When donors feel generous: economic research on prosocial behavior

New research shows that people donate time and money at the level of peers to groups with which they identify—and that they want to see the impact of their giving. Nonprofits seeking volunteers and funds will find the insights useful.Charitable bequests

Discounting Financial Literacy: Time Preferences and Participation in Financial Education Programs

Many policy makers and economists argue that financial literacy is key to financial well-being. But why do many individuals remain financially illiterate despite the apparent importance of being financially informed? This paper presents results of a field study linking individual decisions to acquire personal financial information to a critical, and normally unobservable, characteristic: time preferences. We offered a short, free credit counseling and information program to more than 870 individuals. About 55 percent chose to participate. Independently, we elicited time preferences using incentivized choice experiments both for individuals who selected into the program and those who did not. Our results show that the two groups differ sharply in their measured discount factors. Individuals who choose to acquire personal financial information through the credit counseling program discount the future less than individuals who choose not to participate. Our results suggest that individual time preference may explain who will and who will not choose to become financially literate. This has implications for the validity of studies evaluating voluntary financial education programs and policy efforts focused on expanding financial education.financial literacy, time preferences, selection, field experiment

Stability of Time Preferences

Individuals frequently face intertemporal decisions. For the purposes of economic analysis, the preference parameters assumed to govern these decisions are generally considered to be stable economic primitives. However, evidence on the stability of time preferences is notably lacking. In a large field study conducted over two years with about 1,400 individuals, time preferences are elicited using incentivized choice experiments. The aggregate distributions of discount factors and the proportion of present-biased individuals are found to be unchanged over the two years. At the individual level, the one year correlations in measured time preference parameters are found to be high by existing standards, though some individuals change their intertemporal choices potentially indicating unstable preferences. By linking time preference measures to tax return data, we show that identified instability is uncorrelated with socio-demographics and changes to income, future liquidity, employment and family composition.experimental economics, time preferences, preference stability

Costly Inflation Misperceptions

One of the consequences of the euro changeover in 2002 was that for a period of several years people considerably overestimated actual inflation. The goal of this paper is to study whether misperceptions of this kind may have real effects, that is, whether they induce people to alter their behaviour. We also discuss the question how far the euro changeover and the ensuing discussion about price stability contributed to the recession that followed the changeover. Looking at the German restaurant sector, we find that people’s misperceptions can have significant negative effects. The contraction this sector experienced in the months after the changeover was too pronounced to be explained by normal business cycle movements. We provide a discussion about the causes of these misperceptions and how to avoid them in future changeovers.euro changeover, perceived inflation

Political Economists are Neither Selfish Nor Indoctrinated

Most professional economists believe that economists in general are more selfish than other persons and that this greater selfishness is due to economics education. This paper offers empirical evidence against this widely held belief. Using a unique data set about giving behavior in connection with two social funds at the University of Zurich, it is shown that economics education does not make people act more selfishly. Rather, this natural experiment suggests that the particular behavior of economists can be explained by a selection effect.economists, public good, giving behavior, education, selection

Metformin, Sulfonylureas, or Other Antidiabetes Drugs and the Risk of Lactic Acidosis or Hypoglycemia

OBJECTIVE: Lactic acidosis has been associated with use of metformin. Hypoglycemia is a major concern using sulfonylureas. The aim of this study was to compare the risk of lactic acidosis and hypoglycemia among patients with type 2 diabetes using oral antidiabetes drugs. RESEARCH DESIGN AND METHODS: This study is a nested case-control analysis using the U.K.-based General Practice Research Database to identify patients with type 2 diabetes who used oral antidiabetes drugs. Within the study population, all incident cases of lactic acidosis and hypoglycemia were identified, and hypoglycemia case subjects were matched to up to four control patients based on age, sex, practice, and calendar time. RESULTS: Among the study population of 50,048 type 2 diabetic subjects, six cases of lactic acidosis during current use of oral antidiabetes drugs were identified, yielding a crude incidence rate of 3.3 cases per 100,000 person-years among metformin users and 4.8 cases per 100,000 person-years among users of sulfonylureas. Relevant comorbidities known as risk factors for lactic acidosis could be identified in all case subjects. A total of 2,025 case subjects with hypoglycemia and 7,278 matched control subjects were identified. Use of sulfonylureas was associated with a materially elevated risk of hypoglycemia. The adjusted odds ratio for current use of sulfonylureas was 2.79 (95% CI 2.23–3.50) compared with current metformin use. CONCLUSIONS: Lactic acidosis during current use of oral antidiabetes drugs was very rare and was associated with concurrent comorbidity. Hypoglycemic episodes were substantially more common among sulfonylurea users than among users of metformin.Merck SA, Lyon, Franc

Why Does Unemployment Hurt the Employed? Evidence from the Life Satisfaction Gap between the Public and the Private Sector

High rates of unemployment entail substantial costs to the working population in terms of reduced subjective well-being. This paper studies the importance of individual economic security, in particular job security, in workers’ well-being by exploiting sectorspecific institutional differences in the exposure to economic shocks. Public servants have stricter dismissal protection and face a lower risk of their organization’s bankruptcy than private sector employees. The empirical results for individual panel data for Germany and repeated cross-sectional data for the United States and the European Union show that the sensitivity of subjective well-being to fluctuations in unemployment rates is much lower in the public sector than in the private. This suggests that increased economic insecurity constitutes an important welfare loss associated with high general unemployment.Unemployment, life satisfaction, job security, public sector

Why Does Unemployment Hurt the Employed? Evidence from the Life Satisfaction Gap between the Public and the Private Sector

High rates of unemployment entail substantial costs to the working population in terms of reduced subjective well-being. This paper studies the importance of individual economic security, in particular job security, in workers’ well-being by exploiting sector-specific institutional differences in the exposure to economic shocks. Public servants have stricter dismissal protection and face a lower risk of their organization’s bankruptcy than private sector employees. The empirical results for individual panel data for Germany and repeated cross-sectional data for the United States and the European Union show that the sensitivity of subjective well-being to fluctuations in unemployment rates is much lower in the public sector than in the private. This suggests that increased economic insecurity constitutes an important welfare loss associated with high general unemployment.unemployment, life satisfaction, job security, public sector

Overborrowing and undersaving: lessons and policy implications from research in behavioral economics

The U.S. household carries over $7,500 in uncollateralized debt and likely saves at a negative rate. There is a growing body of evidence that this borrowing and saving behavior may not, as assumed by standard economics, be the product of rational financial planning. This paper discusses insights from behavioral economics on how self-control problems could play a crucial role in determining such financial outcomes. It is important to note that self-control problems, as defined in this paper, are thought of as an issue affecting all people, not just those involved in our specific research. ; The paper reports results from a field study targeted to low-to-moderate income individuals conducted in Dorchester, MA. It links measured self-control to borrowing and savings outcomes taken from individual credit reports and survey questions respectively. We find that self-control problems are associated with higher borrowing, specifically on credit cards, and lower savings of income tax refunds. The paper discusses how policy prescriptions built around addressing self-control issues could prove helpful in improving financial outcomes.Consumer credit ; Saving and investment