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on Cognitive and Behavioural Economics |
| By: | Paola Manzini (Queen Mary, University of London and IZA); Marco Mariotti (Queen Mary, University of London) |
| Abstract: | We study and test a class of boundedly rational models of decision making which rely on sequential eliminative heuristics. We formalize two sequential decision procedures, both inspired by plausible models popular among several psychologists and marketing scientists. However we follow a standard `revealed preference' economic approach by fully characterizing these procedures by few, simple and testable conditions on observed choice. Then we test the models (as well as the standard utility maximization model) with experimental data. We find that the large majority of individuals behave in a way consistent with one of our procedures, and inconsistent with the utility maximization model. |
| Keywords: | Bounded rationality, Choice experiments |
| JEL: | C91 D9 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp561&r=cbe |
| By: | Bruce Headey |
| Abstract: | An adequate theory of happiness or subjective well-being (SWB) needs to link at least three sets of variables: stable person characteristics (including personality traits), life events and measures of well-being (life satisfaction, positive affects) and ill-being (anxiety, depression, negative affects). It also needs to be based on long term data in order to account for long term change in SWB. By including personality measures in the 2005 survey, SOEP becomes the first available dataset to provide long term evidence about personality, life events and change in one key measure of SWB, namely life satisfaction. Using these data, the paper suggests a major revision the set point or dynamic equilibrium theory of SWB in order to account for long term change (Brickman and Campbell, 1971; Costa and McCrae, 1980; Headey and Wearing, 1989; Lykken and Tellegen, 1996). Previously, theory focused on evidence that individuals have their own equilibrium level set point of SWB and revert to that equilibrium once the psychological impact of major life events has dissipated. But the new SOEP panel data show that small but non-trivial minorities record substantial and apparently permanent upward or downward changes in SWB. The paper aims to explain why most people's SWB levels do not change, but why a minority do. The main new result, which must be regarded as highly tentative until replicated, is that the people most likely to record large changes in life satisfaction are those who score high on the personality traits of extraversion (E) and/or neuroticism (N) and/or openness to experience (O). These people in a sense 'roll the dice' more often than others and so have a higher than average probability of recording long term changes in life satisfaction. Data come from the 2843 SOEP respondents who rated their life satisfaction every year from 1985 onwards and then also completed a set of questions about their personality in 2005. |
| Keywords: | Happiness research, theory of happiness, SOEP |
| JEL: | I31 Z19 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp607&r=cbe |
| By: | Ingela Alger (Boston College); Jörgen W. Weibull (Stockholm School of Economics) |
| Abstract: | Recognizing that individualism, or weak family ties, may be favorable to economic development, we ask how family ties interact with climate to determine individual behavior and whether there is reason to believe that the strength of family ties evolves differently in different climates. For this purpose, we develop a simple model of the interaction between two individuals who are more or less altruistic towards each other. Each individual exerts effort to produce a consumption good under uncertainty. Outputs are observed and each individual chooses how much, if any, of his or her output to share with the other. We analyze how the equilibrium outcome depends on altruism and climate for ex ante identical individuals. We also consider (a) "coerced altruism," that is, situations where a social norm dictates how output be shared, (b) the effects of insurance markets ,and (c) the role of institutional quality. The evolutionary robustness of altruism is analyzed and we study how this depends on climate. |
| Keywords: | altruism, family ties, individualism, moral hazard, evolution. |
| JEL: | D02 D13 |
| Date: | 2006–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:643&r=cbe |