Slides, in Case You Want Them
Habit Formation slides (by Jiannan Zhou)
Altruism slides (by Jiannan Zhou)
Reconsidering Risk Aversion slides (by Dan Benjamin)
Imputing Risk Aversion from Survey Responses slides created by Gamma from the paper
Papers to Read
Introduction
Survey Measurement of Preference Parameters Using Hypothetical Choices (“Stated Preference”)
Barsky, Juster, Kimball, Shapiro QJE paper on the HRS risk aversion measure (based on hypothetical choices). A lot of validation from correlations with many things one would think would be related to risk aversion. Here the Health and Retirement Study (HRS) have a very rich set of variables is very helpful.
Kimball-Sahm-Shapiro #1: “Imputing Risk Aversion from Survey Responses.” I have been realizing more and more how important these kinds of imputations are. I’ll call these kinds of imputations “Bayesian posterior means” or “Quasi-Bayesian posterior means,” depending on how fully Bayesian the estimation behind the imputations was. I’ll discuss these issues in class.
Kimball-Sahm-Shapiro #2: Covariances within a family in the PSID provide a lower bound on the signal variance for the risk aversion measure—but only if the two spouses are not in the room at the same time during the interview! If so, they would influence each other’s answers. Note that we have to worry about persistent response error, not just transitory response error.
Reconsidering Risk Aversion—Do people really want to be inconsistent with attractive axioms about risk preferences?
“Diminishing Marginal Utility Revisited”: Economists use curvature of the utility function to model many different preference parameters. This paper shows that they are not all the same thing. It is a commonplace in macroeconomics to separate risk tolerance from the elasticity of intertertemporal substitution (or equivalently, the separate the resistance to intertemporal substitution from risk aversion). This provides evidence that it is important to separate more “curvature” parameters from each other whenever more than one is at issue, and to be careful about interpreting a curvature parameter narrowly in relation to the context.
Process Benefits and Costs
Origins of Preferences
Happiness, Life Satisfaction and Standing on the Ladder of Life (Cantril Ladder) are Not Utility
People knowingly choose to sacrifice happiness and life satisfaction for the sake of other things they care about. Taking idealized revealed preference (thoughtful choices) as the economist’s definition of utility, this implies that happiness ≠ utility. Because these are hypothetical choices, we have a good idea of what people think the choice is about.
Evidence from real-world choices that people sacrifice happiness and life satisfaction for other things that matter to them and therefore that, by the economist’s definition of utility, happiness ≠ utility. We ask people what they think the consequences of their decision are going to be, so lack of knowledge can’t confound the inference that happiness ≠ utility. The difference between happiness and utility is quantitative important.
Happiness Dynamics
Well-Being Indexes
A basic take on how to aggregate across different aspects of well-being. Plus cool tables about what people care about most.
Statistical and Interpretive Issues
Scale-Use Heterogeneity