The general theory of stupidity, university fees and utter baloney

This Irish Times article discusses the Green Party's apparent aversion to a new system of student charges that - apparently- the government is considering introducing. The proposal is for a new "student contribution fee" on top of the existing student registration charge.

According to their spokesman, a Mr Gogarty, this would conflict with the Program for Government which agreed that “This Government will not proceed with any new scheme of student contribution to third-level education.” Yes, it certainly sounds inconsistent.

The spokesman adds " “We have conceded that the new student charge that’s coming in is going to be higher than the registration fee it replaces, but the question is, how much higher? If it is too high, then it’s basically fees by the back door....That’s non-negotiable as far as I am concerned,”

A fee is a fee whatever you call it. Just as calling a tax a "contribution" or a "levy" makes no difference. So if you concede that there is a new charge being introduced then it is a fee on top of the fee that is already there. To say "if its too high then it's basically fees by the back door" is risible in my view. It is fees by the front door and irrespective of the level set.

And what is "too high" anyway? If it was €10 would that be too high? Eh, no. €10,000? Eh, yes. So it is negotiable actually.

In the discussions about how the government's book-keeping deals with expenditures related to the banking rescue it has been emphasized again and again that international markets see through any creative accounting. These people are not stupid. Likewise students and their parents are not stupid: they know a shake-down when they see one. So why is it so hard for politicians to be transparent and honest about such an important issue?

It seems that the "Fees debate" will continue to attract incoherent thinking, dissembling and general woolly-mindedness.

Smoking and drinking while pregnant

Smoking and drinking while pregnant is generally acknowledged to be a bad for the child's health depending, of course, on the extent of it. So how common is it and what are some of the predictors?

Using Growing Up in Ireland data I graph the mothers response to a question which asked about this. About 60% never drank and less than 40% said occasionally. For smoking about 75% never smoked though about 13% smoked daily.

These questions were asked 9 years after the child was born and are probably under-estimates. One is less likely, I think, to overstate one's drinking or smoking.

If one does some simple multivariate (ordered probit) analysis it is striking that there are some very different patterns:

Older mothers are more likely to have consumed alcohol than younger mothers while pregnant but young mothers are more likely to smoke than the older ones. Income also has opposite effects being positively associated with drinking and negatively associated with smoking. The same is true for mothers education. Likewise medical card holders are more (less) likely to smoke (drink). So there seems to be a clear class divide. These effects are simultaneous, remember.

The one factor I found which had a consistent effect (& there are many other possible factors which I didn't look at) was a question that asked the respondent "Would you describe yourself as religious/spiritual?". Those that answered in the higher categories ("very much so" or "extremely") were significantly less likely to have smoked or drank alcohol while pregnant.

It is interesting to speculate whether this has something to do with an association between religiousity and discount rates. It seems there may be positive externalities from religion/spirituality.

Drop-out in Irish Higher Education

Today on his blog, Ferdinand von-Prondzynski discusses a new Higher Education Authority publication: Study of Progression in Irish Higher Education. The study looks at data on student drop-outs broken down by institution and by subject. The Irish Times covered the release of the study yesterday. According to Ferdinand, the study "tells us that there is no significant difference in attrition between those from a better-off background and the less well off (though the latter are much less likely to get to university in the first place)."

Irish Policy Options for New Student Contributions in Higher Education

Readers may or may not be aware of this report to the Irish Minister for Education and Science: "Policy Options for New Student Contributions in Higher Education". The report dates from July 2009 but I have just found it on the website of the recently re-branded Department of Education and Skills. It is not clear whether this report is connected to the National Strategy for Higher Education in Ireland, recently discussed by Kevin on this blog.

In any event, the report outlines a number of issues in it summary, which are relevant to the potential introduction of a student contribution in Ireland. These include:

(i) Affordability considerations: "It is proposed that the level of any new student contribution should be related to current fee levels for Irish/EU students who do not qualify for free fees."

(ii) Top-up Fees: "Consideration could also be given to providing for a premium or ‘top-up’ range within which individual institutions would be free to increase charges for particular programmes. This would allow individual institutions to incentivise participation on particular programmes or to generate additional revenue according to their ability to compete for students. Such an arrangement could have the benefits of promoting competition and quality within the system."

(iii) Transition: "In transitioning to new fee arrangements, it would be important to avoid any potential for immediate shortfalls in institutional budgets by pitching fees at levels that do not match current ‘free fee’ contribution rates."

(iv) Collection of loan repayments: "The involvement of the national tax collection agency has been identified as being a critical success factor for a number of income contingent student loan facility models that operate internationally... It is recognised, however, that there are significant operational pressures on the Revenue Commissioners in the current Irish context which would limit their capacity to take on a role of direct collection agent for an income contingent loan scheme."

Immigrants and accents

Immigrants tend to underperform in the labour market i.e. they are paid less than one might expect. This could be for several reasons. Prejudice is a possibility or their human capital may not be sufficiently valued if there is uncertainty about the quality of their education. The paper below documents another angle, namely that their accent may put them at a disadvantage. After all, foreigners talk funny, y'all know what I mean?

Why don't we believe non-native speakers? The influence of accent on credibility

S Levi-Ari, B.Keysar

Non-native speech is harder to understand than native speech. We demonstrate that this “processing difficulty” causes non-native speakers to sound less credible. People judged trivia statements such as “Ants don't sleep” as less true when spoken by a non-native than a native speaker. When people were made aware of the source of their difficulty they were able to correct when the accent was mild but not when it was heavy. This effect was not due to stereotypes of prejudice against foreigners because it occurred even though speakers were merely reciting statements provided by a native speaker. Such reduction of credibility may have an insidious impact on millions of people, who routinely communicate in a language which is not their native tongue.

Journal of Experimental Social Psychology 46(6), 2010, 1093-1096

Thaler Lecture at Yale

A video of a recent lecture given by Richard Thaler on the "Behavioral Economics of Swindling and Sellin" is available on the Yale website.

Optimal tax theory & Wayne Rooney

This paper in a leading theoretical public finance journal argues cogently that "superstars" like Wayne Rooney earn rents which can and should be taxed away by the Chancellor of the Exchequer, m'lud. An interesting proposition indeed, although whether this has any implications for tax policy in Ireland where, happily, there are not many superstars is doubtful.

Dublin Man Collects 16.4million euro winning

RTE reports on the Dublin winner of Saturday's 16 million euro lottery jackpot. Will it make him more happy? Everything in the fiber of my being tells me that I would be happier for a long time if I suddenly had an extra sixteen million euro. But the literature really doesn't back this up in a general sense. I am sure we would get a lot of volunteers if we set out to do a randomised trial on this effect. The most famous paper on this area is from 1978 and showed that people who won the lottery and people who were rendered paraplegic by an accident initially experienced big changes in well-being in the expected direction and then converged back to their base levels. This is in line with a big literature arguing that well-being is set to a fixed point determined by genetics, upbringing, disposition etc., and that it is not very malleable to changes in external factors like income. People like Kahneman and others have argued that the focusing illusion effect might come into play when we think of what life would be like after some external change. For example, the linked paper shows that people think they would be happier if they lived in California (nice weather etc.,) but, in fact, Californian's are no happier than New Yorkers (same working stresses etc.,). We think it would be nicer to live in California because we focus on the nice weather. A more recent paper asks the question "would you be happier if you were richer?" again arguing that people overfocus on the benefits of money when making counterfactual judgments. People like Daniel Gilbert have talked about affective misforecasting where we mispredict how good or bad we will feel consequent on life changes, in particular that we will overestimate how long we will have a change in well-being consequent on a change in circumstances (see a TED Talk here). Mark linked to a recent paper by Kahneman and Deaton using the global Gallup data, showing that income has a much bigger effect on life satisfaction than emotional well-being. So in other words, if we ask the man in a year's time how satisfied he is with his life, we might expect him to be more satisfied but if we look at how he feels on a day-to-day basis then we might not see much change. Of course, most of the papers in the literature deal with levels of income rather than sudden once-off increases in income. It might be the case that the exertions that a helicopter drop of money place on the self-control of the winners may reduce well-being effects, particularly if the people have no experience of managing the various complexities both social and financial that accompany their new-found wealth.

One thing that should certainly be explored is whether rollover jackpots should be split using some mechanism. For example, why not 16 prizes of one million? One for another post.

Class Size in Higher Education

The role of class-size in primary education has between discussed before on this blog. Earlier this year Kevin and Mark both posted interesting comments on the analysis of secondary data. In addition, I recently mentioned that data on primary-school class sizes in Ireland are available for the last four years by primary-school and class-room. Those looking for an introduction to how economists view the importance of class size in primary education could do worse than investigate this debate between Alan Krueger, Eric Hanushek and Jennifer King Rice.

"Alan Krueger maintains that smaller class sizes can improve students’ performance and future earnings prospects. He challenges Prof. Hanushek’s widely cited analysis of the class size literature, arguing that it gives disproportionate weight to single studies that include a large number of estimates... Jennifer King Rice brings a third-party perspective to the debate. She addresses each author’s arguments and focuses on the policy implications of the class size literature."

As educational achievement in higher education is often discussed on this blog, it seems salient to ask what we know about the importance of class size in higher education. To begin, it is helpful to point out that much of the work using education production functions has concentrated on the educational attainment of pupils in compulsory schooling, with less attention paid to higher education (Arulampalam, Naylor and Smith, 2009). The common inputs in education production functions are things like school resources, teacher quality, and family attributes, and the outcome is student achievement (Hanushek, 2007). However, there is a precedent for the theoretical consideration of higher education production functions (Freire and Silva, 1975; Johnson, 1978; Hopkins, 1990; Douglas and Sulock, 1995). There is also a much wider empirical literature on higher education production functions, in which researchers give attention to student inputs, in particular: lecture attendance and additional hours of study.

Looking at the evidence on class size in higher education, one result is that smaller classes do not translate into gains in achievement (Martins and Walker, 2006). Looking at economics students only, Kennedy and Siegfried (1997) find the same result i.e. that class size does not affect student achievement. Other work by Gleason shows that the same holds for mathematics students.

The opposite result (that class size matters) is found in a study examining peer effects and class size in higher education; Machado and Vera-Hernandez (2010) find that class size negatively influences medium ability college students. Dillon and Kokkelenberg (2002) show that class size "has a negative logarithmic relationship to grades and that the effect on class size on grades differs across different category of student."

In a recent Vox article, Bandiera, Larcinese and Rasul (2010) state that the effect of increasing class size in tertiary education is not yet well understood. Drawing on their article forthcoming in the Economic Journal, Bandiera, Larcinese and Rasul describe how they estimate the effects of class size on students’ exam performance by comparing the same student’s performance to her own performance in courses with small and large class sizes. "Going from the average class of 56 to a class size of 89 would decrease the mark by 9% of the observed variation in marks within a given student. The effect is almost four times larger for students in the top 10%."

It seems that the debate on class size in higher education is just as lively as the debate on class size in primary education.

Some Irish boys are better at maths than girls

Differences between the sexes in educational attainment are of interest to many people. In Ireland, as elsewhere, males are being left behind by females in key exams and university entrance. So where does it all start and is it the same for everyone?
Using the Growing up in Ireland data I look at differences in maths score: I estimate quantile regressions controlling for a bunch of chararacteristics (SES, birthweight, maternal smoking, income and more). These show the effect of being male on the maths score at different points of the conditional distribution : so high quantiles are not "high test scores" but "high test scores conditional on the covariates one has included". I interpret this as proxying unobserved ability, this could be cognitive ability but not necessarily. The outcome is scaled to have a mean of 100 and a std deviation of 15.
The results are striking. Boys do better on average so a linear regression gives a coefficient of about 1.2. By comparison, being right-handed or having been breastfed is worth an extra 1.4 points. But at lower quantiles the effects are smaller and are not statistically significant. At higher quantiles the effect is around 4 points.
So I interpret this as saying that at low levels of unobserved ability it doesn't matter if the child is a boy or girl. But for "smarter" children being a boy is an advantage i.e. being male and being "smart" are complements.

Bonus points for maths

The Irish Independent has an interesting article on bonus points & not just because they quote me.

Handedness and ability at maths: evidence from Ireland

There is a great deal of interest both popularly and amongst scholars about whether cognitive ability is predicted by handedness. The literature contains many findings which cannot be simply summarized and there are many many myths. Evidence for Ireland has been non-existent, as far as I am aware, until now with the release of the Growing Up in Ireland data.
So what can we say? Below I plot the density of attainment at a maths test that the 8 year olds in GUI sat.
Sadly, if you are a ciotóg, you can see the distribution is shifted to the left - but not by much. The good news is that when you look at the distribution of reading ability, there is no difference at all.
In numerical terms, left-handers are about 8% of a standard deviation lower. By comparison girls are about 11.5% of one standard deviation lower.

Where do good ideas come from? - RSA Animate and Steven Johnson

Another gem from RSA Animate - Steven Johnson (science writer) on where good ideas come from.

Doing Surveys Online

Various ways of doing surveys online were discussed earlier this year on this blog. MMIC, Survey Gizmo and Lime Survey were all mentioned. MMIC™ (Multimode Interviewing Capability) is a comprehensive information system developed by the RAND Corporation. Survey Gizmo is similar to its competitor Survey Monkey, a package which people are most likely to be familar with. What makes Lime Survey different is that it is open-source, in other words completely free.

Recently, myself and Peter have been doing further research into different possibilities for doing surveys online. In particular, we wanted a package that would allow us to present feedback at the end of the survey, in a dashboard-type format, based on the answers provided by the survey repondent. We played around with various options, including:
(i) http://www.instantsurvey.com
(ii) http://www.vovici.com
(iii) http://www.mineful.com
(iv) http://www.keysurvey.com
(v) http://www.premiersurvey.com
(vi) http://www.zoomerang.com
(vii) http://www.unipark.info

However, our search came to an end when we found Qualtrics. As well as allowing a sophisticated feedback mechanism, Qualtrics has really useful "display option", "skip option" and randomisation features that can be used in the survey design. In the current survey-project that we have developed, we use the "display option" to ensure that a certain question only gets displayed if the respondent answers "Yes" to a previous (corresponding) question. In their own words, Qualtrics describe themselves as "easy enough for an intern and sophisticated enough for a Ph.D."

Draft Programme for November 23rd Session

Economics, Psychology and Neuroscience Third Annual One Day Session: UCD Research Building

10.00am - 10.30am

Martin Ryan (UCD)  "The Role of Economic Psychology and Non-Cognitive Skill in Students' Lecture Attendance and Academic Achievement"

10.30am - 11am

Liam Delaney (UCD)  "Automatic Enrollment and the Irish Pension System"

11am - 11.20am: Coffee

11.30am - 12pm

Cormac O'Dea (IFS and UCL). "Cognitive Ability and Retirement Savings"

12pm - 12.30pm

Marie Briguglio (University of Malta). "Voluntary Pro-Environmental Behaviour".

1230pm - 1pm

Michael Daly(TCD) "How income relates to life satisfaction and daily emotional experience: Evidence from the American Life Panel"

LUNCH

2pm - 2.30pm

Mick O'Connell (UCD) "Variation in 'Returns to Education' and academic performance by country in OECD's PISA science scores"

2.30pm to 3pm 

Robert Metcalfe (Oxford) "Behavioural Economics TBA"

3pm - 3.30pm

Peter Lunn (ESRI) "What Can I Get For It? A theoretical and empirical re-analysis of the endowment effect."

3.30pm - 4pm Coffee

4pm - 5.30pm: Keynote Speaker. 

David Laibson (Harvard) "Natural Expectations and Economic Behavior"

Long Weekend Links

1. TED Interview from a few months back with Julian Assange, explaining the philosophy behind Wikileaks. There has been a lot of discussion about the implication of the development of volunteer-driven mass collaborative enterprises for standard economics. But it is arguable that the development of wikileaks is a more profound development than previous collaborative exercises. This is a global information resource driven by volunteers and donations, with some of the providers taking enormous risks to make information available.

2. On the theme of global developments driven by non-standard preferences, this TED talk from the founder of kiva.org is well worth watching (warning: contains a lot of emotional pleas that may be unsuitable for an older and more cynical audience).

3. DG Sanco Conference on "Behavioural Economics. So What: Should PolicyMakers Care". This will be livestreamed is worth tuning in to.

"At European level, behavioural economics is implicitly starting to be incorporated in policymaking and this has led to some cases of debiasing through law. The cooling-off period, found in much of EU consumer acquis, and the health claims proposal are two significant examples. In addition, an in-depth review of the behavioural literature provided evidence for the inclusion of a ban on pre-checked boxes in the recent proposal for a Consumer Rights Directive. Finally, the useful contribution of behavioural economics has explicitly been recognised by DG Competition as part of the solution in a recent Microsoft case, when designing the browser ballot box. Similarly, Regulatory bodies across of the world (e.g., US Federal Trade Commission (FTC), UK Office for Fair Trading, OECD, Australian Productivity Commission) have already started to take behavioural economics into serious consideration and have already carried out behavioural studies to inform some of their regulatory policies."

4. Programme for AEA 2011 is available on this link

5. Meier and Springer - Discounting and Defaulting: Evidence from Choice Experiments Matched to Administrative Credit Data

6. Brigitte Madrian NBER summary of savings and investment behaviour 

Behavioural Economics in Song - Nick Cave

"Oh My Lord" by Nick Cave and The Bad Seeds is going in the vaults. A classic in general (live youtube version here) it contains the following, which might simply refer to life containing unknown risks but I also think basically means we are overconfident and unaware, and blinded by temporary success.

"The ladders of life we scale merrily move mysteriously around. So that when you think you're climbing up, man, in fact you're climbing down"

Having lived through a bubble, where we were ploughing headlong into a bloated finance and construction industry and using our new found financial windfall to accumulate large scale debt, the lyric rings very true.

Weekend Links

1. Economics, Psychology and the history of consumer choice theory Hands (2010). Cambridge Journal of Economics. 

This paper examines elements of the complex place/role/influence of psychology in the history of consumer choice theory. The paper reviews, and then challenges, the standard narrative that psychology was ‘in’ consumer choice theory early in the neoclassical revolution, then strictly ‘out’ during the ordinal and revealed preference revolutions, now (possibly) back in with recent developments in experimental, behavioural and neuroeconomics. The paper uses the work of three particular economic theorists to challenge this standard narrative and then provides an alternative interpretation of the history of the relationship between psychology and consumer choice theory.

2.  Zizzo (2010). Experimental Demand Effects in Economics

3. Harrison and Ross (2010). "The Methodologies of Neuroeconomics"- really interesting critique of aspects of neuroeconomic methodologies

4. Workplace Wellness Programmes Can Generate Savings - Health Affairs (2010)

Katherine Baicker^1,*, David Cutler² and Zirui Song³

¹ Katherine Baicker (Kbaicker@hsph.harvard.edu) is a professor of health economics at the School of Public Health, Harvard University, in Boston, Massachusetts.
² David Cutler is a professor of economics at Harvard University.
³ Zirui Song is a doctoral candidate at Harvard Medical School.

*Corresponding author

Amid soaring health spending, there is growing interest in workplace disease prevention and wellness programs to improve health and lower costs. In a critical meta-analysis of the literature on costs and savings associated with such programs, we found that medical costs fall by about $3.27 for every dollar spent on wellness programs and that absenteeism costs fall by about $2.73 for every dollar spent. Although further exploration of the mechanisms at work and broader applicability of the findings is needed, this return on investment suggests that the wider adoption of such programs could prove beneficial for budgets and productivity as well as health outcomes.

Key Words: Cost of Health Care • Health Promotion/Disease Prevention

5. Simolean Sense blog does a very nice weekly roundup of behavioural topic. In general, this blog is doing a very good job at harvesting relevant behavioural links from round the web. 

6. Dan Gilbert NYT article on the psychology of numbers

Applications of set theory

While the use of mathematics in economics has been criticized by many it is hard to see how the discipline could advance without the use of at least some calculus, algebra and statistics. Set theory, on the other hand, would bore the pants off you. So it is nice to see a Venn Diagram being used for something interesting: a corn dog.

I am indebted to another colleague (who shall remain nameless but it is not me) for this further contribution to applied mathematics:

Note that one cannot draw causal inferences from the negative correlation between being truly happy and wearing pants. Clearly one needs some good instrumental variables.

Warriors Against Rational Choice - Kangaroo Edition

Every once in a while, something appears on the scene that really makes you stop and wonder what on earth could have gotten into someone to do something like that. Most people in Ireland will have seen the story at this stage of the kangaroo let loose in a Dublin nightclub as "Skippy" plays on the sound system. This is just baffling. Like the recent incident of the people who stole a penguin from Dublin Zoo and released it in O'Connell street, it looks very much like something that people thought of as funny while stoned. However, particularly in the case of the Kangaroo, they would have had to follow up and execute the plan. Think of the possible chain of events. Some guy is sitting staring vacantly into space when his eyes light up and he starts to laugh. The basic germ of an idea has been established. "I will steal a kangaroo and let it loose in a nightclub". I can see at first glance why this fleeting thought might be humorous for a minute but surely then it must just pass off into the realm where all such ideas usually dwell. It is very unlikely that the person could have executed this idea alone. So the person formulates the idea in a little more detail and then explains it to someone else. This is when the amazing thing happens - the other person (possibly people) agrees that this is a good idea. They then have to actually precure a kangaroo, which I know is not as impossible at it first appears as it seems we do have some kangaroos in Ireland. But surely it is not completely trivial both to find one and to devise a method of claiming it, transporting it and so on - it is trickier than letting the neighborhood dog loose. All of this process must have taken sufficient time for at least some doubts to be raised about whether this was a sensible thing to do e.g. its cruel to the animal, the animal might go mental and really hurt someone, its illegal and we might get arrested, its a lot of bloody hassle and its not that funny a joke. Yet still they bring the full plan to fruition, culminating in the release of an unfortunate animal into a Dublin nightclub, which are disturbing enough places to be for humans never mind the poor kangaroo. The serious side of the story is that it appears from reports to RTE that the animal died afterwards and it is plainly bloody stupid on an amount of levels to do something like that. Whoever they are, perhaps we are fulfilling their wishes by even focusing on them but they have definitely earned a place in the WARC archives.

Suicide in Ireland: The Influence of Alcohol and Unemployment

Brendan Walsh, Dermot Walsh
In this paper we model the behaviour of the Irish suicide rate over the period 1968‐2009 using the unemployment rate and the level of alcohol consumption as explanatory variables. It is found that these variables have significant positive effects on suicide mortality in several demographic groups. Alcohol consumption is a significant influence on the male suicide rate up to age 64. Its influence on the female suicide rate is not as well‐established, although there is evidence that it is important in the 15‐24 and 25‐34 age groups. The unemployment rate is also a significant influence on the male suicide rate in the younger age groups. The behaviour of suicide rates among males aged 55 and over and females aged 25 and over is largely unaccounted for by our model. These broad conclusions hold when account is taken of a structural break in the 1980s, with the response to unemployment being greater in the earlier period and that to alcohol greater in the later period. The findings suggest that higher alcohol consumption played a major role in the increase in suicide mortality among young Irish males between the late 1960s and the end of the century. In the early twenty first century a combination of falling alcohol consumption and low unemployment led to a marked reduction in suicide rates, although there is some evidence that the suicide rate is being increasingly under‐reported in recent years. The recent rise in the suicide rate may be attributed to the sharp increase in unemployment, especially among males, but it has been moderated by the continuing fall in alcohol consumption. Some policy implications of the findings are discussed.

The negative effect of height on well-being: a tall story?

Height and well-being amongst older Europeans

Kevin Denny

This paper uses a cross-country representative sample of Europeans over the age of 50 to analyse whether individuals’ height is associated with higher or lower levels of well-being. Two outcomes are used: a measure of depression symptoms reported by individuals and a categorical measure of life satisfaction. It is shown that there is a concave relationship between height and symptoms of depression. These results are sensitive to the inclusion of several sets of controls reflecting demographics, human capital and health status. While parsimonious models suggest that height is protective against depression, the addition of controls, particularly related to health, suggests the reverse effect: tall people are predicted to have slightly more symptoms of depression. Height has no significant association with life satisfaction in models with controls for health and human capital.

Here also

How would you like it done Sir? Harsh or Severe?

The UK government announced its austerity package today; it’s harsh. But how does it size-up to Irelands plans-in-the-making? Opposition members in the HOC were quick to point to Ireland and our governments belief that we could cut our way out of the economic problem; Brian Lenihan’s we’ve turned a corner speech last year was the focal point of their ridicule.

Such ridicule, if heeded, may be good for Ireland; it is becoming clear now that Ireland's "misguided austerity" could actually be a key thing that helps Ireland grow! albeit indirectly via less severe global austerity. In any event, I think it is interesting to place the newly announced UK austerity plan in an Irish perspective. In simple capita terms the UK is just shy of being 14 times bigger than Ireland. We can compute some basic figures off this fact to make some quick comparisons. I also think doing so will help put the fairly animated debates in the UK over their cuts into some perspective for us here.

I’ll just run some of today’s headline figures –

UK Public sector four-year austerity package in Irish terms: €7bn

UK Public sector job cuts in Irish terms: 35,000 jobs

UK Welfare cuts in Irish terms: €575m

UK Extra social care in schools in Irish terms: €165m

UK Axing quangos in business, innovation and skills sector in Irish terms: ~ 2 quangos; €30m

Berg and Gigernenzer - Behavioral Economics: Neoclassical Economics in Disguise

As-If Behavioral Economics: Neoclassical Economics in Disguise?

Nathan Berg
University of Texas at Dallas - School of Economic, Political and Policy Sciences

Gerd Gigerenzer
Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Human Development


January 1, 2010

History of Economic Ideas, Vol. 18, No. 1, pp. 133-166, 2010

Abstract:     

For a research program that counts improved empirical realism among its primary goals, it is surprising that behavioral economics appears indistinguishable from neoclassical economics in its reliance on “as-if” arguments. “As-if” arguments are frequently put forward in behavioral economics to justify “psychological” models that add new parameters to fit decision outcome data rather than specifying more realistic or empirically supported psychological processes that genuinely explain these data. Another striking similarity is that both behavioral and neoclassical research programs refer to a common set of axiomatic norms without subjecting them to empirical investigation. Notably missing is investigation of whether people who deviate from axiomatic rationality face economically significant losses. Despite producing prolific documentation of deviations from neoclassical norms, behavioral economics has produced almost no evidence that deviations are correlated with lower earnings, lower happiness, impaired health, inaccurate beliefs, or shorter lives. We argue for an alternative non-axiomatic approach to normative analysis focused on veridical descriptions of decision process and a matching principle – between behavioral strategies and the environments in which they are used – referred to as ecological rationality. To make behavioral economics, or psychology and economics, a more rigorously empirical science will require less effort spent extending “as-if” utility theory to account for biases and deviations, and substantially more careful observation of successful decision makers in their respective domains.

Keywords: bounded rationality, ecological rationality, as-if, fit, prediction, decision, process

JEL Classifications: D03, B1, B4