Distributional Preferences, Reciprocity-Like Behavior, and Efficiency in Bilateral Exchange

Under what conditions do distributional preferences, such as altruism or a concern for fair outcomes, generate efficient trade? I analyze theoretically a simple bilateral exchange game: each player sequentially takes an action that reduces his own material payoff but increases the other player’s. Each player’s preferences may depend on both his/her own material payoff and the other player’s. I identify two key properties of the second-mover’s preferences: indifference curves kinked around “fair” material-payoff distributions, and materials payoffs entering preferences as “normal goods.” Either property can drive reciprocity-like behavior and generate a Pareto efficient outcome

Good policies for bad governments: behavioral political economy

Politicians and policymakers are prone to the same biases as private citizens. Even if politicians are rational, little suggests that they have altruistic interests. Such concerns lead us to be wary of proposals that rely on benign governments to implement interventionist policies that "protect us from ourselves." The authors recommend paternalism that recognizes both the promise and threat of activist government. They support interventions that channel behavior without taking away consumers' ability to choose for themselves. Such "benign paternalism" can lead to very dramatic behavioral changes. But benign paternalism does not give government true authority to control our lives and does not give private agents an incentive to reject such authority through black markets and other corrosive violations of the rule of law. The authors discuss five examples of policy interventions that will generate significant welfare gains without reducing consumer liberties. They believe that all policy proposals should be viewed with healthy skepticism. No doctor would prescribe a drug that only worked in theory. Likewise, economic policies should be tested with small-scale field experiments before they are adopted.Macroeconomics ; Economics ; Economic policy

Thin-Slice Forecasts of Gubernatorial Elections

We showed 10-second, silent video clips of unfamiliar gubernatorial debates to a group of experimental participants and asked them to predict the election outcomes. The participants' predictions explain more than 20 percent of the variation in the actual two-party vote share across the 58 elections in our study, and their importance survives a range of controls, including state fixed effects. In a horse race of alternative forecasting models, participants' visual forecasts significantly outperform economic variables in predicting vote shares, and are comparable in predictive power to a measure of incumbency status. Adding policy information to the video clips by turning on the sound tends, if anything, to worsen participants' accuracy, suggesting that naïveté may be an asset in some forecasting tasks.

Smoothed particle magnetohydrodynamic simulations of protostellar outflows with misaligned magnetic field and rotation axes

We have developed a modified form of the equations of smoothed particle magnetohydrodynamics which are stable in the presence of very steep density gradients. Using this formalism, we have performed simulations of the collapse of magnetised molecular cloud cores to form protostars and drive outflows. Our stable formalism allows for smaller sink particles (< 5 AU) than used previously and the investigation of the effect of varying the angle, {\theta}, between the initial field axis and the rotation axis. The nature of the outflows depends strongly on this angle: jet-like outflows are not produced at all when {\theta} > 30{\deg}, and a collimated outflow is not sustained when {\theta} > 10{\deg}. No substantial outflows of any kind are produced when {\theta} > 60{\deg}. This may place constraints on the geometry of the magnetic field in molecular clouds where bipolar outflows are seen.Comment: Accepted for publication in MNRAS, 13 pages, 14 figures. Animations can be found at http://www.astro.ex.ac.uk/people/blewis/research/outflows_misaligned_fields.htm

Religious Identity and Economic Behavior

We randomly vary religious identity salience in laboratory subjects to test how identity salience contributes to six hypothesized links from prior literature between religious identity and economic behavior. We find that religious identity salience makes Protestants increase contributions to public goods. Catholics decrease contributions to public goods, expect others to contribute less to public goods, and become less risk averse. Jews more strongly reciprocate as an employee in a bilateral labor market gift-exchange game. We find no evidence of religious identity salience effects on disutility of work effort, discount rates, or generosity in a dictator game.

Social Identity and Preferences

Social identities prescribe behaviors for people. We identify the marginal behavioral effect of these norms on discount rates and risk aversion by measuring how laboratory subjects’ choices change when an aspect of social identity is made salient. When we make ethnic identity salient to Asian-American subjects, they make more patient choices. When we make racial identity salient to black subjects, non-immigrant blacks (but not immigrant blacks) make more patient choices. Making gender identity salient has no effect on intertemporal or risk choices.

Can Marginal Rates of Substitution Be Inferred from Happiness Data? Evidence from Residency Choices

We survey 561 students from U.S. medical schools shortly after they submit choice rankings over residencies to the National Resident Matching Program. We elicit (a) these choice rankings, (b) anticipated subjective well-being (SWB) rankings, and (c) expected features of the residencies (such as prestige). We find substantial differences between choice and anticipated-SWB rankings in the implied tradeoffs between residency features. In our data, evaluative SWB measures (life satisfaction and Cantril\u27s ladder) imply tradeoffs closer to choice than does affective happiness (even time-integrated), and as close as do multi-measure SWB indices. We discuss implications for using SWB data in applied work

A Theory of Fairness in Labor Markets

I study a gift-exchange game, in which a profit-maximizing firm offers a wage to a fair-minded worker, who then chooses how much effort to exert. The worker judges a transaction fairer to the extent that his own gain is more nearly equal to the firm’s gain. The worker calculates both players’ gains relative to what they would have gained from the “reference transaction,” which is the transaction that the worker most recently personally experienced. The model explains several empirical regularities: rent sharing, persistence of a worker’s entry wage at a firm, insensitivity of an incumbent worker’s wage to market conditions, and—if the worker is loss averse and the reference wage is nominal—downward nominal wage rigidity. The model also makes a number of novel predictions. Whether the equilibrium is efficient depends on which notion of efficiency is used in the presence of the worker’s fairness concern, and which is appropriate to use partly depends on whether loss aversion is treated as legitimate for normative purposes