Adam Oliver, “Reflecting on Reflection: Prospect Theory, Our Behaviors, and Our Environment.” Behavioural Public Policy, 1-11, 2021.- A full-blown version of prospect theory includes both diminishing sensitivity in both the gains domain and the loss domain, as well as probability weighting, where low probability outcomes tend to be overweighted in valuing prospects and high-probability outcomes tend to be underweighted.
- Diminished sensitivity on its own implies risk averse behavior in the gains domain and risk seeking behavior in the loss domain.
- But, adding probability weighting to diminished sensitivity leads to what is called the "fourfold pattern" of risk preferences, or, the reflection effect.
- For high probability gains, diminishing sensitivity and underweighting combine to produce risk averse behavior. But for low-probability gains, overweighting tends to more than offset diminishing sensitivity, leading to risk loving behavior (as with the appeal of lotteries).
- For low probability losses, probability (over)weighting counters diminishing sensitivity, leading to risk averse behavior, while for high probability losses, (under)weighting combines with diminished sensitivity to lead to risk seeking behavior.
- Oliver examines whether the fourfold pattern of risk preferences is displayed with respect to life expectancy prospects, as well as to monetary prospects. For monetary prospects, a thirty-question interview protocol is administered to 60 university-affiliated people, with the (incentivized) questions focusing on eliciting certainty equivalents for prospective risky investment decisions.
- "the respondents generally became more averse to risk as probability increased in the domain of gains and as probability declined in the domain of losses, which... is consistent with the predictions of the prospect theory reflection effect [p. 4]."
- So for monetary decisions, the fourfold pattern holds up pretty well in the interview results, though less well when looking at low probability gains or losses.
- A second set of 60 interviews with different (though still university-affiliated) people is used to look at preferences in the health domain. Now it is certainty equivalents in terms of lifetime duration that are elicited. Again, the results are largely consistent with the fourfold pattern.
- Risk seeking in the case of high probability losses – money or life expectancy – seems to be the most intense of the risk preferences.
- Though the results are consistent with prospect theory, Oliver is skeptical of the notion that prospect theory explains these results. Instead, he offers an evolutionary story (involving abundance v. scarcity) for why the fourfold pattern might emerge even without full-on prospect theory-style preferences.
- That is, evolution might have favored a pattern of behavior, a heuristic, that calls for risk seeking with high-probability losses. For some people in some circumstances, such a "bias" might still be sensible.
- Two other articles that point to useful heuristics that might be interpreted as irrational biases come to mind: Chen and Schonger on ambiguity aversion and the heuristic not to transact with folks who know a lot more than you do about the transaction; and Smitizsky, Liu, and Gneezy on endowment effects and the heuristic that as a buyer you try to understate your willingness-to-pay and as a seller you tend to exaggerate the value of the good to you.
Brock Bastian and Steve Loughnan, “Resolving the Meat-Paradox: A Motivational Account of Morally Troublesome Behavior and its Maintenance.” Personality and Social Psychology Review 21(3): 278–299,
2017.- The “meat paradox”: meat eating is widespread (about 97% of Americans), but so is revulsion at harming animals.
- How can morally troubling behavior be ignored, normalized, and longstanding?
- Cognitive dissonance is a term that refers to the discomfort people feel by holding beliefs that are inconsistent with their actions. Eating meat is inconsistent with an interest in not harming or killing innocent sensitive beings; so, meat eating is a source of cognitive dissonance.
- Cognitive dissonance leads to negative affect, and this condition motivates the search for ways of reducing or eliminating the dissonance.
- “When people take responsibility, acknowledge harm, and accept the identity relevant consequences of their actions, they will experience dissonance and cease their immoral behavior [p. 280].” So, people try not to take responsibility, not acknowledge harm, and not accept the identity implications of meat eating.
- How to reduce dissonance while still eating meat? We can deny that animals suffer; we can do this selectively: we can categorize some animals as “food animals” and act as if that label means that they don’t count or don’t suffer – even as we would never hurt a puppy. The food animal category makes salient the food dimensions (such as taste), and the other dimensions (sentience) become less salient.
- Another approach to fight dissonance is to act as if we are not responsible for our choice to eat meat, that we effectively have no choice, as with the "3 N’s": eating meet is natural, normal, and necessary. People who abstain from meat then appear deviant, their opinions are suspect.
- Further, we can downplay the amount of meat we eat or suggest that we only consume ethical meat. We emphasize that we are relatively responsible!
- Our approaches to dissonance reduction can increase the commitment to meat eating. Indeed, doubling down on meat eating and believing that it is the proper course to take (and that the alternative is weird or unwise) reduces dissonance and negative affect.
- The ritual and symbolism then, in meat eating (turkey for Thanksgiving, ham for Christmas!), is not surprising. Not eating meat looks almost infeasible and anti-social.
- The habitual, automatic nature of meat eating renders it no longer a decision, reducing dissonance – and this is in part why meat eating becomes habitual.
- Habits can spread throughout a population – seeing someone eating meat suggests that the eater is not experiencing dissonance, that such behavior is consistent with morality.
- The whole culture, then, can shroud the immorality of meat eating (and reduce or eliminate dissonance): look at how nations build identities around morally questionable acts of war. Meat production is hidden away, meat purchasers and eaters don't have to face harms to animals directly.
- But social contagion can work both ways. The positive feedback (sorry) loop could reverse, and meat eating could quickly fall out of favor.
- The theoretical points built up around the discussion of meat eating are then applied by the authors to the treatment of refugees and to prejudice. The authors see their contribution, I believe, mainly in indicating how methods employed to reduce dissonance can strengthen the commitment to the morally-troublesome behavior.
Christine L. Exley and Judd B. Kessler, “Information Avoidance and Image Concerns.” NBER Working Paper 28376, January 2021 (revised May 2021).- Contrary to what a standard economic view would suggest, people often avoid receiving information that is pertinent and seemingly free. A plethora of potential reasons can be offered as explanations for information avoidance.
- People want to think well of themselves, so they might like to muddy the waters around selfish acts, by remaining ignorant (thereby possessing plausible deniability) of the actual extent of their selfishness. This article asks how much information avoidance is driven by concerns with maintaining one’s self-image.
- More specifically, people often avoid learning about how their choices affect the outcomes for other people – even if the information would not affect their decision. When I intend to act selfishly, I might not want to know how much others are harmed by my choice. The opportunity to avoid information about harms to others promotes more selfish behavior.
- The approach here is to look at information avoidance with respect to two decisions that differ only in that one decision has no prospect of involving a selfish motive (as the chooser's own payoff is not implicated in the decision).
- A person is asked to choose either option A or option B. The "Self/Other condition" is one in which the chooser will receive a higher payoff from A than for B. Their choice between A or B, however, will also affect the payoff of someone else ("Other"), and it is possible that the other person will receive a much higher payoff with B. At the start, the chooser does no know what option is best for the other person, but does know that A is best for the chooser him or her self. The chooser (sometimes) has the option of just making the choice between A or B, or, learning the Other's payoffs associated with A or B. Will the chooser seek to learn this information?
- If Self and Other turn out to both do better with A, that is termed the "aligned" state; if it turns out that Other prefers option B, that is the "unaligned" state, the preferences of the two folks do not match. (So choosing to get the info means that the chooser learns whether the preferences are aligned or unaligned – if they are aligned, then there is no conflict, the selfish choice is also good for the Other.)
- In the Other/Other condition, alternatively, the chooser is again making a choice in the Self/Other circumstances, except what used to be the chooser's payoffs now go to someone else, a third party – the chooser has no skin in the game, no selfish interest, but the interests of the two Others might conflict. Will the chooser elect to learn whether the interest are aligned or unaligned?
- Four studies, overall n > 4,600.
- In Self/Other, if choosers know (no choice) the info and it is unaligned, about 1/3 make the selfish choice. If the state information is not revealed unless requested, 2/3 of subjects in Self/Other choose not to acquire the information. If the choosers elect not to know, more than half choose the selfish option. That is, people who avoid the info behave in a more selfish way, on average, than if their choice fully revealed their selfishness because of their knowledge of unalignment.
- In the Other/Other condition, where there is no selfish option, information avoidance falls – but only by about 20%; that is, more than half the participants still choose to avoid the information.
- The Other/Other results suggest that most of the information avoidance is not about self-image concerns, because there are no such concerns in the Other/Other condition.
- If you make info provision an active choice (as opposed to opt-in), information avoidance falls by about half: it sort of seems like participants just aren’t paying much attention without the need to make an active choice?
David G. Blanchflower and Alex Bryson, “Biden, Covid and Mental Health in America.” NBER Working Paper 29040, July 2021.- The onset of Covid brought on an economic cataclysm in the US [and elsewhere, of course]. Weekly claims for unemployment assistance in the US prior to mid-March 2020 were on the order of 250,000. One week later, they were 2.9 million, and the subsequent week, 6 million.
- Unemployment in February 2020 was 3.5%, and in April 2020, 14.7% (or five percentage points higher when absent (effectively laid-off) workers are included). By November 2021, the US returned to mid-2020 levels of unemployment claims, and the October 2021 unemployment rate was 4.6%.
- What did the pandemic, and its economic effects, do to mental health in the US? To answer this question, the authors employ Household Pulse Survey Data (an ongoing survey) from April 2020 to June 2021, covering some 2.3 million Americans.
- Happiness in the US had been declining for decades prior to Covid (using the very happy, pretty happy, not too happy scale); extreme distress (and deaths of despair) had been rising for decades, especially for people under 30.
- Anxiety, depression, and worry all peaked in November 2020 (the presidential election month); but by April 2021, mental health was back at pre-Covid levels. The Covid-onset surge in mental health problems was largest for the young.
- The mental health impacts of Covid on young people, combined with schooling disruptions and a bad macroeconomy for labor market entrants, could hold negative long-term economic effects for the "young during Covid" cohort.
Derrick Wirtz, Amanda Tucker, Chloe Briggs, and Alexander M. Schoemann, “How and Why Social Media Affect Subjective Well-Being: Multi Site Use and Social Comparison as Predictors of Change Across Time.” Journal of Happiness Studies 22:1673–1691, 2021.- "Social" media hold the potential to increase social interaction, which tends to raise subjective well-being. But the environment in which interactions take place on social media is quite different from face-to-face encounters.
- Facebook, Twitter, and Instagram use are tracked over ten days by an experience sampling (five times per day, contacted via e-mail) method; n=77 semi-captive (college-course-taking) subjects, with 6 to 48 responses per subject.
- The main measures: positive affect, negative affect, and life satisfaction (“I am satisfied with my life,” strongly agree through strongly disagree); loneliness is also assessed.
- More use of social media increases negative affect (that is, there's more bad feelings), but does not influence positive affect. The suggestion, then, is that social media use decreases subjective wellbeing, not by undermining positive feelings, but by increasing negative feelings. Instagram use hints (but not in a statistically significant way) at some increase in positive affect, too, and “overall” affect.
- Social comparison on social media (seeing all your friends' best moments on Facebook) also correlates with higher negative affect, while also reducing positive affect. It might be social comparison, and not social media use per se, that drives diminished subjective well-being. For instance, Facebook use is no longer significant (in altering happiness) when controlling for social comparison.
- Social media use increases loneliness, and loneliness seems to drive some social media use.
- Direct (face-to-face) interactions remain good for affect, even within this sample.
- Life satisfaction (as opposed to affect) is measured at the beginning and the end of the experiment (that is, there is no experience sampling); there are no significant effects of social media use on life satisfaction changes over the two-ish weeks.
- Facebook use (working through social comparisons) seems to lower self esteem; “passive” use of Facebook (scrolling, not posting or messaging) seems particularly problematic.
Noel Semple, “Good Enough for Government Work? Life‑Evaluation and Public Policy.” Journal of Happiness Studies 22: 1119–1140, 2021.- We collect happiness data via "life-evaluation" measures such as the Cantril ladder. But a leading strain of public policy thinking is "welfare-consequentialist," where individual utility or welfare is at the center of judging the desirability of different social states.
- Happiness is not the same as welfare. But can we use life-satisfaction data anyway in evaluating welfare?
- The approach examined by Semple – life-evaluationist welfare-consequentialism (LEWC) – argues that the government should seek to maximize aggregate subjective well-being – and life satisfaction is sufficiently measurable to be implementable. In some circumstances. happiness data are informative of the success of public policy (even when there is no consensus on what actually constitutes welfare). That is, maximizing welfare can often be implemented by maximizing happiness, as measured by subjective wellbeing.
- Practicality is an important argument for the LEWC approach: we have broad, long-term data on subjective wellbeing. Further, where happiness is an imperfect proxy for welfare, it still tends to indicate the sorts of things that make people better off.
- Happiness research has revealed that mental health problems detract markedly from subjective wellbeing; further, people do not adapt over time to some negative mental health conditions. [Look at the advantage of happiness over willingness-to-pay: "The average person who has not experienced clinical depression simply cannot say, in a reliable way, how much they would be willing to pay to avoid it. By contrast, notwithstanding the problems identified above, those who are clinically depressed, and those who are not, are able to give reasonably consistent evaluations of their own lives [p. 1133]."]
- Targeting mental health with policies that make treatment more available also helps to target those who are worse off, those whose subjective wellbeing is at the bottom of the distribution. And better mental health for parents holds positive second-order impacts for the happiness of their children.
- Approaches to human welfare are all over the map, including preference satisfaction and hedonism and... But LEWC is grounded in data, it looks at the evidence on what produces happiness. We do not need to agree on what constitutes human welfare to implement LEWC.
- The LEWC approach, then, offers a form of robustness; it can advance welfare without presuming what constitutes welfare.
- Much public policy is too small or abstract for its effects to be measured by happiness; further, people do adapt over time to many changes in their life circumstances. So, it is sensible to sometimes supplement SWB with preference fulfillment in serving as a proxy for welfare. Preferences for longevity can be used, for instance, to overcome some of the "moment in time" issues connected to happiness measures.
Richard A. Easterlin and Kelsey J. O'Connor, “The Easterlin Paradox.” In: Zimmermann, K.F. (ed.) Handbook of Labor, Human Resources and Population Economics. Springer, Cham. [Working paper version here.]- From the Abstract: “The Easterlin Paradox states that at a point in time happiness varies directly with income, both among and within nations, but over time the long-term growth rates of happiness and income are not significantly related.”
- That is, the Easterlin Paradox concerns a disconnect between cross-section and time series data linking happiness and (real) income.
- The life satisfaction (happiness) data used in Easterlin and O'Connor come from the World Values Survey (WVS) and the Gallup World Poll (GWP). This analysis takes place at the national level (so income is real income per capita within a country).
- The WVS question: “All things considered, how satisfied are you with your life as a whole these days?” 1 (dissatisfied) to 10 (satisfied); 67 countries, on average over 27 years, for this study, with about 5 observations per country.
- The relevant GWP item: Cantril ladder, 0 to 10, worst possible life (0) to best possible life (10); 123 countries, 12 to 15 years of annual data.
- A major point of emphasis for Easterlin and O'Connor is that the key for testing is to ensure that you have long time-series data, so that you are not just capturing a boom or a bust (during which the usual cross-section positive connection between happiness and income will prevail).
- Easterlin and O’Connor find that in their data, the Paradox essentially holds when the East European transition countries are not included. (The conditions of transition and the time-span of the data from transition countries are such that even more than ten years of data might essentially be capturing a long boom.)
- With the transition countries included, or if shorter (10 years or less) time spans are employed, happiness and income do show a positive relationship. Even in these circumstances, however, the effect of changes in income on changes in happiness is small.
- The authors argue that an income reference point (typically, social comparison) is what drives the Paradox. As everyone's income rises, your reference point (other folks' income) shifts up, so your higher income does not bring more happiness. In a recession, alternatively, the relevant reference point is your own previous income, so people on average become less happy. (That is, the Paradox might hold even in the short-run during an expansion, but a recession will cause both happiness and income to fall.)
- China, Japan, India – all have experienced tremendous income boosts without increases in happiness.
- The authors argue that the “threshold” claim (that increased income does increase happiness until you are fairly well-off, at which point more income doesn't lead to more happiness) also is wrong: the Paradox applies to rich and poor individuals, not just the rich.
- Public policies can still raise happiness! Promotion of employment and a social safety net are good for happiness.
