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on History and Philosophy of Economics |
| By: | Edward C. Prescott |
| Abstract: | This essay reviews the development of neoclassical growth theory, a unified theory of aggregate economic phenomena that was first used to study business cycles and aggregate labor supply. Subsequently, the theory has been used to understand asset pricing, growth miracles and disasters, monetary economics, capital accounts, aggregate public finance, economic development, and foreign direct investment. The focus of this essay is on real business cycle (RBC) methodology. Those who employ the discipline behind the methodology to address various quantitative questions come up with essentially the same answer—evidence that the theory has a life of its own, directing researchers to essentially the same conclusions when they apply its discipline. Deviations from the theory sometimes arise and remain open for a considerable period before they are resolved by better measurement and extensions of the theory. Elements of the discipline include selecting a model economy or sometimes a set of model economies. The model used to address a specific question or issue must have a consistent set of national accounts with all the accounting identities holding. In addition, the model assumptions must be consistent across applications and be consistent with micro as well as aggregate observations. Reality is complex, and any model economy used is necessarily an abstraction and therefore false. This does not mean, however, that model economies are not useful in drawing scientific inference. The vast number of contributions made by many researchers who have used this methodology precludes reviewing them all in this essay. Instead, the contributions reviewed here are ones that illustrate methodological points or extend the applicability of neoclassical growth theory. Of particular interest will be important developments subsequent to the Cooley (1995) volume, Frontiers of Business Cycle Research. The interaction between theory and measurement is emphasized because this is the way in which hard quantitative sciences progress. |
| JEL: | B4 C10 E00 E13 E32 E60 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22422&r=hpe |
| By: | Paul Dolan; Georgios Kavetsos; Christian Krekel; Dimitris Mavridis; Robert Metcalfe; Claudia Senik; Stefan Szymanski; Nicolas R. Ziebarth |
| Abstract: | We show that hosting the Olympic Games in 2012 had a positive impact on the life satisfaction and happiness of Londoners during the Games, compared to residents of Paris and Berlin. Notwithstanding issues of causal inference, the magnitude of the effects is equivalent to moving from the bottom to the fourth income decile. But they do not last very long: the effects are gone within a year. These conclusions are based on a novel panel survey of 26,000 individuals who were interviewed during the summers of 2011, 2012, and 2013, i.e. before, during, and after the event. The results are robust to selection into the survey and to the number of medals won. |
| Keywords: | Subjective wellbeing, life satisfaction, happiness, Olympic Games, natural experiment |
| JEL: | I30 I31 I38 L83 Z20 Z28 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1599&r=hpe |
| By: | Paul Dolan; Georgios Kavetsos; Christian Krekel; Dimitris Mavridis; Robert Metcalfe; Claudia Senik; Stefan Szymanski; Nicolas R. Ziebarth |
| Abstract: | We show that hosting the Olympic Games in 2012 had a positive impact on the life satisfaction and happiness of Londoners during the Games, compared to residents of Paris and Berlin. Notwithstanding issues of causal inference, the magnitude of the effects is equivalent to moving from the bottom to the fourth income decile. But they do not last very long: the effects are gone within a year. These conclusions are based on a novel panel survey of 26,000 individuals who were interviewed during the summers of 2011, 2012, and 2013, i.e. before, during, and after the event. The results are robust to selection into the survey and to the number of medals won. |
| Keywords: | Subjective wellbeing, life satisfaction, happiness, Olympic Games, natural experiment |
| JEL: | I30 I31 I38 L83 Z20 Z28 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp858&r=hpe |
| By: | Didier Sornette (Swiss Finance Institute; ETH Zürich - Department of Management, Technology, and Economics (D-MTEC)); Sandra Andraszewicz (ETH Zurich); Ryan O. Murphy (University of Zurich - Department of Economics); Philipp B. Rindler (EBS Universität für Wirtschaft und Recht - EBS Business School); Dorsa Sanadgol (ETH Zurich) |
| Abstract: | We propose a new paradigm to study coordination in complex social systems, such as financial markets, that accounts for fundamental uncertainty. This new context has features from prediction markets that have been shown previously to mitigate price bubbles in classical asset market experiments. Our setup is more realistic as it offers multiple securities that are continuously traded over days and, importantly, there is no "true" underlying price. Nonetheless, the market is designed such that its rationality can be evaluated. Quick consensus emerges early yielding pronounced market bubbles. The overpricing diminishes over time, indicating learning, but does not disappear completely. Traders' price estimates become progressively more independent via a collective realization of communal ignorance, pushing the market much closer to rationality, with forecasts that are close to the realized outcomes. |
| Keywords: | Experimental Economics, Experimental Asset Market, Bubble, Uncertainty, Complete Contingent Market |
| JEL: | C18 C90 C92 D70 D81 G17 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1608&r=hpe |
| By: | Steven D. Levitt |
| Abstract: | Little is known about whether people make good choices when facing important decisions. This paper reports on a large-scale randomized field experiment in which research subjects having difficulty making a decision flipped a coin to help determine their choice. For important decisions (e.g. quitting a job or ending a relationship), those who make a change (regardless of the outcome of the coin toss) report being substantially happier two months and six months later. This correlation, however, need not reflect a causal impact. To assess causality, I use the outcome of a coin toss. Individuals who are told by the coin toss to make a change are much more likely to make a change and are happier six months later than those who were told by the coin to maintain the status quo. The results of this paper suggest that people may be excessively cautious when facing life-changing choices. |
| JEL: | D12 D81 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22487&r=hpe |
| By: | Alejandro Lee-Penagos (School of Economics, University of Nottingham) |
| Abstract: | In a coordination game such as the Battle of the Sexes, agents can condition their plays on external signals that can, in theory, lead to a Correlated Equilibrium that can improve the overall payoffs of the agents. Here we explore whether boundedly rational, adaptive agents can learn to coordinate in such an environment. We find that such agents are able to coordinate, often in complex ways, even without an external signal. Furthermore, when a signal is present, Correlated Equilibrium are rare. Thus, even in a world of simple learning agents, coordination behavior can take on some surprising forms. |
| Keywords: | Battle of the Sexes, Correlated Equilibrium, Evolutionary Game Theory, Learning Algorithms, Coordination Games, Adaptive Agents |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2016-11&r=hpe |
| By: | Gareth Austin; Stephen Broadberry |
| JEL: | N0 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:60005&r=hpe |
| By: | Eric Budish; Judd B. Kessler |
| Abstract: | This paper reports on an experimental test of a new market design that is attractive in theory but makes the common and potentially unrealistic assumption that “agents report their type”; that is, that market participants can perfectly report their preferences to the mechanism. Concerns about preference reporting led to a novel experimental design that brought real market participants’ real preferences into the lab, as opposed to endowing experimental subjects with artificial preferences as is typical in market design. The experiment found that market participants were able to report their preferences “accurately enough” to realize efficiency and fairness benefits of the mechanism even while preference reporting mistakes meaningfully harmed mechanism performance. The experimental results persuaded the Wharton School to adopt the new mechanism and helped guide its practical implementation. It is hoped that the experimental design methodology may be of use to other market design researchers, either for evaluating or improving preference reporting for existing mechanisms or for bringing other new mechanisms that utilize rich preference information from theory to practice. |
| JEL: | C78 C9 D47 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22448&r=hpe |
| By: | Wang, Wangshuai; Li, Jie; Sun, Gong; Zhang, Xin-an; Cheng, Zhiming |
| Abstract: | Impression management, or self-presentation, prevails in our daily lives. However, whether it enhances individuals’ happiness remains underexplored. This paper examines the relationship between impression management and life satisfaction, and whether the sense of control and loneliness mediate this relationship. Using original survey data, we found a negative association between impression management and life satisfaction. In addition, the association was fully mediated by the sense of control and loneliness. The study contributes to the literature on quality of life by highlighting the negative effect of impression management in predicting individuals’ life satisfaction. Implications of the findings for research and practice are discussed. |
| Keywords: | impression management; sense of control; loneliness; life satisfaction |
| JEL: | I31 |
| Date: | 2016–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:72912&r=hpe |