missed court date, and some on planning. The sample size for this intervention is about 20,000. 

• Both interventions are analyzed as randomized trials. 

• The new summons forms reduce FTAs by 13%. 

• The most effective text messages reduce FTAs by 26%; and, when a further text message is sent to those who miss their court dates, the end result is a 32% reduction in warrants issued. 

• The researchers estimate that the two interventions (redesigned form and text reminders), combined, could have reduced FTAs in 2014 by 20,000 to 31,000 or so. 

• Incidentally, text messages are really cheap to send, but most arrestees currently do not provide a cell phone number.

Sunstein (2018) on "Misconceptions About Nudges"

Cass R. Sunstein, “Misconceptions about Nudges.” Journal of Behavioral Economics for Policy 2(1): 61-67, 2018.

• Professor Sunstein examines seven mistaken or misleading – but frequently voiced – complaints about nudges. 

• (1) “Nudges are an insult to human agency” But…compared to what?; how can the provision of information, for example, be such an insult?; try active choosing if defaults make you nervous – but people often prefer a default!

• (2) “Nudges are based on excessive trust in government” But…compared to what?; governments must nudge; nudges, by definition, have low “error” costs; the private sector engages in lots of nefarious nudging; nudges can (and should) be made transparent.

• (3) “Nudges are covert” But…aren’t GPS devices and warning labels transparent?; is this misconception based on concerns about randomized field experiments?; transparency doesn’t seem to undermine the effectiveness of nudges.

• (4) “Nudges are manipulative” But…how is a reminder manipulative?; maybe a graphic warning is a little manipulative, ok?; but in general, manipulation should be made of sterner stuff. 

• (5) “Nudges exploit behavioral biases” But…do GPS and other technologies that improve navigability exploit a bias in a nefarious way?; many nudges counteract behavioral biases, such as inertia; nonetheless, defaults might indeed work because of inertia.

• (6) “Nudges wrongly assume that people are irrational” But…well, let’s say boundedly rational; nudging is inevitable; we needn’t resolve every philosophical issue to make pragmatic progress. 

• (7) “Nudges work only at the margins; they cannot achieve a whole lot” But…millions of additional school meals consumed?; billions in increased savings?; sigh.

Damgaard and Nielsen (2018) on Nudgication

Mette Trier Damgaard and Helena Skyt Nielsen, “Nudging in Education.” IZA DP No. 11454, April 2018.

• Education decisions often involve current costs and greatly delayed benefits. Some decisions are made by “agents” – parents and teachers – on behalf of their “principals,” the students. 

• Many education decisions – such as whether to drop out of school or go to college – are not regular, everyday situations where feedback allows people to adapt to something tolerably optimal over time. 

• Can we be confident that education decisions are well-made? Evidence suggests high returns to more education. The list of potential behavioral biases influencing education decisions is long: self-control shortcomings, limited attention, loss aversion, default effects, social norms, underconfidence… Recall John Stuart Mill: "Those who most need to be made wiser and better, usually desire it least, and if they desired it, would be incapable of finding the way to it by their own lights."

• Perhaps people can be nudged in ways that will improve their choices – and improve them from their own point of view. 

• The targets of nudges can be young scholars, their parents, or their teachers. 

• The authors find 122 studies of field implementations of nudges in education. 

• Opt-in v. opt-out text messages to parents: only 7.8% opt-in, but only 3.5% opt out. Further, outcomes (grades, staying in school) improve with the opt-out default. 

• Framing financial aid as a tuition waiver versus a loan: the waivers steer a lot more law school grads to public interest work. Monetary transfers to families can be framed as being for education, and administered through schools. 

• Mixed results have been reported from framing grades as losses (as in Shrader, Wooten, White, et al., “Improving Student Performance through Loss Aversion”).

• Trying to take advantage of peer group effects is tricky, and sometimes counterproductive. Social comparison nudges can be both informational and motivational – and they can backfire.

• Intermediate assignments and deadlines seem to often raise grades. 

• Self-imposed specific task-based goals also seem helpful, along with reminders of the goal. Unrealistically high goals are demotivating. 

• Reminders to parents about their children’s education often seem helpful, too – likewise with providing informative updates to parents.

• Information provision about the returns to schooling seems to have some purchase in developing countries.

• “Boosting” skills like grit and goal-setting holds some hope for improved educational outcomes.

• Prizes: “The public can encourage the acquisition of those most essential parts of education by giving small premiums, and little badges of distinction, to the children of the common people who excel in them.” (Adam Smith) But the older the children, the less effective the prize nudge, and (like social comparisons), prizes can crowd out internal motivations. 

• Growth mindset and social belonging nudges seem to work OK…

• Nudging will only overcome a binding constraint for a (small?) subset of students. 

•  In general, the long-term effects of nudgication remain unknown.

Friese, Loschelder, Gieseler, et al., "Is Ego Depletion Real?" (2018)

Malte Friese, David D. Loschelder, Karolin Gieseler, et al., “Is Ego Depletion Real? An Analysis of Arguments.” Personality and Social Psychology Review, published online, March 29, 2018. 

• The ego depletion hypothesis maintains that self-control is a construct that applies across (essentially?) all domains… 

• …and the exertion of self-control increases the chance of a failure of self-control in a subsequent (temporally proximate) task. 

• The standard experimental test for ego depletion is to conduct two consecutive self-control tasks. Ego depletion holds that folks who were induced to exert more control on the first task will show relatively low self-control on the second task. 

• The ego depletion literature frequently goes beyond the “depletion” being induced by self-control; any effortful behavior, including IKEA shopping, might lead to a depleted state and lessened self-control. 

• Some meta-analyses of the ego depletion literature conclude that the average effect might be zero; a preregistered large-scale replication of a previous ego depletion study also found a zero average effect. 

• Standard depletion-inducing exercises include variations on “e-crossing” and the Stroop test. Do these manipulations really work? 

• Journals traditionally have not been as interested in publishing null results than publishing articles that find statistically significant results. Researchers presumably respond to this situation by not bothering to write up and submit experiments that produce null results. Are the hundreds of published articles that find ego depletion matched or overmatched by countless unpublished studies that found no impaired self-control? 

• Another way that researchers might respond to the (perceived?) difficulty in publishing null results is to ensure that they do not get null results. One way to do that is to run many different empirical specifications (of a regression, say), but only report the “best” one. If you do this, the usual tests for statistical significance are meaningless. (See Shiny Apps p-hacker.)

• We don’t see many studies with reverse depletion effects, and if the truth were that the effect is null, we might(?) see as many negative as positive studies. 

• The unpublished studies might have to be legion to completely “offset” the many positive studies: that is, the truth might well be a positive effect (but of what size?) 

• Don’t we see evidence of ego depletion in everyday life? 

•  The solution lies in better science! Pre-register studies; increase sample sizes; use improved controls; report all results; collaborate with your intellectual opponents; develop theoretical understandings; check the quality of manipulations.

• Friese et al. suggest that the burden of proof on the existence of ego depletion is now on the proponents of the phenomenon.

Simonson and Kivetz (2018) on Gal and Rucker (2018) on Loss Aversion

Itamar Simonson and Ran Kivetz, "Bringing (Contingent) Loss Aversion Down to Earth — A Comment on Gal & Rucker’s Rejection of 'Losses Loom Larger Than Gains,'" Journal of Consumer Psychology 28(3): 517-522, July 2018.

• The articles outlined in the two previous posts are part of a "Research Dialogue"; Simonson and Kivetz's reply to Gal and Rucker, outlined here, is an element of the same dialogue.

• Gal and Rucker are right in that loss aversion is neither as firmly established nor as universal as is typically thought. Nonetheless, their retention paradigm is not convincing evidence of an endowment effect sans loss aversion, and they underplay some of the strongest evidence in favor of loss aversion: people demonstrate significant aversion to a risky but highly favorable (in expected value terms) bet, when opposed to a riskless gain (or the status quo) that offers much less in expected value. People routinely turn down 50-50 bets that pay $200 if heads and lose $100 if tails. 

• “[T]he question relevant at the present time for our field is not whether loss aversion occurs on average (we think it does), but what factors moderate its presence and magnitude, and relatedly, what are its boundaries [page 518]?” 

• Much of the evidence for the endowment effect (like the unwillingness to trade mugs for candy bars or vice versa) is consistent with plausible, non-loss-aversion explanations, such as the awkwardness in coming to an agreement for trivial trades. But the retention paradigm is not very convincing as new evidence against loss aversion, because of the highly artificial settings that arise in trying to reframe the retention of something you own as an active choice. 

• In many circumstances, loss aversion does seem to be part of what is going on with endowment effects, even if other mechanisms, such as transaction costs, also are at play. Losses do tend to loom larger than gains, but this is a tendency, one contingent on other factors, and not a universal truth. 

• As Gal and Rucker (2018) note, the excessive commitment to loss aversion might crowd out research that can identify other factors that drive decision making.

Higgins and Liberman (2018) Reply to Gal and Rucker (2018) on Loss Aversion

E. Tory Higgins and Nira Liberman, "The Loss of Loss Aversion: Paying Attention to Reference Points," Journal of Consumer Psychology 28(3): 523-532, July 2018.

• The Gal and Rucker loss aversion article outlined in the previous post was part of a "Research Dialogue"; Higgins and Liberman's reply, outlined here, is an element of the same dialogue.

• Higgins and Lieberman agree with Gal and Rucker: the empirical support for loss aversion is not as strong as its reputation would suggest. Loss aversion is not universal. The more general (than loss aversion) notion of prospect theory – that “reference points increase people’s sensitivity to objective changes in value [p. 523]” – is still viable, however.

• Losses and gains in prospect theory are judged relative to some reference point, which often is taken to be the status quo. If the reference point is not the status quo, however, then gains (relative to the status quo) need not be less powerful than losses, even if that loss-aversion-style result would be case were the status quo the relevant reference point. Further, multiple reference points can be at play at any one time.

• Reference points tend to be outcomes which attract our attention. As a result, we are more sensitive to changes around those points than from changes elsewhere. But this increased sensitivity need not be asymmetric, need not involve loss aversion: sensitivity to either gains or losses or both can increase around references points.

• A second suggestion is that a relevant reference point when judging an outcome is what might have happened instead, the chief counterfactual; gains or losses relative to that alternative will take on intensified value. To just make a train is more enjoyable than making it easily, and to just miss it is more painful than to be much too late. Again, this approach does not suggest the sort of asymmetry that loss aversion requires.

• Reference points such as goals – 10,000 steps per day – might suggest loss aversion: step 10,000 is worth a lot more than step 10,001 – but, Higgins and Lieberman argue, goals as reference points need not involve loss aversion. Many market-based goals have built-in incentives that are more sensitive above the goal – for instance, an increased percentage of royalties from book sales – than below the goal.

• In long-term pursuits, dual reference points can be at play: the starting position might be most salient early in the process, but the ultimate goal takes on more prominence as the pursuit unfolds. Recall that Gal and Rucker suggest that what is taken to be evidence of loss aversion in the literature often can be explained by an inaction bias, where no loss aversion is at play. For long-term pursuits, the “action” alternative is the one for which this dual reference point view seems most apt, and the additional reference point (the goal) can be the source of a greater sensitivity in valuation from changes in the action alternative than in the inaction alternative. 

• Some people (the “promotion-focused”) might concentrate on progress, and others (the “prevention-focused”) might concentrate on avoiding losses. Even if the status quo is the same for both individuals, they compare it with different alternative reference points. For the promotion-focused, the status quo is a loss relative to the desired progress; for the prevention-focused, the status quo is a gain relative to the feared worsening. 

• If a prevention-focused person found herself below the status quo, she might choose risky strategies if they are her only hope of restoring the status quo. Promotion-focused people, alternatively, starting from below the status quo, will not feel all that motivated to regain the status quo (both are losses, given the reference points at work), but will be more motivated to go from the status quo to a better point. This story, for which there is empirical support, is not consistent with standard prospect-theory-style loss aversion. That is, Gal and Rucker are right, in that the psychological evaluation of negative events (losses) are not always greater than the evaluation of equivalent gains, and people are not always more motivated by the threat of losses than by the prospect of gains. 

Gal and Rucker (2018) on the Loss of Loss Aversion

David Gal and Derek D. Rucker, “The Loss of Loss Aversion: Will It Loom Larger Than Its Gain?” Journal of Consumer Psychology 28(3): 497-516, July 2018.

• Social scientists seem to all but universally believe in loss aversion, the notion that losses “loom larger” psychologically than do similarly-sized gains.

• Gal and Rucker claim that the actual evidence does not support any general tendency for losses to loom larger than gains: everything depends upon the context.

• There’s a bit of circularity in the promotion of loss aversion: some phenomenon (like the equity premium puzzle or the endowment effect) is “explained” by loss aversion, and then the existence of the phenomenon (the equity premium, the endowment effect) is taken to be evidence that loss aversion is pervasive. 

• The status quo bias might reflect a preference towards inaction – and such a preference can exist in the absence of loss aversion, due to the lack of a motive for action, or economizing on processing costs, or the tendency to regret errors of commission more than errors of omission. 

• When asked to trade their original good for an essentially identical one, loss aversion is not implicated – but people still show a large status quo bias. Action v. inaction confounds the loss-gain story. 

• Is the endowment effect just a case of a status quo bias, and therefore does not require loss aversion? 

• The “retention paradigm” recasts endowment effect experiments as willingness-to-pay (WTP) to obtain an item v. WTP to retain an item – so now the “inaction” choice is not to have the good in both cases. (That is, the confounding of loss aversion with inaction is sidestepped.) 

• If loss aversion is active, then in the retention paradigm, the WTP to retain will be higher than the WTP to obtain. But in the experiments, there was no premium to retain a good or service. For “mundane” goods – mugs, notebooks – obtaining tended to have a higher WTP than retaining. 

• One has to be creative to come up with reasonable “retain” scenarios! Fixing a broken phone, perhaps? 

• Analogous experiments ask if you would like to receive $0 for a good you own, or exchange it for another good. The second condition swaps the owned and alternative good. Mug v. $5 shows no endowment effect – even though the standard exchange paradigm (that is, not the "retention" paradigm) with these goods shows a significant endowment effect. 

• For the standard “loss aversion ratio” test, not accepting the bet is the status quo. This test, too, can be recast: Would you rather receive $0 with a probability of 1 or take a 50-50 bet with the possibility of winning or losing $15? People seem to have a slight preference for the risky alternative. 

• When stakes are higher, preferences shift toward the sure thing – but this could reflect risk aversion, not loss aversion. (And, loss aversion is generally taken to be independent of the stakes.) 

• When you ask people directly about the psychological impact of winning or losing something – you ask them how they feel about these events – losing doesn't dominate in terms of the magnitude of feelings. How do you feel about losing a mug versus winning a mug? 

• How do you feel about losing $3 versus winning $3? What about $100? At the low stakes, people seem to care more about the gain. 

• Loss “frames” are not generally more motivating than “gain” frames (despite some evidence to the contrary in certain domains). 

• Why is loss aversion so popular given its questionable evidentiary base? Perhaps in part due to a status-quo bias among researchers(!), or confirmation bias within Kuhnian “normal science.” 

• Loss aversion holds intuitive appeal: we all feel some losses acutely. And the name “loss aversion” itself is persuasive.

Sjåstad and Baumeister (2018) on Planning Aversion

Hallgeir Sjåstad and Roy F. Baumeister, “The Future and the Will: Planning Requires Self-control, and Ego Depletion Leads to Planning Aversion.” Journal of Experimental Social Psychology 76: 127-141, 2018.

• The authors hypothesize that the willingness to engage in the task of making plans for the future requires self-control; therefore, people who generally have low self-control ("trait" self-control) are less likely to plan, and people who are "ego depleted," who are fatigued ("state" self-control), also will be less likely to plan. (As with many notions in the behavioral sciences, ego depletion is not without its share of controversy.) 

• This article, therefore, adopts the view that willpower draws on a depletable resource, and that when people have depleted that resource through cognitively taxing tasks, they will, in the short term, display reduced willpower (be ego-depleted). In other words, people with higher trait and state self-control will plan more.

• The authors conduct four studies. Study 1 looks at the correlation between trait self-control and planning; Study 2 and Study 3 ask if depletion (low state self-control) reduces planning; and, Study 4 tries to identify the channel through which ego depletion might undermine planning. 

• Study 1 (N=201, Amazon Mechanical Turk, 30 cent payment per participant!) asks individuals questions about the extent of their self-control, their engagement in planning in the past, and their intended planning in the future. Sure enough, high self-control is associated with high past and future planning. Further, there is some evidence that women plan more than men.

• Study 2 is a lab experiment (n=105), where the control (non-depleted) group starts with a relatively easy, 12-minute writing task (avoid the letters x and z) and the depleted group has a 24-minute, difficult task (avoid the letters A and N); this depletion method is used to overcome problems identified in earlier experiments where shorter or less onerous tasks do not do much to distinguish the two groups. Those with the hard writing task report being both more exhausted and less interested (than those with the easy task) in making plans for the next four weeks. The depleted folks are less happy, too, but it doesn’t seem to be mood differences that dissuade the planning.

• Study 3 takes advantage of the possibility that shopping at Ikea tends to makes couples miserable! The participants (N=112) are Ikea shoppers in Norway, with half surveyed pre-shopping, and half surveyed post-shopping. Those who have completed their shopping report making many more recent decisions than the pre-shoppers, as well as being more exhausted. Further, post-shoppers are less willing to plan, though they do not express lower ambitions for the future. (They still want the benefits of planning, it seems, but are less willing to put in the effort.) 

• Study 4 (N=128) picks up on the mechanism connecting ego depletion with planning aversion. Once again, laboratory participants are separated into depletion groups through differentially trying writing tasks. But in this experiment, they are given the opportunity to actually engage in planning, instead of just being asked about their intentions to plan in the future. 

• The participants are asked how hard they like to work, and how hard they think planning would be. Again, the depleted folks avoid planning; further, they express a lessened desire to exert effort to engage in planning, and this altered desire (greater effort avoidance) mediates much of the relationship between depletion and planning: effort avoidance seems to be a major channel connecting depletion to reduced planning.

• "A vicious circle might develop in which failure to plan creates stresses and difficulties, which impose a further drain on limited self-regulatory resources, which in turn makes people all the more reluctant to plan [p. 139]."

Vis and Kuijpers (2018) on Prospect Theory and Foreign Policy

Barbara Vis and Dieuwertje Kuijpers, “Prospect Theory and Foreign Policy Decision-Making: Underexposed Issues, Advancements, and Ways Forward.” Contemporary Security Policy 39(4): 575-589, 2018.

• Risk, in both prospect theory and in useful foreign policy applications, involves outcome uncertainty—so risk considerations are important in the gains domain as well as the loss domain. 

• Probability weighting often is ignored in applications of prospect theory, but it can override the usual “risk averse for gains, risk loving for losses” result. 

• In particular, low probability gains might see risk loving behavior, and low probability losses might be met with risk averse behavior. 

• And in foreign policy applications, low probabilities for unusual events are common. 

• Multiple dimensions are relevant in foreign policy decisions, so there can be multiple reference points, and outcomes might involve gains with respect to some reference points but losses with respect to other reference points. 

• When (to whom and for what decisions) might prospect theory apply? What decisions are better described by expected utility theory? 

• Oddly, ambiguity goes unmentioned in this article.

Rouyard et al. (2018) on Prospect Theory and Chronic Disease

Thomas Rouyard, Arthur Attema, Richard Baskerville, José Leal, Alastair Gray, “Risk Attitudes of People with ‘Manageable’ Chronic Disease: An Analysis Under Prospect Theory.” Social Science & Medicine 214: 144-153, 2018.

• Many patients are non-compliant with recommended medical treatments, at a cost to their health. Is it possible that their choices reflect risk-loving behavior in the loss domain?

• Two outcomes are examined in this study, longevity and quality of life. The usable sample size is n=110; 52 members of this sample have Type 2 diabetes mellitus.

• The empirical approach is aimed at identifying the prospect theory “value function” (in both the loss and gain domains) and the probability weighting (of an objective probability of .5). The estimation of the value function includes an estimation of the extent of loss aversion.

• Many questions are of the nature: Your status quo is to live 20 more years with an excellent quality of life. You must choose between option A, which would give you (with certainty) an additional 3 years of life with a pretty good quality of life, or option B, which offers a 50% chance of gaining 6 years of life, 3 years of high quality and 3 years of low quality, and a 50% chance of remaining with the status quo.

• For loss aversion, the relevant question is of the nature: The status quo is to live 20 more years with an excellent quality of life. A risky prospect available to you involves a 50% probability of gaining an additional 10 years of life with a pretty good quality of life, and a 50% probability of losing L years of life. What is the L that makes you indifferent between the risky prospect and the status quo?

• The authors find that most folks are risk averse in both the loss and gains domains. Older people tend to be more risk averse. Loss aversion is significant (median λ=1.19).

• It probably isn’t risk seeking that leads to medical noncompliance.

Professor Thaler’s Nobel Prize Speech (2018)

Richard H. Thaler, “From Cashews to Nudges: The Evolution of Behavioral Economics.” American Economic Review 108(6): 1265–1287, June 2018.

• "In the beginning there were stories [p. 1265]." Those stories were of anomalies with respect to the standard economic model of rational choice. For instance, the "cashews" in the title refer to an incident where guests thanked then-graduate-student Richard Thaler for rendering inaccessible the pre-dinner snacks: the guests seemed to believe that the loss of the option to eat cashews made them better off.

• A key development in behavioral science was the work of Kahneman and Tversky, which indicated that departures from fully rational behavior are systematic. This non-randomness suggests that modifications of the rational model could do a better job at explaining behavior. Further, Kahneman and Tversky's prospect theory offers a simple explanation for some of these systematic departures.

• Standard economic theory often is presented as a descriptive theory of how people choose as well as a normative theory of how people should choose. It is better at the latter (normative) task than at the former (descriptive) task. 

• Thaler and Shefrin propose a planner/doer model of intrapersonal (or intra-firm) conflict; the planner component of a decision maker can alter the doer's incentives by employing commitment strategies or deploying the (payoff-compromising) induction of guilt. 

• Economics typically assumes that dollars are fungible, that the best way to spend them is independent of where the dollars originated. But people assign income to different "mental accounts" according to its origin. Some income might be allocated to a mental checking account, so it is psychologically available for spending, whereas other funds might be assigned to mental savings, and therefore, are psychologically unavailable for quotidian consumer purchases. Dollars, in practice, are not fungible -- as anyone who has ever "played with house money" knows. 

• Is it fair to raise prices just because demand increases, as when a snowstorm makes snow shovels highly sought after? Many people (but not many economists!) think that such price increases are unfair, and might punish businesses that engage in such behavior. 

• The endowment effect is when mere “ownership” of an object (like a coffee mug) seems to raise the valuation that the “owner” places on the object. Endowment effects reduce the willingness-to-trade of owned objects, and some of Professor Thaler's work shows that endowment effects are common even when decision makers operate in markets, and when they have opportunities to learn over time.

• Even in financial markets, with their ongoing nature, high stakes, and sophisticated participants, security prices are not always right: for instance, parts of a firm can bizarrely be deemed more valuable in financial markets than is the entire firm (even though the complementary parts are not themselves of negative value). 

• Draft picks in the National Football League are mispriced: the best value for teams seems to lie in draft picks in the early part of the second round. The people making the draft picks might be excessively optimistic about their ability to identify winners when making first round picks.

• In the standard rational choice model, nudges (aspects of the choice architecture that don't affect standard payoffs or incentives) would not have much influence on choices -- but they often do. 

• Some firms try to use nudges to take advantage of those systematic departures from rational behavior on the part of their consumers; Professor Thaler calls this nefarious sort of choice architecture "sludge."

Golman, Hagmann, and Loewenstein (2017) on Information Avoidance

Russell Golman, David Hagmann, and George Loewenstein, “Information Avoidance.” Journal of Economic Literature 55(1): 96-135, March 2017 [pdf].

• Why do you not want to see my outline of this article?

• Rational people in an individual decision-making situation – that is, situations where information possession holds no implications for inter-personal strategic concerns – should always be happy to receive accurate information if it is freely available. But people often actively avoid acquiring such information.

• Patients avoid medical information, teachers don’t read their evaluations, and, in down markets, investors don’t check the value of their portfolios. Golman et al. refer to “active information avoidance” as involving the avoidance of information even if the info is free and the person knows it is available.

• A studied ignorance might lend us moral wiggle room: for instance, if we “don’t know” the conditions on factory farms, we can live with our dining choices. (OK, that example is mine, not in the article.) We might want to maintain plausible deniability as a way to avoid unwelcome responsibilities.

• Even if you learn information, you might (strangely?) choose to ignore it.

• We might have protected beliefs, so we actively avoid information that might challenge those beliefs. We could go so far as to seek to silence dissenters from our views.

• Surely some information avoidance is good: if you will eat dessert anyway, perhaps it is best not to know its caloric load. Perhaps you can live a more pleasant life by not knowing of some looming medical problem, or about your partner’s infidelity.

• When new information becomes universally available, confirmation biases can lead to further polarization of opinions. New (controverting) information might even remind you of (and sustain) the reasons that you held your initial beliefs in the first place.

• Intelligence does not protect people against biased beliefs; rather, it might make it easier to justify one’s preferred beliefs.

• People can self-sabotage – undertake actions not fitted to their abilities, for instance – to avoid learning the quality of their talents.

• People might avoid information because they prefer that compound lotteries (that resolve over time) might best be enjoyed by only learning the final, overall outcome. (Do I want to know the score of the White Sox game in the third inning? If the Sox are behind, I will be sad, and if they are ahead, then the only new “news” I can get later occurs if they lose, and the loss will then be extra painful.)

• Sometimes people are just plain curious, they seek out information that is of no instrumental value to them.

• Humans often are mistaken in thinking that the receipt of bad news will unleash anxiety – and therefore they might be mistaken in trying to shield themselves from bad news. Sometimes the elimination of uncertainty can begin the process of adaptation to the new normal.

• Bad news attracts our attention, and so we might try to avoid potentially bad news as a method to prevent this “distraction” from occurring.

• Regret aversion might lead people to avoid information on how things would have turned out if they had taken a different path.

• People tend to be overly optimistic, and such optimism appears to hold benefits. Information might be avoided or ignored for the sake of sustaining optimism – within individuals as well as groups. 

• One reason people might try to maintain existing beliefs is that they are serviceable, even if flawed – you can only rebuild a leaky boat at sea piecemeal, you can’t tear it down and start fresh. 

• If you are committed to a belief, you will not want to acquire information challenging it. The belief might even be part of your self-image, your identity.  

• Information avoidance might help with self-control issues, such as side-stepping temptations or maintaining motivation. 

• Spoiler alert! People might avoid information to maintain pleasant suspense.

Blanchflower and Oswald (2017) Review Graham’s _Happiness for All?_

David G. Blanchflower and Andrew Oswald, “Unhappiness and Pain in Modern America: A Review Essay, and Further Evidence, on Carol Graham’s Happiness for All?” NBER Working Paper No. 24087, November 2017.

• The authors summarize and respond to a 2017 book by Carol Graham, Happiness for All? 

• Graham’s work centers on subjective well-being (SWB) measures, especially the Cantril ladder question, which, according to the World Happiness Report, "asks respondents to think of a ladder, with the best possible life for them being a 10, and the worst possible life being a 0. They are then asked to rate their own current lives on that 0 to 10 scale." 

• Some of Graham’s claims about happiness in the US: (1) SWB is getting more unequal, and income inequality lowers SWB; (2) people are increasingly unhopeful, especially white Americans and poorer Americans; and, (3) Americans, particularly poorer ones, suffer from high levels of pain and stress. 

• The age-adjusted suicide rate for black American men is one-third the rate for white American men.

• Blanchflower and Oswald point out that almost surely, SWB is not nearly as unequally distributed as is income. 

• It does appear that Americans are becoming less happy, and that reported pain is very high (34% in past 4 weeks) in the US; the international average is 20%. 

• Middle-age Americans are particularly troubled. SWB tends to fall almost monotonically from the late teens until somewhere around age 40-50, and then tends to increase (slowly) for some 40 years.

• Education is associated with higher SWB. 

• There has been significant convergence in SWB among racial groups in the US in the past 45 years.

• Though there is some evidence that women in the US have become less happy in the last 30 years relative to men, reported SWB is quite similar across genders.