Social Econ Blog

Next week, we will be discussing social capital. Social skills are an important part of an individual's social capital. While social skills are important, we spend very little time formally acquiring them. We basically expect people to acquire them from trial and error. Needless to say, some people never figure things out all that well.

Some of these folks (aka people at MIT) are developing technology to help them out (ok, technically it is supposed to be for autistic people not regular MIT nerds). The device is designed to help people perform better in social situations by alerting them when they are boring their audience. You can check out the details here.

The premise of this diet is simple enough to an economic mind -- focus on a flavor theme for each day and you'll eat less:

That may sound like an improbable premise for a diet. But it's based on the science of "sensory-specific satiety." Think of it as the theory of diminishing returns applied to appetite. It explains, for example, why each successive bite of pasta is less satisfying than the previous one. That's why you don't stop at pasta, but reach for the bruschetta as well, not to mention the salami and provolone. And when the cannoli and tiramisu are offered, it's surprising how you can find room for those, too. Never mind that you're already full. Nature has programmed us to seek a variety of tastes, shapes, colors and textures in our food, so that we will consume a wide range of nutrients. Yet in the land of vending machines and all-you-can-eat buffets, this natural propensity is working against us.

The remedy, according to Katz, is to consume a healthy diet with nutritional variety, but unified by a daily flavor theme. On lemon day, for example, you would have lemon-poppy seed muffins for breakfast, lemon tabbouleh salad for lunch, pan-seared tilapia with lemon chives and capers for dinner, and fresh blueberries with lemon peel for dessert. The subtle repetition of the flavor du jour helps you reach satiety faster, he says, without making you feel deprived. The diet includes a month of these daily menus (plus two "special indulgence days"—chocolate and coconut).

Ultimately, it still requires self control to stick to the theme, so I am not sure how much of an innovation it is.

A couple of economists explain George Mason's success on the basketball court (and in the economics department). Like good entrepreneurs they identify and exploit opportunities. In this case, this means finding undervalued talent and providing it an opportunity to flourish.

How much beliefs differ across space fascinates me. I will discuss beliefs in more depth later, but here are some startling facts on the beliefs of women in Africa from the freakonomics blog:

In a sample of 13 African countries between 1999 and 2004, 52% of women surveyed say they think that wife beating is justified if she neglects the children; around 45% think it’s justified if she goes out without telling the husband or argues with him; 36% if she refuses sex, and 30% if she burns the food.

And this is what the women think.

We live in a strange world.

(Source: Demographic and Health Surveys, publicly available at www.measuredhs.com. Thanks to Emily Oster for forwarding these statistics to me.)

As many of you escape Cambridge for the break, here are maps of all the countries and states I have visited (not including airports). I've got work to do. My friends Dave and Diana have certainly made it to a more diverse set of places.



create your own visited countries map



create your own visited states map

For those who've been reading The Game, as a promotional gimmick MDX filmed 3 dudes (the come on way too strong guy, the totally clueless guy, and the nice guy who can talk to anyone buy can't close) trying to pick up girls at Sundance (and getting pointers from girl "double agents"). It is mildly amusing and interesting to watch. The three guys have very different styles and perform differentially.

Ok, probably not, but economic growth seems to cause an increase in heart problems:

Panel data econometric methods are used to investigate how the risk of death from acute myocardial infarction (AMI) varies with macroeconomic conditions after controlling for demographic factors, fixed state characteristics, general time effects and state-specific time trends. The sample includes residents of the 20 largest states over the 1979 to 1998 period. A one percentage point reduction in unemployment is predicted to raise AMI mortality by 1.3 percent, with a larger increase in relative risk for 20-44 year olds than older adults, particularly if the economic upturn is sustained. Nevertheless, the much higher absolute AMI fatality rate of senior citizens implies that they account for most of the additional deaths. This suggests the importance of factors like air pollution and traffic congestion that increase with economic activity, are linked to coronary heart disease and may have particularly strong effects on vulnerable segments of the population, such as the frail elderly. AMI mortality risk quickly rises when the economy strengthens and increases further if the favorable economic conditions persist. This is consistent with strong effects of other short-term factors on heart attack risk and with health being a durable capital stock that is affected by flows of lifestyle behaviors and environmental conditions whose effects accumulate over time.

Today, we discussed whether or not attending selective colleges was worth it. We focused primarily on ways in which selective colleges provided different consumption and investment opportunities than non-selective colleges and tried to relate these differences to differences in outcomes that individuals care about (e.g., more income or more happiness). But ultimately, whether or not attending a selective college causally changes individual outcomes is an empirical question.

Caroline Hoxby examined the returns to selective colleges for students entering college in 1960, 1972, and 1982. She finds substantial returns to attending more selective colleges. E.g., moving from a rank 3 to a rank 1 college increases earnings by 129 times the difference in tuition costs (controlling for aptitude). Further, she argues the rate of return has increased over time. A four page summary can be found here.

The Hoxby study, however, includes very few controls for unobserved differences in ability, motivation, etc. which may explain both attendance at selective colleges and higher earnings. Stacy Dale and Alan Krueger attempt to solve at least some of this problem by comparing people were accepted and rejected by similar colleges but chose to attend more or less selective colleges. Using this method, they find that incomes are not increased by attending more selective colleges. However, there are returns to attending more expensive colleges. Finally, regardless of what measure of college quality is used the returns to attending "higher quality" colleges are highest for those from disadvantaged backgrounds. A one page summary of this research can be found here.

Should you ever find yourself in the region I grew up in and wanting to travel between the Southern Oregon coast and the I-5 corridor between October and April, don't try and take one of the crazy mountain roads over the Coastal Range. First, while beautiful, the roads are not for the faint of stomach. I've never crossed these roads without puking. Second, and more importantly, you might get stuck in the snow and no one will ever find you because they don't expect anyone to be dumb enough to travel these roads outside of summer. This family got stuck there for 2.5 weeks before someone found them. A few years ago, some guy got stuck up there and starved to death. In both cases people were looking for them and knew where they started from and where they were trying to go.

Today, the NYTimes reports on the growing number of applications each college-bound high schooler submits to colleges:

An annual survey of college freshmen indicates that students bound for all kinds of institutions are filing more applications these days. In 1967, only 1.8 percent of freshman surveyed had applied to seven or more colleges, while in 2005, 17.4 percent had done so, according to the Cooperative Institutional Research Program at U.C.L.A., which conducts the survey. The survey began asking recently if the students had applied to 12 or more colleges; that proportion increased by 50 percent from 2001 to 2005.

What explains this startling increase in the number of applications? Let’s go to the micro theory.

Individuals are trying to maximize their discounted expected utility. They should continue to submit applications until the expected marginal benefit of an application equals the marginal cost. Three parameters drive the results: the expected return to attending a selective college, the probability of getting into any selective college, and the cost of applying to each college.

For simplicity, assume that there are 2 types of schools (selective and not-selective) and that assume each selective colleges provide the same excess return over the non-selective college (that is, u(S1) – u(NS) = u(S2) – u(NS) for all S). Further assume that everyone who applies gets into non-selective schools. Thus agents face a simple decision of whether or not and how many selective colleges to apply to.

In this simplified world, the decision rule (MB=MC) looks something like this: pick N such that dP/dN*(u(S)-u(NS)) = MC(N). Individuals should keep applying to schools as long as the change in the probability of getting into ANY selective college times the excess return over the non-selective college exceeds the marginal cost of the additional application.

Thus, if we observe an increase in N (the number of selective colleges applied to), it must be that the effect of an additional application on the probability of admittance has increased, the return to selective colleges has increased, or the cost of applying has fallen (or some combination).

Which of these do we think explains the growth in applications? I am not sure. I think that technology has certainly lowered the marginal cost of an application. Back in the stone ages when I applied to college, you had to actually use a typewriter to complete your applications. This substantially raised the time (and effort) costs associated with applications (at least for my mom). It is also possible that the returns to selective colleges are growing, but we will discuss this specific issue in class so I won’t discuss it here. I am most intrigued by changes in the effect of each application on the probability of getting in to any selective college.

Assume that there are a fixed number of spots in the set of selective colleges. Further assume (because I don’t want to try and explain it) that there is an exogenous increase in the demand for each spot. Schools receiving more applications changes dP/dN for a lot of students. Specifically, more applications means that P(N) diminishes at a much slower rate (smaller second derivative). More intuitively, think of a top student. Top students are confident that they will get in wherever they apply. Thus (in this simple model) they should only apply to one school (because they receive no marginal benefit from incurring the costs of filling out a second application because dP/dN = 0 for N>1). The closer one gets to the marginal student (the last person admitted) the more random shocks to the admissions process affect decisions. Thus in order to get one yes, the marginal student needs to ask lots of schools, and if more and more students are trying to get in, the marginal student needs to ask even more schools for admission. Further, given that the likelihood that most of the additional applications are from students who are, themselves, marginal (because top students always applied to selective schools), the average number of applications per applicant increases even faster.

Of course, you all probably applied to a million schools yourselves, but you are top students. Why did you all do this? Well, because you are not actually top students. Ok, you are, but you didn’t know that you were for certain. Further, you may have wanted more choices. Either for their own sake, or because, now that the government doesn’t let the Ivy’s collude with each other, you may get better financial aid offers by applying to (and being admitted to) multiple schools.

I am not sure what, if any, research has been done examining students’ choices to apply to colleges. I think it is an interesting topic and might make for a good term paper.

Oh and for the record, I only applied to 3 colleges when I was in high school (because I didn't think that u(S)-u(NS) was substantially greater than zero), but I applied to 7 graduate programs (because I worried that there was some chance that dP/dN was still greater than zero for the last schools I applied to).

On Tuesday, we will discuss whether or not attending Harvard is worth the costs. Post your thoughts and reasoning in the comments.

A new study by the RAND Corporation finds that "Virtually every person in the United States is at risk of failing to receive needed care regardless of race, gender, income or insurance status." The authors document that Americans receive only 55 percent of recommended care. More surprisingly, "The authors found that insurance status had no real effect on quality. Insurance 'is not sufficient to assure appropriate use of services.'"

To me, this suggests that either the doctors think that people need more care then people themselves think that they need, or that people are unable to make appropriate health care choices on their own (e.g., they discount the future hyperbolically). If a behavioral problem explains things, then improving US health outcomes requires more than just improving access to care (i.e., providing better insurance).

Further, given that increased demand for expensive health services explains a large fraction of the growth in health care costs, I wonder how much more expensive health care would be if everyone were actually getting as much care as the doctors think we need?

Apparently, my "don't spend money on housing space you don't use" philosophy is part of a larger architectural movement centered around architect Sarah Susanka's "The Not So Big House." You can read more about it at the previous link or in this article. The article hypothesizes the following benefits:

But why think small, you ask, besides just modesty? Experts say that the more modestly proportioned home has many advantages:

Less use of materials. A smaller house doesn't only use fewer natural resources, it requires fewer large furnishings to fill it.

More comfortable. "Humans have a tendency to want to nest just like other animals, so big cavernous spaces just aren't as intimate and comfortable as a room that's scaled down to a person's size," says Kodis. In other words, Versailles may be impressive to visit, but you wouldn't want to live there. A lot of today's 5,000-square-foot homes are designed to overwhelm, not welcome.

More efficient. Smaller spaces are cheaper to heat, and take less time to clean.

Addition of pleasant details. People often can't afford to do much customizing to big houses -- there's simply too much of them -- but in a small house you can redirect money to add delightful touches. Susanka, for example, added handsome (and costlier) cherry veneer on the door to her work studio, an extra touch she sees every day that makes her happy.

World peace? OK, maybe not. But "smaller space keeps you more connected with your family," and leads to better family relations, suggests Kodis.

While I, obviously, am a fan, whether or not smaller houses become the norm depends on the magnitude of those benefits relative to the costs of foregoing larger houses (and I would love to see research estimating the size of the benefits and costs -- specifically the effects of house design on family relationships). Currently, I think much of the appeal of large houses stems from preferences for conspicuous consumption. That is, people want to signal their success to others.

For those interested in fostering a small house movement, the question becomes can smaller, higher quality houses adequately substitute for noticably large (but lower quality) homes. This can occur only if the smaller houses increase the utility homeowners get from consuming my own home by enough to compensate for lower conspicuous consumption, or, alternatively, if one can invest the savings from consuming fewer square feet in ways which offset or increase individual status (e.g., by increasing home quality in easily observed ways so that conspicuous consumption doesn't fall). (Alternatively, small houses could become more common if, somehow, overall demand for conspicuous consumption falls -- i.e., if collectively people stop judging people based on the size of their home.)

Size works as a status signal because it can't be faked and is easily observed. I question whether or not higher house quality shares these properties. Many elements of house quality are not obvious to visitors and, worse, are not visible to random passersby. Further, some, though not all, investments in quality can be faked to some degree.

Thus, for small houses to become the norm, I think they likely need to provide higher utility to their owners directly by providing a better housing experience (and part of this may be that they increase density and lead to better neighborhood amenities) or by costing less money.

I may be wrong though. Housing conventions may receive a large shock as baby boomers seek smaller retirement or second homes. This may give the small house a big boost by increasing demand for them leading to more interesting small house designs. Further, it may generate a larger stock of these small, high quality homes. This might make it easier for people to get used to thinking about living in smaller spaces and allow people to become better at distinguishing among them. This would allow people to demand smaller homes without taking a hit in their desires to "keep up with the Jonses."

The Washington Post describes some research from the Annals of Improbable Research. Always good stuff. Here's one study I like:

two Cornell scientists who showed that one attribute of extreme incompetence is "that the person so afflicted is incapable of knowing that he is incompetent." The study, titled "Unskilled and Unaware of It," demonstrated that people who scored, on average, at the 12th percentile in tests of humor, grammar and logic assessed themselves to be, on average, at the 62nd percentile. Incompetence at the extreme is a double-whammy, the authors declare: "Not only do these people reach erroneous conclusions and make unfortunate choices, but their incompetence robs them of the metacognitive ability to realize it." (Which explains Washington, in a nutshell.)

In a column on Slate yesterday, Chicago economist Austan Goolsbee asks why, when traffic is bad, do bus drivers sit in traffic on Lake Shore Drive (where there are no stops) while cab drivers get off and take shortcuts?

Unsurprisingly (this is an economics column after all) incentives provide the answer. Chicago's bus drivers are paid per hour. While their passengers lose when the bus sits in traffic needlessly, the drivers don't. In fact, thinking about how to get around the traffic only imposes effort costs on the drivers. Thus, the drivers face a disincentive to improve their riders welfare. In Chile, though, bus drivers are not paid per hour, but rather per passenger. As such, they run on time.

Goolsbee describes an interesting market with some interesting features. E.g., the drivers pay people to wait at key stops in order to provide information about their location relative to other busses along the route. And Goolsbee correctly points out that this scheme increases driver productivity and that government should consider such approaches because they can generate the same amount of service for less money.

I have a couple of concerns, though, about whether or not this scheme actually improves social welfare that Goolsbee doesn't fully address. First, paying drivers in this manner also incentivizes them to drive aggressively and recklessly (see cab drivers -- who are already paid per passenger). Goolsbee notes that this problem exists, but suggests that passengers accept the increased tension and nausea because the per passenger bus companies do better then per hour bus companies. However, Gooslbee fails to mention the externalities reckless bus drivers impose on other drivers and pedestrians. I do not know how big these costs are, but before implementing a policy one should try and figure this out.

Second, I am curious how the companies or drivers solve a coordination problem. Drivers want to run far enough behind the previous driver on their route to allow more passengers to build up (hence the people who wait at stations to tell them how close they are to the previous bus). However, passengers (and probably drivers) want the line to run on time. Regular riders want to be able to roughly time their arrival at pick up points to coincide with the arrival of the bus (particularly when the weather is bad). Yet, if a driver receives word that the driver ahead is behind schedule, he now has an incentive to delay his route in order to not follow closely behind. While all drivers (and the bus company) benefit from having a well coordinated schedule, each individually has an incentive to cheat the system in order to maximize their own ridership. Thus, the company would need to design a system to offset this problem.

Finally, most bus routes that I have observed don't have a great deal of flexibility. That is, it seems like there are relatively few routes which have sufficiently long hauls to allow a driver choice of route while still making all their stops. E.g., the number 1 bus runs up and down Mass. Ave. stopping every couple of blocks. There doesn't seem to be much of a margin to increase these drivers productivity via pay incentives. In fact, such a system would likely only introduce volatility into workers pay, and most people don't like such risk.

Kennedy School professor Brian Jacob and co-author Lars Lefgren try and answer this question. Using data on parents' requests for teachers, a metric of teacher's value added, and principal's teacher evaluations from a midsize school district in the West, they find:

Families with children in higher poverty and minority schools in the district strongly value student achievement. When they make requests, they are more likely to pick teachers who provide high "value-added" in terms of student achievement scores and teachers whom the principal rates highly in terms of factors such as organization, classroom management, and enhancing student achievement. However, these parents were essentially indifferent to the principal's report of a teacher's ability to promote student satisfaction. Interestingly, the results are exactly reversed for families in higher-income schools. These parents are most likely to request teachers whom the principal describes as "a good role model" and/or good at promoting student satisfaction. They do not choose teachers who provide high "value-added" in terms of student achievement, or who receive high scores in this area from their principal.

The authors suggest several potential explanations for this finding. First, they note that education should be viewed as a consumption good as well as an investment good, and that it is possible that wealthier parents simply place a higher premium on the consumption value of schooling. Second, the authors note that these findings are consistent with a declining marginal utility of achievement on the part of parents. In other words, wealthier parents may believe that their children already have something of a head start in basic reading and math skills, so they value a strictly achievement-oriented teacher less highly than more disadvantaged parents whose children may not have these basic skills. More generally, these results suggest that what parents want from school is likely to depend on family circumstances as well as on parent preferences.

It would be interesting to do something similar here. I would love to know the relationship between student background characteristics and the type of classes they choose and how they rate courses for the CUE guide.

This is the finding of a fascinating experiment conducted by Uri Gneezy, Muriel Niederle, and Aldo Rustichini:

Even though the provision of equal opportunities for men and women has been a priority in many countries, large gender differences prevail in competitive high-ranking positions. Suggested explanations include discrimination and differences in preferences and human capital. In this paper we present experimental evidence in support of an additional factor: women may be less effective than men in competitive environments, even if they are able to perform similarly in noncompetitive environments. In a laboratory experiment we observe, as we increase the competitiveness of the environment, a significant increase in performance for men, but not for women. This results in a significant gender gap in performance in tournaments, while there is no gap when participants are paid according to piece rate. This effect is stronger when women have to compete against men than in single-sex competitive environments: this suggests that women may be able to perform in competitive environments per se.

An alum of this tutorial (who was also one of my 985 students), Lia Larson, replicated this experiment among elementary school children for her thesis. Here is her abstract:

Research suggests that women do not compete in mixed gender tournaments. This paper evaluates at what stage in development females begin to underperform in competitions by conducting an experiment on 354 1st-5th grade children. Evidence suggests that girls stop competing in mixed gender tournaments during the elementary school years. During 1st and 2nd grade, girls react similarly in competitions regardless of the gender composition of the group. In 3rd, 4th and 5th grade, however, there is evidence that while girls continue to compete in single sex tournaments, they exhibit reduced levels of effort when placed in tournaments with their male peers. Interestingly, pre-experiment self-rankings of the female students correlate with their actual performance in the tournament and girls involved in competitive sports have no decline in performance in mixed gender tournaments. Surprisingly, girls with the highest maze solving ability tended to be the most negatively affected by the presence of male competitors. Several possible explanations are offered for this change in female behavior, though definitive conclusions prove elusive.

In the previous posts, I highlighted the use of random assignment of neighborhoods or peers to estimate how individuals are affected by social influences. Social effects can also be estimated using events or policies which randomly affect some members of a particular social network. If social effects are relevant to the behavior of interest and my friends behavior receives a shock, then I should be more likely to engage in the same behavior than an otherwise similar person who's friends did not receive the shock.

One of my 985 students last year, Julia Gluck, wrote a thesis (winner of the 2005 Allyn Young Prize for outstanding economics thesis) which provides a nice example of this methodology. Julie wanted to estimate the effect of peers on adolescent risk behaviors. A large literature documents the fact that girls who reach menarche earlier have sex earlier and are more likely to become pregnant. Julie shows, however, that no relationship exists between the age of menarche among friends. Thus having friends who develop relatively early (or late) is an exogenous shock to the behavior in girls' social networks. Ultimately, Julie shows that girls whose friends develop early are more likely to engage in sexual activity than otherwise similar girls whose friends develop later.

Julie's thesis provides fairly strong evidence for peer effects in adolescent sexual behavior. However, it does not specify what specifically generates these effects. Does increased sexual activity by friends increase desires for sex? Does it increase pressure to conform? Does it reduce fears about the risks involved? Does it change the typical social situation (e.g., do boys become more prevalent and parties become more common )? These questions require further research.

In a different paper, Bruce Sacerdote examines the effects of family characteristics on child outcomes using the random assignment of Korean adoptees to American families:

I use a new data set of Korean-American adoptees who, as infants, were randomly assigned to families in the U.S. I examine the treatment effects from being assigned to a high income family, a high education family or a family with four or more children. I calculate the transmission of income, education and health characteristics from adoptive parents to adoptees. I then compare these coefficients of transmission to the analogous coefficients for biological children in the same families, and to children raised by their biological parents in other data sets. Having a college educated mother increases an adoptee's probability of graduating from college by 7 percentage points, but raises a biological child's probability of graduating from college by 26 percentage points. In contrast, transmission of drinking and smoking behavior from parents to children is as strong for adoptees as for non-adoptees. For height, obesity, and income, transmission coefficients are significantly higher for non-adoptees than for adoptees. In this sample, sibling gender composition does not appear to affect adoptee outcomes nor does the mix of adoptee siblings versus biological siblings.

Beyond just neighbors and neighborhoods, we are interested in peer effects. Again, most of the time we self select our peers, as such estimating peer effects is tough. We need randomization. Roommate assignment at some colleges and universities is random. As such, a few papers have been written examining roommate effects.

First, Dartmouth professor, Bruce Sacerdote looks at roommate effects at Dartmouth:

This paper uses a unique data set to measure peer effects among college roommates. Freshman year roommates and dormmates are randomly assigned at Dartmouth College. I find that peers have an impact on grade point average and on decisions to join social groups such as fraternities. Residential peer effects are markedly absent in other major life decisions such as choice of college major. Peer effects in GPA occur at the individual room level whereas peer effects in fraternity membership occur both at the room level and the entire dorm level. Overall, the data provide strong evidence for the existence of peer effects in student outcomes.

Second, Harvard's Michael Kremer and co-authors have two interesting roommate effects papers. This one is similar to the Sacerdote paper:

This paper examines a natural experiment in which students at a large state university are randomly assigned roommates through a lottery system. We find that on average, males assigned to roommates who reported drinking in the year prior to entering college had one quarter-point lower GPA than those assigned to non-drinking roommates. The 10th percentile of their college GPA is half a point lower than among males assigned non-drinking roommates. For males who themselves drank frequently prior to college, assignment to a roommate who drank frequently prior to college reduces GPA by almost a full point. Since students who drink frequently are particularly influenced by frequent-drinking roommates, substance-free housing programs could potentially lower average GPA by segregating drinkers. The effect of initial assignment to a drinking roommate persists and possibly even grows over time. In contrast, students' college GPA is not influenced by roommates' high school grades, admission test scores, or family background. Females' GPAs are not affected by roommates' drinking prior to college. Overall, these findings are more consistent with models in which peers change preferences than models in which they change endowments.

Second, this paper examines the effect of race and socio-economic background on individal attitudes and behaviors:

Mixing across ethnic and class lines could potentially either spur understanding or inflame tensions between groups. We find that white students at a large state university who were randomly assigned African-American roommates in their first year are more likely to endorse affirmative action policies several years later. Whites who were randomly assigned black roommates are also more likely to say they have more personal contact with and interact more comfortably with members of minority groups. Whites who were assigned either black or low-income roommates are more likely to view a diverse student body as essential for a high-quality education. Students become less supportive of higher taxes for the wealthy when assigned roommates from high-income families, and they appear more likely to volunteer when assigned roommates from low-income families. Taken together, these results suggest that students become more empathetic with the social groups to which their roommates belong.

Recently, we've discussed why people want to live in "good neighborhoods," and, in one section, we discussed some of the tradeoffs associated with segregation of "high" and "low" types. These issues have significant policy implications for both individuals and government. How much your neighbors affect the choices and outcomes of your family plays a role in your willingness to pay for certain property. As a society, we embrace access to opportunity. However, our initial attempts to provide the needy with shelter (massive housing projects) created dense concentrations of poverty and crime and led many to question how much housing policies were actually limiting the opportunities of poor families by depriving them of sufficient role models, etc.

Really, though, how much do neighborhoods affect individual outcomes? Intuitively, it makes sense that neighbors matter, but what do the data show.

Empirically estimating the effect of neighbors on outcomes is difficult because we choose our neighbors. It is difficult to separate the effects of the neighborhood on the outcome of interest from the effects of other things which affect both the outcome and the decision to live in a neighborhood. That is, there is always a certain amount of omitted variable bias.

During the empirical overview, we discussed how solving such problems typically requires some sort of randomization. Fortunately, the government let some economists (including my current "boss" Larry Katz) introduce an element of randomization into neighborhood choice with the Moving to Opportunity experiment -- which gave a randomly selected group of families access to a new form of housing assistance that required they move to a low poverty area.

We will discuss the specifics of the MTO experiment in class tomorrow, but you can access the bulk of the research that has been conducted here (you can click the links and read the papers or at least the introductions or scroll down to the abstracts to get a rough picture of what they found).

On the subject of neighborhoods (as opposed to neighbors) and in the vein of shameless self promotion, as mentioned previously, for part of my dissertation, I exploited Harvard's housing lottery to estimate the effect of a certain aspect of neighborhoods (distance) on individual choices and neighborhood quality. You can check out my paper, "Distance and Social Capital: Can Isolation be Good?", here and the Crimson summary of it here.

Brad DeLong, economics professor at Berkeley, posts the text of a lunch talk he gave recently on his weblog. He summarizes his interpretation of economic policy (good and bad) over the past 30 years or so and discusses current challenges (he particularly is concerned about the trade deficit). While not particularly relevant to the core content of our class, I thought it was an interesting discussion of the economy. So I pass it along.

As always, you should keep in mind that these represent the opinions of one smart guy. Other smart people disagree with at least some of what he argues (for more on the trade imbalance discussion see Martin Wolf's economist's forum on the FT or DeLong's own discussion).

Update -- Daniel Gross also says interesting things related to golbalization -- specifically about what he referes to as "selective globalization syndrome."

Here are 10 tidbits to use as conversation fodder (or just to consume privately) from recent studies about love and mating. Some of them are pretty well thought out, others suffer from potential empirical problems. They are all somewhat fun nonetheless.

A sample:

6. It’s official. Love makes us crazy. For one, it causes serotonin levels in the brain to drop, which may lead people to obsess about their lover. (The levels of serotonin, a chemical produced by the body, are also low in people who have obsessive-compulsive disorder.) Next, it ramps up production of the stress hormone cortisol, leading to slightly higher blood pressure and possible loss of sleep. Finally, a scientist at the University of London has found that when people look at their new loves, the neural circuits that are usually in charge of social judgment are suppressed. All in all, love kind of leaves you obsessive, stressed, and blind. And we love it.

One of the ways parents' affected children in our discussion last week was by keeping them away from the "wrong" people and pushing them toward the "right" people. They primarily achieve this by controlling the people you are exposed to by selecting neighborhoods and schools (it used to be that these choices occurred simultaneously, but it seems that I am like the only person who actually attended the neighborhood school -- so, I guess, we have to think of these separately).

Beyond the environment for children, people have preferences for who lives nearby. Our neighbors affect us in ways both good and bad (e.g., they can be nice, helpful, sources of favors or status or they can steal, litter, or annoy).

Yet, while I care about who are the people in my neighborhood (in my neighborhood, in my neigh-bor-hoood*), I have very little direct control over who my neighbors actually are. When purchasing a house, I don't also negotiate a contract with Megan and Garrett down the street. I buy my house essentially hoping that they will stay (or at least only be replaced by someone of equal or greater quality). Thus, neighbors can impose large positive or negative externalities on the other members of the neighborhood.

As you all learned in ec10, markets with externalities tend to be very inefficient. Individuals, developers, and communities try and correct some of the problems with externalities by creating zoning rules for their communities or protective covenants for their developments which impose rules on homeowners.

Still, housing markets have this fascinating property that a potentially large fraction of a house's values is unrelated to the specific qualities of the house, but rather reflects the quality of the people living in adjacent houses.


*For those confused by this reference you didn't watch enough Sesame Street growing up. Click here and select song 3 (and, yes, I totally bought this album just now).

This story hits on several topics from class -- relationships, vengeance, ... but really, all I can say is, "wow!"

Espinosa told reporters he was glad his wife had suffered burns, while Contreras said she was only sorry she had not “hacked off his manhood” during the fight.

Over lunch at Pfoho today, an undergrad and I argued about the lack of coverage and interest in foreign affairs among the US population. Foreigners (particularly Europeans) frequently lament the local focus of American news. They view this as some great character flaw with Americans. I disagree. I don't think that Americans are different then people everywhere else in that they demand information about stuff that actually affects them. Given the vast distances between the US and most of the rest of the world and size of the US economy, Americans are for, the most part, much more insulated from what happens in the rest of the world then other people. When our economy or our safety are affected, Americans pay attention. Americans relative lack of interest in foreign affairs stems not from innate differences in character, but rather from differences in situation.

At lunch, though, the student made a new, much more interesting argument. Her argument was that, given the enormous influence wielded by the US government in our names, American citizens have a responsibility to be informed about what is going on the world and what the US is doing about it. While I agree with this in principle, I don't think the incentives currently in place are likely to produce a productive dialogue. As such, I am much more concerned about the quality of discussion that takes place within the government than I am with the quality of discussion taking place among the general populace.

Below is an email I sent the student after lunch which more thoroughly outlines my view:


I just wanted to follow-up on the debate about American views of foreign policy. As usual, as I was walking away I figured out what the fundamental source of disagreement between us.

As I understood it, your view is that, given the enormous influence of US foreign policy on people throughout the world, all Americans need to be more informed than others on what goes on abroad -- especially when it come to the effects of their foreign policy. What I think you believe, and correct me if I am wrong, is that such a debate would lead to different (specifically "better") foreign policy choices by the US. This is the assumption that I disagree with. I am unconvinced that greater debate among the general public would necessarily lead to "better" foreign policy decisions (although it might produce different decisions). That is, I disagree that lack of public debate is the cause of (or increasing debate the solution to) "bad" US foreign policy.

Here's why.

Individual voters have very little incentive to be fully informed about any issue because seeking out "Truth" is costly for them individually, but, in general, produces almost no benefit to them (because their vote has essentially zero probability of affecting the outcome of an election). As such, they are easily lied to and manipulated by politicians (see these papers by Ed Glaeser and this paper by Matthew Gentzkow and Jesse Shapiro). Thus debate observed by average people (see cable talking heads) tends to be overly emotional and somewhat shallow because people lack proper incentives to care if people are lying to them.

Further, US political debate focuses on domestic issues because what few incentives voters have to pay attention lie here because domestic issues are much, much more likely to affect their lives. Changes in tax laws or social security benefits, etc. affect most everyone, but changes in foreign policy have little effect on most individuals.

This makes debate about foreign policy issues even worse than debates about domestic issues because, as Glaeser shows, the less stake an individual has in a decision, the less likely s/he will invest the effort in finding out the truth.

Add to this, that foreign policy decisions are hard to simplify into neat slogans and 5 minute TV "debates" because, obviously, different situations are probably best served by different choices, and I arrive at my point that I am not convinced that a public that generally doesn't get involved in foreign policy debates is a bad thing.

Just consider American foreign policy debates over the past several years. In 2000, you have W. famously proclaiming that he doesn't believe in nation building. Two years later he marches the country (using largely false claims) into a war and a prolonged exercise in nation building with the full support of almost everyone who agreed with his no-nation building view in 2000. Those who don't share his views are traitors who are not interested in protecting the country. This is a crazy swing (and I don't buy the 9/11 changed everything logic) and the claim that those who opposed the war in Iraq are traitors who don't care about national security is obviously insane. Yet, this is the discussion that we've had. Even scarier, given the loss of life and treasure (tax dollars) associated with the war and real potential effects on national security, you would think that the incentives would be present for a more rigorous debate which more clearly tries to establish "Truth." Yet, this is the debate that we produced (and continue to produce).

While collectively, Americans care about foreign policy choices, individually most don't care enough to be fully informed (nor is it realistic to think that they can be given the number of countries and the number of issues involved in dealing with each). Unless we can magically make the average person care enough to become fully informed and have a stake in the outcome, I am not concerned that the average American doesn't engage in more foreign policy "debate."

I do care, however, that within the government and within the foreign service community specifically (and within the academic and social circles that interact with these people) there is rigorous debate about everything that we do. You are absolutely correct that the US can wield an enormous amount of influence over the populations in other countries, and thus I would hope we would be very careful to consider the effects of our actions on the quality of life in those countries (and not just on our own security). Understanding these issues is very difficult, and I am much more concerned that the quality of debate among these people is too low than I am about the quality of debate among regular Americans.

Judy Harris makes interesting arguments about parenting. A summary of her latest work can be found in this NYTimes Book Review.

Harris' first book "The Nurture Assumption" attacked the notion that parenting styles shape children. Her new book, "No Two Alike," seeks to explain "why people -- even identical twins who grow up in the same home with the same genes -- end up with different personalities." Her answer:

From this evolutionary logic, Harris builds a theory of personality based on three systems in our brains. The socialization system absorbs language, customs and skills, making us more alike. Mommy and Grandma wear dresses; you're a girl, so you want a dress too. The relationship system distinguishes people so we can deal with each one appropriately. Crying gets milk from Mommy but not Grandma; Billy is gentle, but Bobby hits people. Even random differences are important: Anne helped you with your homework, but her twin sister owes you a dollar. You find ways to tell people apart because you have to.

...

[Third] ..Thehe status system. Your socialization system figures out how to conform to your group. Your relationship system figures out how to get along with each person. Your status system figures out how to compete. It monitors people's reactions, gathering information about how smart, pretty, weak or talented they think you are. It looks for virtues, activities and occupations at which you're most likely to best your peers. It notices tiny differences between the way people regard you and the way they regard others in your peer group, or even your twin. By choosing pursuits based on these differences, it magnifies them. It drives you to be different.

Further:

The reason parental influence doesn't control children's behavior outside the home is that they adjust to context. "Children are capable of generalizing — of learning something in one context and applying it in another — but they do not do it blindly," Harris observes. At home, where you're the younger sibling, you yield. At school, where you're one of the bigger kids, you don't. And unlike other animals, you can shuffle your self-classifications. In seconds, you can go from acting like a girl to acting like a child to acting like a New Yorker.

In short, the evolutionary logic that makes us different from one another will gradually make us different from ourselves, context by context. Personality -- behavior that is "consistent across time and place," as one textbook puts it -- will fade.

Harris' essentially argues that situations matter. People respond to the specific incentives in their specific situations. Thus, we shouldn't expect to observe much in term of consistent behavior across time and place (or personality). If you are really interested in this topic, I highly recommend Nisbett and Ross' "The Person or the Situation." One of the most interesting books I've read in the past several years.

While I agree that personality is something of a myth, I disagree with her view that parenting can't control a child's behavior outside the home. First, as we discussed in class last time, parents play a vital role in selecting the situations the child is likely to be in. Further, parents can and do shape the relative payoffs to decisions made outside the home. First, parents educate their children about the expected long term effects of different choices. Second, to the exent parents are aware of choices made elsewhere, they can (and do) punish and reward children for choices made outside the home. Thus, the probability that parents will find out about their choices and the expected rewards and punishments are part of the relevant context that shapes children's decisions outside the home. Thus it is hard for me to agree that parenting doesn't matter. Maybe popular parenting methods aren't very effective, but that doesn't mean, in principle, parent's have little effect.

Interesting article in Divine Inspiration -- "It's the vital ingredient of creativity, but what exactly is this thing called inspiration? Psychoanalyst Adam Phillips seeks its source while diverse artists from all fields reveal how the muse strikes them ... from poet Andrew Motion and his 'ritual pencil' to singer Beth Orton and her big pink hat"

(Thanks to Marginal Revolution for the tip.)

Which cities have the best amenities? There are lots of ways to try and figure this out -- housing prices, composite indices of desirable (or undesirable) characteristics, ... I am sure you've all run across various lists. However, this column summarizes perhaps the most interesting approach -- the number of gay men.

How important are amenities for urban growth? Are natural amenities or constructed amenities more important? Read here to find out.

Finally, an interesting argument in favor of reverse commuting. At dinner the other night, a friend of mine who is a professor at Brandeis and lives in Harvard Square made an interesting argument for why he prefers to reverse commute rather than live in the 'burbs. His commute costs him roughly 500 minutes a week. By living in the 'burbs he could probably reduce this to 100-200 minutes thus increasing his available leisure time by at least 5 hours per week. In spite of this seemingly high cost, he gladly pays the price to be closer to better consumption amenities (essentially a better selection of restaurants). Why?

His argument is somewhat behavioral. First, he argues that his productivity increases. He commutes via train and thus his schedule was fixed around the train schedule. He argues that this makes it easier to adhere to a fixed work schedule and increases the number of hours spent at the office by forcing him to get to work a little earlier and stay slightly later. Second, and more importantly, it lowers the price of the goods with more elastic consumption. That is, he must go to work, so it is easy to find the motivation to make the commute. He doesn't have to eat nice meals at good restaurants. He enjoys doing this alot, but small increases in effort completely deter this choice making him somewhat worse off. Thus by living close to the consumption amenities he prevents his lazy self from screwing his restaurant enjoying self by substantially reducing the price of enjoying them.

Ok, so maybe you all don't want to live in Manhattan specifically. However, I suspect that nearly all of you want to live downtown in a major metropolitan area. Further, I argue that many of you would choose to locate there even if the jobs you want were to be uniformly scattered throughout the metro area. That is, you would reverse commute out of the city if necessary (in fact, on Friday, I met with I guy who used to travel 4 hours a day commuting from Brooklyn to White Plains). Why would you all do this?

Well, because cities are cool. They are especially appealing to the young and single and the old and retired. Ed Glaeser, Jed Kolko, and Albert Saiz document the changing role of cities and explain what makes some cities more appealing than others in their paper "Consumer Cities." Here is the abstract:

Urban economics has traditionally viewed cities as having advantages in production and disadvantages in consumption. We argue that the role of urban density in facilitating consumption is extremely important and understudied. As firms become more mobile, the success of cities hinges more and more on cities' role as centers of consumption. Empirically, we find that high amenity cities have grown faster than low amenity cities. Urban rents have gone up faster than urban wages, suggesting that the demand for living in cities has risen for reasons beyond rising wages. The rise of reverse commuting suggests the same consumer city phenomena.

A couple more articles on how parents get children to behave. Changing children's behavior is, to economists, merely a matter of getting the incentives right. Thus, children will behave like parents want them to in the presences of sufficient rewards and punishments.

In Gary Becker's classic paper, "A Theory of Social Interactions" (look it up online), a family with an "effective altruist" (i.e., a parent who makes large transfers to other family members and who cares about the well being of each family member) will be well behaved. That is, family members will not engage in actions which make themselves better off, but other members of the family sufficiently worse off to create a net loss in family welfare. This occurs because the family members know that the altruist will redistribute the transfers to compensate those harmed and punish the offender. If the transfers are done correctly, then a fully informed, rational offender will not engage in the offending action because he knows it will make him worse off.

Second, Steven Landsburg describes interesting work by Bruce Weinberg on the economics of spanking. Who chooses to spank their child? Go read this short column and find out.

Joel Slemrod thinks this might be a good idea. Workaholics have a harder time retiring. They keep sticking around for 1 more year. This may have health and lifestyle consequences. Thus, maybe we should tax these people into retirement.

I am sick. So ridiculously sick that I would do anything to be relieved of this pain. Anything...

And naturally, this got me thinking about euthanasia and the economic implications of a voluntary "passing." A google search led me to this anti-euthanasia site

Under "economic argument," the author writes:

Legalised euthanasia is seen in some quarters as a convenient solution to a lack of resources. In May 2002, a law was passed in Belgium ‘permitting the killing of sick people using medical techniques under certain conditions.’ During the publicity campaign in the run-up to the passing of the law, a number of studies were carried out relating to the final year of people’s lives. The studies apparently proved that the final year of a person’s life was usually the most expensive for the State. It would seem that this morbid financial statistic was being used to justify a change in the law. In other words, it was being suggested to the electorate that euthanasia makes good economic sense...

In a recent poll taken amongst economic students in America , it was found that 90% of the students supported compulsory euthanasia for unspecified groups of people, to ‘streamline the economy'...

To advocate euthanasia on the basis of an economic argument is despicable and morally indefensible. You cannot put a price on a human life, even though it may be elderly and infirm.

First of all, I'd be shocked if 90% of economic students would actually support compulsory euthanasia. But I think restricting euthanasia as an option for patients shrinks their set of choices and makes them worse off. If a patient wants to go, and he or she has nothing left to contribute to society, I think it's a win-win for everyone to just allow that person choose euthanasia. In addition, I think most people don't buy the "cannot put a price on a human life" argument because right now we do pull life support if the patient has no chance of ever making a full recovery. Of course, my words won't sway extremely religious individuals. I guess in cases when a group places infinite weight on a value, economic arguments can prove to be pretty useless.

Resources for discussion of family influences (please try and look these over):

Haveman and Wolfe summarize the literature (as of 1995) on "The Determinants of Children's Attainments." It covers both some of the standard theories and most of the empirical work at the time. It is good. I highly recommend checking it out.

Related to this, a fairly weak paper I wrote for a sociology class I took on the effect of parent education on parenting choices can be found here.

People commonly argue that parents shape their children not only through direct investments in their human capital, but also by shaping their preferences and expectation regarding education, work for pay, etc. Samuel Bowles and Herbert Gintis have published several articles on this topic. This paper "The Determinants of Earnings: A Behavioral Approach" provides a nice summary of the potential importance of these factors.

The USDA summarizes dollars spent on children here.

Here are a variety of papers on time use by Americans. Following up on the discussion of sons and daughters from Thursday, this paper specifically looks at time spent by parents with sons and daughters.

Tomorrow (Thursday), we will begin discussing how family choices (specifically parent's choices) affect the choices and outcomes of their children.

One of the first (and seemingly trivial choices) parents make -- deciding on your name -- can have lasting effects on child outcomes.

First, David Figlio finds that boys with feminine names are more likely to misbehave in middle school. He uses this seemingly random finding to examine another effect of interest to this course -- the effects of classroom disruptions on student behavior and performance. The paper can be found here. Here is the abstract:

This paper proposes an unusual identification strategy to estimate the effects of disruptive students on peer behavior and academic outcomes. I suggest that boys with names most commonly given to girls may be more prone to misbehavior as they get older. This paper utilizes data on names, classroom assignment, behavior problems and student test scores from a large Florida school district in the school years spanning 1996-97 through 1999-2000 to directly study the relationship between behavior and peer outcomes. I find that boys with female-sounding names tend to misbehave disproportionately upon entry to middle school, as compared to other boys and to their previous (relative) behavior patterns. In addition, I find that behavior problems, instrumented with the distribution of boys' names in the class, are associated with increased peer disciplinary problems and reduced peer test scores, indicating that disruptive behavior of students has negative ramifications for their peers.

Second, Steve Levitt's and Stephen Dubner's book, Freakonomics, discusses some other interesting effects of baby names. Specifically, they discuss the effects of distinctively black names on children. The relevant excerpts can be found here and here. The core paper this chapter is based on(by Roland Fryer and Steve Levitt), is here. Here is the abstract:

In the 1960s Blacks and Whites chose relatively similar first names for their children. Over a short period of time in the early 1970s, that pattern changed dramatically with most Blacks (particularly those living in racially isolated neighborhoods)adopting increasingly distinctive names, but a subset of Blacks actually moving toward more assimilating names. The patterns in the data appear most consistent with a model in which the rise of the Black Power movement influenced how Blacks perceived their identities. Among Blacks born in the last two decades, names provide a strong signal of socioeconomic status, which was not previously the case. We find, however, no negative relationship between having a distinctively Black name and later life outcomes after controlling for a child's circumstances at birth.

The Smoking Gun points us to the most awesome federal judge, ever. Kudos to judge Lief Clark, who was so underwhelmed by a lawyer's brief that he quoted from Adam Sandler's, "Billy Madison." Specifically he quotes one of the judges responses to Billy Madison's "superficially reasonable" but "lacking in substance" description of "The Puppy Who Lost His Way" in the final competition for Madison Hotels:

Mr. Madison what you've just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response was there anything that could even be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.

Let's get this guy on the Supreme Court.

P.S. Don't take my amusement at this comment as any sort of reflection on the quality of your first paper assignments.

Although, one of the recommendations that comes up at grading workshps is to have a sheet which describes the shorthand used in margin comments. I don't make margin comments any more, but can you imagine a coming across a margin comment that is "Billy Madison" and you look over at the translation and see the above quote. I think that would be pretty funny, but then, I derive an enormous amount of sadistic pleasure thinking up ways to torment students about grades. Some other time I will describe some of my other schemes (none of which I ever actually implement).

Given the ongoing theme of the relationship between more choice (or more income) and happiness, I feel it is past time that I discussed the basic process and limitations of such research.

Let's start with the obvious measurement problem. How do we quantify happiness? Typically, I ask you a question, "How happy are you?" or something like that (although I am sure someone has tried to approach this more cleverly). Does this measure how happy you are?

Not really. At best, it captures how happy you are right now. That is, it measures an emotional state (not necessarily your welfare) at one point in time. I would be surprised, however, if someone hasn't asked the same people how happy they are repeatedly (i.e., in a panel dataset) and looked at average happiness levels at several points in time. I would be further surprised if these averages were not at least somewhat correlated with individual point-estimates. So while one needs to keep measurement issues in mind, it is not obvious that there is bias in the measurment (just noise).

Whether or not we actually care about happiness (or some other outcome) is a deeper question that I haven't figured out the answer to myself, although I know a lot of economists do not believe that individuals try and maximize happiness (nor do they think that people should maximize happiness). Thus, it is not obvious how strongly we should care about happiness as an outcome.

A question that those unconvinved by happiness metrics frequently ask is if we took a large sample of supposedly happy poor people and offered them the opportunity to become rich, unhappy people (i.e., we told them that people who are rich are on average unhappier then they are currently) how many would take the offer? When given the choice to have more choice, people almost always reveal that they prefer more choice. If large numbers of people systematically choose to make themselves unhappy, can we really believe that they are actually worse off?

Further (assuming that concern about happiness makes sense), determining causal relationships between the variable of interest and the happiness outcome is essential. Without controlled experiments or natural experiments, establishing causal links between happiness and other things is very difficult, and you should not draw strong conclusions from research which lacks a credible identification strategy.

Finally, when presented with interesting relationships between choice or income and happiness, think hard about what to take away from the findings. If someone tells you that more money (or more choice) doesn't increase happiness on average, does this mean that you should not try to earn more money (or try and increase you choice set)? I am enough of an straight economist that it is hard for me to deny the logic that more choice necessarily improves your welfare. If considering some set of choices makes you worse off, I say figure out how to ignore them (but don't get rid of the choices because you may really regret not having them at some later point). Some people (i.e., the satisficers discussed in the previous post and elsewhere in the happiness literature) have apparently already figured out how to cope with choice. As such, others probably can learn. We may just need to help train people how to do this more successfully (although whether or not we can train ourselves or others to handle more choices without regret, etc. is an empirical issue that should be addressed (if it hasn't been addressed already)).

Barry Schwartz offers a few sensible guidelines in his article "The Tyranny of Choice":

1) Choose when to choose -- We can decide to restrict our options when the decision is not crucial. For example, make a rule to visit no more than two stores when shopping for clothing.

2) Learn to accept "good enough" -- Settle for a choice that meets your core requirements rather than searching for the elusive "best." Then stop thinking about it.

3) Don't worry about what you're missing -- Consciously limit how much you ponder the seemingly attractive features of options you reject. Teach yourself to focus on the positive
parts of the selection you make.

4) Control expectations -- "Don't expect too much, and you won't be disappointed" is a cliche. But that advice is sensible if you want to be more satisfied with life.

In an interesting article on Slate( http://www.slate.com/id/2137537/) the author analyzes the tranformations in marraige that have taken place as a result of the feminist movement. The author finds that women who identify most with feminist ideals have lower levels of happiness than their non-feminist counterparts. While there are obvious possible statistical flaws here (omitted variable bias) the article does point out some plausible explanations for the trend. One explanation offered is that an expansion of the choice set for female careers has actually made women worse off because they now feel a greater degree of "buyers remorse" towards their choices. Feminists also might have higher expectations and are more likely to feel unsatisfied when these expectations are unmet. Since we are discussing marraige and eastern vs. western ideals I thought that this could contribute to the debate. What are your thoughts?

Update -- First, kudos to Varun for both finding an interesting and relevant article and having the courage to post it on the main page. Second, there are serious selection problems with these results. So while they continue to force us to think about the relationship between choice and reported happiness, take them with a large grain of salt. -- Bryce

Previously, we discussed differences in the assumptions which underly preferences for arranged marriages or love matches. However, why did an arranged marriage system persist longer in the East than in the West?

This article argues that (as usual) the Catholic Church is responsible. The author argues that the church had incentives to try and make it more difficult for people to marry and reproduce (because the childless would leave their belongings to the church) and to respect consent marriage because it was more likly to separate individuals (and their property) from the larger family which made it easier for them to give property to the church.

I am sure other factors play a role, but it is an interesting argument (based in economic logic) so I pass it along.

The Freakonomics column in the Times Sunday Magazine is also quite good. The article first explains how the market for real estate agents maintains equilibrium when housing prices rise.
Then, it discusses how the market is likely to change in the face of technological change.

Both discussions offer a good examples of equilibrium thinking. Recall, equilibrium is maintained when no one has an incentive to deviate from their current behavior. In both discussions, we observe people seeing an opportunity to do something differently and be better off and taking it. Learning to anticipate such opportunities is really quite important.

As we've discussed several times now, economists assume that more choices improve individual welfare. Further, economists typically assume that people will rationally consider all available choices and make the choice which maximizes their welfare.

We've also discussed a potential limitation to this approach. Decision costs and regret costs imply that more choices (or at least awareness of more choices) might lower individual welfare.

Here is some interesting research on the tradeoff between more choice and individual satisfaction. The authors grouped people into two groups -- maximizers (those who exhaustively consider all available choices) or satisficer (those who find and settle on something adequate) and examined how these people performed on the job market.

They find that "maximisers had found jobs that paid 20 per cent more on average than the satisficers jobs, but they were less satisfied with the outcome of their job search, and were more pessimistic, stressed, tired, anxious, worried, overwhelmed and depressed."

These results are provocative, but you should interpret them with caution. First, it is not obvious how easy it is to group people into maximizers or satisficers accurately. Second, even if you could accurately measure this stuff, it is hard to establish a causal link between this variable and outcomes. There are obviously potentially omitted variables in the analysis.

Big profile of my advisor, Ed Glaeser, in the NYTimes Magazine today. Check it out.

A quote:

One afternoon last December in his Cambridge office, Glaeser sported a bespoke pinstriped get-up and a pale blue silk tie, which he had tucked into a matching, fully buttoned pinstripe vest draped with the gold fob from his pocket watch. His shoes shone. He seemed to have stepped from a hansom cab, missing only a top hat. As he began to explain some of his recent work on housing prices, his large silver cuff links clinked against the table.

Perhaps the highlight of my 6+ years in Cambridge came when, going to present our paper on housing in Boston to legislative leaders discussed in the paragraph following the excerpt, I received the Ed Glaeser fashion seal of approval -- grey 3-piece suit, white shirt, blue tie (with nice hint of grey), charcoal cashmire overcoat. He'd commented on a previous trip that while I looked good (charcoal pinstriped suit, bright blue shirt, silver and blue tie), I looked too young. As such, no one was going to trust me. The approved 3-piece get up he said made me look like I "was out of the 1950s" and that was good. Good times.

Nerds are cool! Based only on acecdote, keen journalists have id'd a new trend -- dork pride is on the rise.

My favorite quote from the article (who knew that attracting your ideal type was this easy?):

For now, though, he's going with it and has put a bumper sticker on his motorcycle that says "Talk Nerdy To Me" so he attracts the kind of women he's looking for — "a librarian type girl," who likes to go to bookstores and art galleries and whose eyes don't glaze over when he starts talking about the finer points of Babylon 5 or Battlestar Galactica.

For those wishing to remember a simpler time when nerds were ridiculed, here is Triumph the Insult Comic Dog at the premire of Attack of the Clones. One of the funniest things ever filmed.

Some dude, Tom Locke, decided to see what he could extract out of companies just by asking. He decided to dedicate a whole roll of stamps to sending letters to 100 companies asking for free stuff in order to see what kind of return he could get on this investment of $39.

The idea is, I think, much cooler then he realizes. It will be interesting to see who responds, how quickly they respond, and what they actually say and do. Specifically, I am interested in whether or not firms in more competitive markets respond more favorably (because they value each customer more)? (You could probably do something similar using Letters from a Nut.)

Unfortunately, there are a couple of problems with the project. First, the title, "the 39 dollar experiment," is misleading. He even recognizes that he spent more that $39. Including other materials, he estimates $52 were spent. However, even this fails to account for the 10 hours he spent finding addresses and writing letters. Why are economists the only people to care about opportunity costs?

Second, and more importantly, he posted this online too soon. His results may now be biased because firms are likely to learn that their responses will be publicly displayed. As such, Tom may end up getting a large return on his investment. While that is good for Tom, it is not good for his experiment.

This study finds hostile wives and domineering husbands have heart problems (and trigger heart problems in their spouses). According to its authors, this study supports a "small but growing body of research that suggests that beyond the health benefits of being married, marital quality seems to make a difference in heart health." If true, these results suggest additional reasons for people to invest in either searching for a better match or in developing better bargaining/negotiation skills.

Of course, the authors only report a correlation which they interpret at causal. The media loves to report these kinds of findings, but what if the causality runs in the opposite direction (i.e., bad hearts make people more hostile or domineering) or what if some other variable (like diet, income, or education) is responsible for both the bad hearts and bad behavior?

The second part of the Gladwell Simmons discussion is here. Today, they discuss what makes a good college professor (slash NBA coach), the importance of peer effects in determining group success, how too much knowledge (and thinking) can lead to worse decisions, and moral hazard.

Throughout our discussion of relationships, the role of biology in mate selection was largely ignored. Isn't my primary purpose in mate selection swapping genetic material and producing viable children. As such, aren't I really looking for the person who's genes will best combine with mine to maximize our child's ability to survive and produce more children?

Biologists starting to use game theory to look at cooperation say, maybe not:

"To make an analogy with humans, the number of children a couple can raise to adulthood is more influenced by the income of the family rather than the genetic makeup," Akcay said. "We think that in most species, this is what is going on: Males and females choose each other for ecological benefits rather than superior genetic makeups."

At the reception before the Pfoho Pforum last night, one of the house masters was discussing the observations of one of his colleagues who is co-teaching a class this term. On the days this colleague doesn't teach, he sits in the back of class and discovered, what you all know, that students with laptops are not looking at class materials or writing notes, but rather checking email and surfing the internet. One of the undergraduates immediately defended such behavior stating that having these temporary distractions helps keep her awake. When she has class in buildings that lack wireless, she is more likely to fall asleep.

First, I am totally interested in trying to test this hypothesis. Does having wireless internet access in classrooms have any affect (positive or negative) on attendance, propensity to fall asleep, and performance.

Second, I really wonder how long before universities adjust their teaching methods to new technologies. Specifically, how much longer will students be forced to attend massive lectures? I think the technology now exists to completely eliminate this archaic system. Let's break it down.

On the supply side, lectures are very costly for the university. First, massive lecture halls cost lots of money. Now, most universities have already accumulated a large stock of these spaces, but they still occasionally build new ones, they have to maintain the old ones, and that space could be used for something else. Second, teaching large lectures costs faculty members enormously. Preparing lectures takes an enormous amount of time and performing in front of large groups sucks the life out of you. The opportunity costs of this time and effort are enormous. Faculty members could use this time to produce more research or to teach (probably more than one) small seminars. Further, the university incurs additional costs because the faculty typically try and avoid teaching these classes (imposing bargaining costs) or require extra compensation in order to do so.

On the demand side, students don't like large lectures. Professors rarely captivate their students in this setting. Students want someone to talk them through the material, but most faculty lack the charisma to make attending lecture anything but a chore. Further, attending lectures imposes opportunity costs on students because they must be in a specific place at a specific time (and they have to be interested in thinking about that material at that time).

Can't we use technology to improve this system for everyone?

I think the answer is yes. Most faculty members should stop producing large lectures. Instead, some some entrepreneur needs to figure out how to work with faculty to make slick video productions of the material for their course for distribution over the internet. Most faculty still want to teach their own material (i.e., they aren't interested in professionally produced video textbooks), but one could probably convince them to make their own high quality videos which they can re-use year after year and modify easily if they feel the need.

In this system, faculty still produce courses themselves (and are compensated for this effort), but, after an initial fixed cost, they are free to pursue more productive tasks (like research and teaching small classes). Students still learn the material, but now at much lower costs (the material is presented more clearly and interestingly, they can watch when most convenient for them, and they can pause and rewind if confused). Further, I think that you could use the efficiency gains from this system to allow students to take more courses (particularly more small courses like our tutorial).

More evidence for the power of social incentives. Babies are willing to incur costs to help a random scientist. They clearly incur costs (watch the video) and get little in return other then their own sense of satisfaction. Does this reflect innate preference (and thus more selfish behavior is learned) or does it reflect that up until this point in their lives they've only been exposed to helpful people?

Essentially my two favorite writers, Malcolm Gladwell and Bill Simmons, exchange and publish emails on my favorite topics -- sports, entertainment, experience, psychology, and economics. Lots of good stuff here even if you don't like sports (although it will likely have more appeal to sports fans).

For those seeking term papers, at the end they are talking about the "contract year" phenomenon -- i.e., that pro-athletes have amazing years the year they renew their contracts. this suggests a large role for effort in sports. To my knowledge, no one has put together the full set of descriptive statistics (although I would be surprised if someone hadn't). I don't think it would be that hard. You could then email Simmons with your term paper and maybe make his column.

Benjamin Lee sought to understand why nice guys always end up broken hearted for his term paper two years ago.

Ben uses a similar, although slightly different, definition of nice guys to the one Wei-Jen used (see next post). Ben defines nice guys using generosity. Simplistically, nice guys are givers. Their willingness to give may be exogenous -- i.e., nice guys have much lower costs of giving and, as such, exhibit substantially more giving behavior regardless of partner-- or endogenous -- "nice" guys derive huge benefits from their specific partner (e.g., because she is hot and cool) and thus are willing to give generously (aka be "whipped") in order to stay in the relationship. If I remember correctly, Ben's paper focused more on the second case, but I think the basic story applies to both.

Nice guys end up dumped because their partners experience diminishing marginal returns to their generosity. Starting in the second case, the poor guy manages to obtain the girl of his dreams, but the relationship is not symmetric. The nice guy obtained the girl by being exceedingly generous -- pays for everything, does whatever she wants to do, etc. The girl, not surprisingly, liked all the attention and liked getting her way enough to keep the guy around. However, while his benefit from the relationship is obviously huge (otherwise he should be less generous), she is closer to the margin. The relationship works because the "nice guy" keeps giving. Eventually, the marginal benefit enjoyed by the girl of each specific act of kindness diminishes. As such, the nice guy must find new and better ways to give. If he fails to do this, then it is likely only a matter of time until he gets dumped.

Now, the exogenously nice guy (like exogenously attractive people) should be less likely to end up in such an asymmetric relationship (because high demand for him in the dating market should prevent him from drifting too far from the break-up margin), but he could still suffer from the same problem on occasion. Anytime the nice guy's marginally higher generosity pushes a girl over the margin into the relationship, nice guys run the risk of getting dumped because of diminishing marginal returns. This is particularly likely to be the case if, as in Wei-Jen's definition of nice guy, generosity is positively correlated with preferences for commitment. The preference for commitment moves generous guys far from the break up margin ensuring that they are more likely to get dumped.

Two students from previous years were concerned about the plight of the "nice guy." As such, they used their term papers to explore why nice guys don't get the girls and why, on the rare occasion they do, they end up getting dumped.

Both authors were male and, as such, chose to focus on the challenges faced by nice guys. Thus, nice girls are, sorry gals, regrettably going to be ignored here. Some of their points are probably generalizable to nice girls, but I haven't thought through these issues completely.


Why do girls always end up with jerks?

Last year, Wei-Jen Yuan tried to answer this question in his term paper. Wei-Jen assumed that there are two type of guys -- players/jerks and nice guys. He further assumed that the dating market has two stages -- an acquisition stage and a commitment state. Jerks are assumed to have high cost of commitment, but low costs of acquisition. Nice guys the opposite. (One can argue that these differences stem from differences in preferences. Nice guys prefer to maximize the quality of their relationships and thus invest in the skills required to improve and maintain any relationship. Jerks seek to maximize the quantity of relationships and thus invest in the skills required to acquire women (see the book "The Game"). Alternatively, we could assume that these differences reflect differences in "natural" abilities.)

Next, girls stated preferences for nice guys are assumed to be correct, so that if they end up paired with a jerk they suffer a loss. Incurring the loss of being with a jerk leads girls to drop out of the market (at least for a few periods) and leads them to erect barriers which make it more difficult for any man to obtain them.

Assuming that there is asymmetric information about who the nice guys and jerks are, nice guys end up alone because the market unravels. In the initial period, jerks obtain more girls because it is easier for them to do so. This alone, suggests a reason for why disproportionate numbers of nice guys are alone. However, it gets worse. As relationships move into the commitment stage, jerks dump their girls and these girls drop out of the market. Now, the nice guy's expectation of obtaining a girl falls even further because their are fewer girls to go around. Even if these girls should re-enter the market, they now make themselves more difficult to obtain which only makes it more difficult for the nice guy to obtain one of the available girls.

As the process repeats, nice guys expectations of success in the initial stage get lower. At some point, the expected benefit of being on the market no longer justifies the cost of trying to get girls. This leads the nice guys to drop out of the market and hope that they will just "luck" into a relationship with out having to "apply for the job."

This model is not unassailable (e.g., why don't the nice guys realize the problem and go out and buy "The Game" and use its secrets to increase their probability of success in the initial stage?). However, it still provides a nice economic story for an "observed" (anecdotally) phenomenon.

Economists love this game show "Deal or No Deal." For those unfamiliar with the show here is Steve Levitt's description from the freakonomics blog:

On the show, contestants get a suitcase with some amount of money in it and they get to keep the contents or take a certain offer that some "banker" on the phone is offering. A good chance to test risk aversion. They even help the home audience by putting up some key numbers on the screen ("She has a 13% chance of winning a million dollars.") It is a great opportunity to test risk aversion at high stakes, subject to the distortion induced by being on national TV with a live audience screaming at you while you make your choices.

Here is his slightly different take:

Being a contestant on this show requires no talent whatsoever. You pick suitcases. You decide whether you prefer a riskless offer of money to a risky one. Then you go home with a bunch of money. Along the way, the crowd and your chosen friends scream and cheer like there is great skill in choosing among ex ante identical suitcases. Contestants beam with pride when they pick a good suitcase instead of a bad one. The whole thing has a veneer of skill, when really there is almost no skill at all.

Two graduate students, one here are Harvard the other from MIT, used the Italian version of the show to learn about risk aversion. You can read the paper here.

Given the potential power of social influences, I am curious how different individual's choices would be if they made their choice separate from their families and the crowd. It would be cool to randomly isolate some of the contestants and see if, and by how much, behaviors change. I encourage one of you motivated Harvard undergraduates to find one of the producers and get them to do this.

Update -- And if any of you should contact the producers, you should also pitch them something that will allow us to examine loss aversion. As is, no matter what happens in the game people leave with more money than they started with. I want there to be suitcases with negative amounts (i.e., if you end up with one of these you have to pay the show that amount). I want to see how risk averse people are when they might actually lose something. If you think it is somehow wrong to put people on a show where they might lose their own money, you could simply institute a first stage where the contestant gets paid just for coming on the show and the amount of the paycheck is the same as the maximum negative amount.