Economic Freedom, Income Inequality and Life Satisfaction in OECD Countries

Since Piketty’s Capital in the 21st Century in 2014, scientific interest into the impact of income inequality on society has been on the rise. However, little is known about the mediating role of income inequality in the relationship between market institutions and subjective well-being. Using panel analysis on a sample of 21 OECD countries to test the effects of five different types of economic freedom on income inequality, we find that fiscal freedom, free trade and freedom from government regulation increase income inequality, whereas sound money decreases income inequality. Income inequality is found to have a negative effect on life satisfaction. Mediation tests show that income inequality mediates the influence of fiscal freedom, free trade and freedom from government regulation on life satisfaction

Cognitive sophistication and deliberation times

Differences in cognitive sophistication and effort are at the root of behavioral heterogeneity in economics. To explain this heterogeneity, behavioral models assume that certain choices indicate higher cognitive effort. A fundamental problem with this approach is that observing a choice does not reveal how the choice is made, and hence choice data is insufficient to establish the link between cognitive effort and behavior. We show that deliberation times provide an individually-measurable correlate of cognitive effort. We test a model of heterogeneous cognitive depth, incorporating stylized facts from the psychophysical literature, which makes predictions on the relation between choices, cognitive effort, incentives, and deliberation times. We confirm the predicted relations experimentally in different kinds of games