Ellsberg Paradox: Ambiguity And Complexity Aversions Compared

We present a simple model where preferences with complexity aversion, rather than ambiguity aversion, resolve the Ellsberg paradox. We test our theory using laboratory experiments where subjects choose among lotteries that “range” from a simple risky lottery, through risky but more complex lotteries, to one similar to Ellsberg’s ambiguity urn. Our model ranks lotteries according to their complexity and makes different—at times contrasting—predictions than most models of ambiguity in response to manipulations of prizes. The results support that complexity aversion preferences play an important and separate role from beliefs with ambiguity aversion in explaining behavior under uncertainty

(WP 2016-03) Economics, Neuroeconomics, and the Problem of Identity

This paper reviews the debate in economics over neuroeconomics’ contribution to economics. It distinguishes majority and minority views, argues that this debate has been framed by mainstream economics’ conception of itself as an isolated science, and argues that this framing has put off the agenda in economics issues such as individual identity that are increasingly important in connection with the social and historical context of economic explanations in a changing complex world. The paper first discusses how the debate over neuroeconomics has been limited to the question of what information from other sciences might be employed in economics. It then goes on to the individual identity issue, and discusses how economics’ top-down, closed character generates a circular individual identity conception, while bottom-up, open character of psychology and neuroscience, and their continual concern with the changing relation between theory and evidence, has produced four competing individual identity conceptions in neuroeconomic research

WP RR 15 - Employees' preferences for more or fewer working hours: The effects of usual, contractual and standard working time, family phase and household characteristics and job satisfaction

This study seeks explanations for working time preferences, using cross-sectional multinomial logits for the 2001/2002 Wage Indicator dataset (N=21,727). As expected, the preferences are predominately influenced by working hours’ characteristics, showing that employees with long hours prefer to work shorter hours and that short-hours workers prefer longer hours. New is the finding that salaried employees indeed want to reduce hours whereas hourly paid employees prefer to work longer hours. In contrast to public opinion, female employees show a better fit between preferred and contractual hours compared to male employees. Particularly male employees whose children have left home prefer working fewer hours. The study further shows that wage rates have a large impact on working time preferences, the lowest earnings category preferring far more often longer hours. Regarding job characteristics, employees in a challenging job less often prefer fewer hours. The employees reporting conflicts at the workplace and insufficient staffing more often prefer fewer hours.

Choice, diversity and 'false consciousness' in women's careers

The central theme of this paper is that contemporary literature concerning women’s careers is based on assumptions held by researchers and not actually on views held by women themselves. Many feminist researchers are guilty of assuming ‘false consciousness’ on the part of their subjects by explaining these women as being victims of gender or patriarchal systems instead of making a mindful decision founded on choice. The empirical work draws on in-depth interviews with 39 women architects. Of the 39 women interviewed, 20 had adopted alternative ways of working, in the sense that they had rejected the conventional career within an organisation. Their reasons for this were diverse and ranged from wanting to combine childcare or elder care with work; involvement in local politics; wanting time for further study or sporting activities; as well just not wanting to work full-time. In short, this research demonstrates that work is not always a central interest in the lives of individuals and supports Hakim’s view of heterogeneity among women

Latent and actual entrepreneurship in Europe and the US: some recent developments

This paper uses 2004 survey data from the 15 old EU member states and the US to explain country differences in latent and actual entrepreneurship. Other than demographic variables such as gender, age and education, the set of covariates includes the perception by respondents of administrative complexities, of availability of financial support and of risk tolerance as well as country-specific effects. A comparison is made with results using a similar survey in 2000. While a majority of the surveyed population identifies lack of financial support as an obstacle to starting a new business, the role of this variable in both latent and actual entrepreneurship appears to be even more counterintuitive in 2004 than in 2000.

A quantitative and qualitative test of the Allais paradox using health outcomes.

There have been many tests of the descriptive validity of the axioms of expected utility theory (EU) using money outcomes. Such tests are relatively uncommon with respect to health outcomes. This is unfortunate, because the standard gamble - considered by many health economists to be the gold standard for cardinal health state value assessment - is implied from the axioms of EU. In this paper, the classic Allais paradox, which predicts a systematic violation of the independence axiom, is tested in the context of health outcomes. Seventeen of 38 participants demonstrated strict violations of independence, with 14 of these violating in the direction predicted by Allais. The violations were thus significant and systematic. Moreover, the participants’ qualitative explanations for their behaviour show seemingly rational and not inconsistent reasoning for the violations. This evidence offers a further challenge to the descriptive validity of EU, and underlines the need to test alternative theories of risk and uncertainty in the context of health outcomes.

Don't tax me? Determinants of individual attitudes toward progressive taxation

This contribution empirically analyses the individual determinants of tax rate preferences. For that purpose we make use of the representative German General Social Survey (ALLBUS) that offers data on the individual attitudes toward progressive, proportional, and regressive taxation. Our theoretical considerations suggest that beyond self-interest, information, fairness considerations, economic beliefs and several other individual factors drive individual preferences for tax rate structures. Our empirical results indicate that the self-interest view does not offer the sole explanation for the heterogeneity in attitudes toward progressive taxation. Rather, we show that the choice of the favoured tax rate is also driven by fairness considerations. --tax progression,policy preferences,fairness,ALLBUS

Inequality in the Distribution of Income: Trends and International Comparisons

Economic theory alone does not establish any basis for preferring a more or less equal distribution of income. Nonetheless, a common aim of policy is promoting equality of opportunity. An extremely unequal distribution of income may be considered an indication of a lack of equal opportunity. Arguments for a more equal distribution of income than that which would result from market forces are based on a number of propositions. One is a common assumption made in economic analysis known as diminishing marginal utility of income. This is the notion that each additional dollar of income yields less utility, or satisfaction. If the assumption of diminishing marginal utility of income is accepted, then, in theory, it should be possible to increase the overall well-being (utility) of society by taking some from those with high incomes and giving it to those with low incomes. A second, noneconomic, justification for policies designed to make the income distribution more equal is concern that society prevent its members from falling below some minimum standard of living. Existing measures of income fall well short of an ideal that would accurately indicate how well off individuals or households are. Not all kinds of income are counted. Taking the existing measures at face value, however, several observations can be made. First, the distribution of income in the United States has become increasingly unequal since the late 1960s. Second, the U.S. income distribution is the most unequal of all major industrialized countries. Some of the greater income equality found in other major industrialized countries may be due to the fact that government transfers are more directly targeted at lower income households. The distribution of earnings is more unequal than is the distribution of household income. Of particular interest is that the gap in earnings between highly educated or skilled workers and less skilled workers has grown substantially. Explanations focusing on world trade and national demographics have been suggested, but the one most widely accepted is that technological advances in recent years have increased the demand for more highly skilled labor relative to its supply. Policies that boost the supply of skilled workers would thus seem likely to narrow that gap and act as an equalizing influence on the income distribution. But, the large gap in pay between skilled and unskilled workers that has developed would itself seem to be a substantial incentive for prospective and current workers to expand their education and training. This report will be updated as developments warrant