time inconsistent preferences and the annuitization decision good news can involve difficult decisions for example winning a lottery jackpot can go along with the decision whether to have the jackpot paid out immediately as a lump sum or as periodic annual payments also when entering retirement most people face the decision whether they want their defined contribution account balance paid as a lump sum or to annuitize that amount the fact that people tend to choose the lump sum even if economic reasons suggest that they should choose the annuity is called the annuity paradox in a large online survey we find that people behave time inconsistent older people have a stronger tendency to choose the lump sum than younger people when they are asked to predict today what to choose when they retire this effect is considerably stronger for participants that answer simple time preference questions inconsistently our findings suggest to think about precommitment devices for the annuitization decision in the retirement case already at the time when the defined benefit plan is started

individual risk attitudes measurement determinants and behavioral consequences this paper studies risk attitudes using a large representative survey and a complementary experiment conducted with a representative subject pool in subjects homes using a question asking people about their willingness to take risks in general we find that gender age height and parental background have an economically significant impact on willingness to take risks the experiment confirms the behavioral validity of this measure using paid lottery choices turning to other questions about risk attitudes in specific contexts we find similar results on the determinants of risk attitudes and also shed light on the deeper question of stability of risk attitudes across contexts we conduct a horse race of the ability of different measures to explain risky behaviors such as holdings stocks occupational choice and smoking the question about risk taking in general generates the best all round predictor of risky behavior

inferring discount rates from time preference experiments abstract we observe that identification of the discount rate from experimental data requires an assumption about the consumption period the length of time over which a payment will be turned into utility providing consumption we show that the optimal consumption period is substantially longer than assumed in previous studies when the consumption period is allowed to take on more reasonable values the discount rates implied by experimental choices are unreasonably large and relatively insensitive to assumptions about utility curvature

job search and impatience workers who are more impatient search less intensively and set lower reservation wages the effect of impatience on exit rates from unemployment is therefore unclear if agents have exponential time preferences the reservation wage effect dominates for sufficiently patient individuals so increases in impatience lead to higher exit rates the opposite is true for agents with hyperbolic time preferences using two large longitudinal data sets we find that impatience measures are negatively correlated with search effort and the unemployment exit rate and are orthogonal to reservation wages impatience substantially affects outcomes in the direction predicted by the hyperbolic model

gordon tullock creative maverick of public choice economics traditionally has been defined by both its methods and its subject matter tullock has been a creative maverick in developing and applying new models of interaction outside the traditional areas of market exchange by using the tools of economic analysis in an exploratory and venturesome manner he has openend new areas of inquiry the debate about tullock s contributions is important because it expands our understanding of the development of public choice and demonstrates tullock s role in opening new areas of economic research

time inconsistency and welfare program participation evidence from the nlsy we empirically implement a dynamic structural model of labor supply and welfare program participation for agents with potentially time inconsistent preferences using panel data on the choices of single women with children from the nlsy 1979 we provide estimates of the degree of time inconsistency and of its influence on the welfare take up decision with these estimates we conduct counterfactual experiments to quantify the utility loss stemming from the inability to commit to future decisions and the potential utility gains from commitment mechanisms such as welfare time limits and work requirements

five steps to planning success experimental evidence from us households while financial knowledge has been linked to improved financial behaviour there is lit tle consensus on the value of financial education in part because rigorous evaluation of various programmes has yielded mixed results however given the heterogeneity of financial education pro grammes in the literature focusing on generic financial education can be inappropriate and even mis leading lusardi 2009 and others argue that pedagogy and delivery matter significantly in this paper we design and field a low cost easily replicable financial education programme called five steps covering five basic financial planning concepts that relate to retirement we conduct a field experiment to evaluate the overall impact of five steps on a probability sample of the american population in different treatment arms we quantify the relative impact of delivering the programme through video and narrative formats our results show that short videos and narratives each takes about 3 minutes have sizeable short run effects on objective measures of respondent knowledge moreover keeping informational content relatively constant format has significant effects on other psychological levers of behavioural change effects on self efficacy are significantly higher when videos are used which ultimately influences knowledge acquisition follow up tests of respondents knowledge approximately 8 months after the interventions suggest that between one quarter and one third of the knowledge gain and about one fifth of the self efficacy gain persist thus this simple programme has effects both in the short run and medium run

bureaucratic discretion or congressional control regulatory policymaking by the federal trade commission this paper extends stigler and peltzman s approach to regulation by incorporating a legislature the model yields comparative statics results and hence testable implications the paper then tests between two opposing approaches about regulatory agency behavior the first assumes agencies operate independently of the legislature and hence exercise discretion the second assumes that congress controls agency decisions the recent behavior of the federal trade commission provides the empirical setting substantial evidence is found for the specific predictions of the model including the hypothesis of systematic congressional influence over ftc decisions

the effects of perceived and actual financial literacy on financial behaviors a combined measure of financial literacy that includes both a test score of actual financial literacy and a self rating of overall financial literacy is used in this study we find that the combined measure appears to provide greater understanding about how financial literacy affects financial behaviors a large national survey of u s adults and households n 28 146 was used to investigate how this overall financial literacy is likely to change financial behaviors across five financial topics credit cards investments loans insurance and financial advice for each topic we include 4 5 financial behaviors 22 in total to demonstrate the consistency of the findings within and across topics although we are unable to identify a causal relationship the results from the probit analysis show that both actual and perceived financial literacy appear to influence financial behaviors and that perceived financial literacy may be as important as actual financial literacy jel d14 g00

education and saving the long term effects of high school financial curriculum mandates abstract over the last 40 years a majority of states have adopted consumer education policies and a sizable minority have mandated that high school students receive instruction on topics related to household financial decision making in this paper we attempt to determine whether these mandates have had any effect on subsequent decisions we exploit the variation in requirements both across states and over time to identify the effects of interest the evidence indicates that mandates have raised both exposure to financial curricula and subsequent asset accumulation once exposed students reached adulthood the estimated effects are gradual probably due to implementation lags

an estimate of resource expenditures on transfer activity in the united states this paper details resource expenditures on nonexchange noncharity transfer activity in the united states in 1985 expenditures designed to facilitate and inhibit nonexchange transfers executed privately or through the state are reported the numbers indicate that individuals plausibly invested nearly a trillion dollars in transfer activity that year nominal gnp in 1985 was just over 4 trillion which includes numerous transfer related resource investments that arguably should be subtracted out transfer activity thus apparently constitutes a much larger fraction of all economic activity conducted in the united states than previously recognized

rent seeking noncompensated transfers and laws of succession my purpose in this paper is to analyze inefficiencies that may emerge from the noncompensated transfer of valued rights among persons this source of inefficiency has not to my knowledge been fully incorporated either in the economic theory of property rights or in orthodox tax analysis my discussion is based on the elementary fact that all noncompensated transfers are rents to the recipients implications for the emergence of rent seeking behavior follow straightforwardly the now familiar propositions to the effect that rent seeking may dissipate economic value can be applied to a variety of transfer settings only a few of which are explored in this paper 1 to the extent that the efficiency criterion is the relevant norm direct implications may be drawn for policy with respect to the laws or rules for succession

risk aversion and expected utility theory a calibration theorem within the expected utility framework the only explanation for risk aversion is that the utility function for wealth is concave a person has lower marginal utility for additional wealth when she is wealthy than when she is poor this paper provides a theorem showing that expected utility theory is an utterly implausible explanation for appreciable risk aversion over modest stakes within expected utility theory for any concave utility function even very little risk aversion over modest stakes implies an absurd degree of risk aversion over large stakes illustrative calibrations are provided

in pursuit of monopoly power recent quantitative work in industrial economics this paper reviews empirical work in industrial organization devoted to the question of inferring the existence of monopoly power from data on observed market outcomes like profits and prices the discussion covers inter industry work long conventional in the area newer developments in intra industry analysis and case studies and concludes with some remarks on a small but growing body of work assessing market dynamics the wide range of studies reviewed all generally reveal that market power exists in many industries

the economic importance of financial literacy theory and evidence this paper undertakes an assessment of a rapidly growing body of economic research on financial literacy we start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population next we draw on recent surveys to establish how much or how little people know and identify the least financially savvy population subgroups this is followed by an examination of the impact of financial literacy on economic decision making in the united states and elsewhere while the literature is still young conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps a final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy jel a20 d14 g11 i20 j26

time discounting for primary and monetary rewards this paper reports a positive and statistically significant relation between short term discount rates elicited with a monetary and a primary reward chocolate the relation is most evident among people who like chocolate and are hungry this finding suggests that high short term discount rates are related to an underling individual trait consistent with models of presentbiased preferences

gordon tullock entrepreneur of public choice when gordon tullock first encountered james m buchanan in 1957 as an initial step in his transition from the bureaucracy of the u s department of state to the ivy league atmosphere of the university of virginia he carried with him a voluminous manuscript on bureaucracy that he had tried unsuccessfully to publish buchanan 1987a 11 although eight years would pass before that manuscript eventually would be published three years after publication of the calculus of consent 1962 tullock s pioneering instincts already had directed him to the as yet uncharted path of public choice already had alerted him to the ubiquitous presence of homo economicus in the marketplace of politics buchanan quickly recognized the potential importance of combining tullock s insight with his own wicksellian notion of the importance of consent in political process as the basis for a radical research program trespassing across the traditional boundaries of economics and politics ignoring tullock s lack of formal training in economics buchanan installed him in the thomas jefferson center for studies in political economy and thereby provided that crucially important initial support absent which many a potential entrepreneur has failed to fulfill his talent steadfast in this judgment and firm in his resolve buchanan later was to gamble his own career together with the future of the virginia school of political economy in a 1968 exodus from charlottesville as the left leaning ideologically activist bureaucracy of thomas jefferson s academy thrice denied tullock a well earned promotion to full professor breit 1986 buchanan s judgment was sound and the virginia school reemerged unscathed and fortified as buchanan and his protege regrouped in the foothills of the appalachian mountains to carry the baton of the virginia public choice research

gordon tullock s contributions to the theory of public choice i introduction gordon tullock came to economics and political science through a circuitous route he had almost no formal training in economics beyond a one quarter course that he took as a law student at the university of chicago from henry c simons he served in the foreign service for a number of years his first publications in economics date from the mid 1950s and were on monetary economics campbell and tullock 1954 1957 tullock 1956 tullock s formal entry into academia came in 1958 when he arrived at the thomas jefferson center for studies in political economy and social philosophy part of the department of economics at the university of virginia as a postdoctoral fellow tullock s biography from this point is fairly well known 1 tullock s contributions to economics and political science span almost forty years the following discussion is offered as a modest review of tullock s contributions the presentation is not meant to be detailed or copious but simply efficient in conveying what is important in tullock s work 2 ii methodology and style before turning to tullock s work a brief word is in order about his general approach to economic analysis and his writing style in fact tullock has shown far more interest in obtaining useful results than he has in how he happened to go about obtaining them in this way he has been a methodological anarchist operating under the general maxim that in science anything goes and results count his well known papers generally rely upon simple price theoretic or spatial constructs and perhaps a little algebra and game theory where he has found a need for more formidable tools he has generally acquired them through coauthors this anything goes approach does not seem to have hampered his work he has shown a talent for getting at the essence of problems and avoiding clutter in his work moreover he has shown almost no penchant for methodological exegesis in his work with the major exception of his general insistence that rational economic man models are the best description of behavior in almost any setting on this point he has been steadfast in fact buchanan 1987 uses tullock s emphasis on the homo economicus assumption to describe tullock as a natural economist i think this is an accurate interpretation of tullock we have all known people who are naturally good at things like playing short stop or the piano and in this sense it is analogous to say that tullock has a natural inclination toward economic reasoning and behavior tullock is not a great stylist his normal routine is to dictate the first draft of his papers and work through them from there this allows him to make his points but sometimes not very eloquently or clearly 3 the real question about scientific writing style is whether it matters or not there are protagonists on either side of this issue empirical research laband and taylor 1992 suggests that style has no marginal impact on citations this result can be interpreted in various ways but perhaps the most appropriate interpretation is that researchers have not yet found the margin on which writing style matters tullock of course could interpret this differently to say that style does not matter only results matter and this is what he has been about nonetheless mccloskey lists tullock along with several other modern economists as a good writer to wit when you read any of these in economics pay attention this is as good as it gets 1987 9 this either defends tullock s writing skills or calls into question the care with which mccloskey drew up his list of economists as writers iii the calculus the calculus of consent 1962 by james m buchanan and gordon tullock is a work of astounding creativity of all the classic works in the theory of public choice this book stands out for its range and depth of contribution it is moreover a readable book

the role of information and social interactions in retirement plan decisions evidence from a randomized experiment this paper analyzes a randomized experiment to shed light on the role of information and social interactions in employees decisions to enroll in a tax deferred account tda retirement plan within a large university the experiment encouraged a random sample of employees in a subset of departments to attend a benee ts information fair organized by the university by promising a monetary reward for attendance the experiment multiplied by more than e ve the attendance rate of these treated individuals relative to controls and tripled that of untreated individuals within departments where some individuals were treated tda enrollment e ve and eleven months after the fair was signie cantly higher in departments where some individuals were treated than in departments where nobody was treated however the effect on tda enrollment is almost as large for individuals in treated departments who did not receive the encouragement as for those who did we provide three interpretations differential treatment effects social network effects and motivational reward effects to account for these results

the impact of financial literacy training for migrants remittances are a major source of external financing for many developing countries but the cost of sending them remains high in many migration corridors despite efforts to lower these costs by offering new products and developing cost comparison information sources many new and promising inexpensive remittance methods have relatively low adoption rates the lack of financial literacy among migrants has been identified as one potentially important barrier to competition and new product adoption this paper presents the results of a randomized experiment designed to measure the impact of providing financial literacy training to migrants training appears to increase financial knowledge and information seeking behavior and reduces the risk of switching to costlier remittance products but it does not result in significant changes in the frequency of remitting or in the remitted amount

are rents fully dissipated students of rent seeking have erred in focusing their attention exclusively on the analysis of competitions for exogenously specified transfers when redistributive policies are treated as endogenous choices it is clear that there are both incentives and opportunities for policymakers to design them in ways that prevent the wasteful dissipation of a large proportion of the intended transfers an analytical framework that treats policy design in this way is capable of explaining a variety of common attributes of redistributive policies that are apparent anomalies under the traditional approach to rent seeking furthermore we predict and find supporting evidence that authoritarian regimes tend to be associated with higher ratios of government revenue to total income than do democracies we attribute this tendency to the substantially greater potential for dissipative competition for revenues under democracy than under dictatorship finally available estimates of lobbying expenditures and rents transferred under the recent federal crude oil controls contradict the hypothesis that rents are fully or almost fully disspated through political competition

the impact of bad writing in economics we find significant style differences between articles written by economists for their professional journals and articles by the same economists in the wall street journal we find no evidence that style influences the professional success of economists which suggests that the private rewards to improving the quality of writing are low indeed each community of scholars has probably adopted a professionally correct writing style from which its members diverge little however scholars do alter their rhetorical style to communicate effectively with audiences other than the professional community this suggests that intra and inter group written communication by economists is efficient

discounting financial literacy time preferences and participation in financial education programs many policymakers and economists argue that financial literacy is key to financial well being but why do many individuals remain financially illiterate despite the benefits of being financially informed this paper presents results from a field study linking individual decisions to acquire financial information to a normally unobservable characteristic time preferences we elicited time preferences using incentivized choice experiments for all individuals to whom a financial education program was offered our results show that individuals who choose to acquire personal financial information have substantially higher discount factors than individuals who do not the results can be interpreted as non participants discount the benefits of being financially literate more

asymmetric responses to income changes the payroll tax increase versus tax refund in 2013 abstract we examine low to middle income individuals responses to the 2013 payroll tax increase and their 2012 tax refund and find that consumption declines 90 cents per dollar lost to the tax increase and rises 60 cents per additional tax refund dollar

teaching teenagers in finance does it work abstract many initiatives worldwide aim at improving financial literacy through targeted education programs yet there is little evidence regarding their effectiveness we examine the impact of a short financial education program on teenagers in german high schools our findings reveal that the training program significantly increases teenagers interest in financial matters and their financial knowledge especially their ability to properly assess the riskiness of assets behaviorally we observe a decrease in the prevalence of self reported impulse purchases but at the same time find no evidence of a significant increase in savings

discount rates inferred from decisions an experimental study two hundred and four students of economics and finance participated in an intertemporal choice experiment which manipulated three dimensions in a 4 4 4 factorial design scenario postponing a receipt postponing a payment expediting a receipt expediting a payment time delay 0 5 1 2 and 4 years and size of cashflow 40 200 1000 and 5000 individual discount rates were inferred from the responses and then used to test competitively four hypotheses regarding the behavior of discount rates the classical hypothesis asserting that the discount rate is uniform across scenarios time delays and sums of cashflow was flatly rejected a market segmentation approach was found lacking the results support an implicit risk hypothesis according to which delayed consequences are associated with an implicit risk value and an added compensation hypothesis which asserts that individuals require compensation for a change in their financial position

happiness and time preference the effect of positive affect in a random assignment experiment abstract we conduct a random assignment experiment to investigate whether positive affect impacts time preference where time preference denotes a preference for present over future utility our result indicates that compared to neutral affect mild positive affect significantly reduces time preference over money this result is robust to various specification checks and alternative interpretations of the result are considered our result has implications for the effect of happiness on time preference and the role of emotions in economic decision making in general finally we reconfirm the ubiquity of time preference and start to explore its determinants djel d12 d83 i31

over indebtedness in microfinance an empirical analysis of related factors on the borrower level summary this paper analyzes the over indebtedness of microborrowers in ghana from a customer protection perspective it measures over indebtedness as a subjective indicator based on loan related sacrifices that borrowers report it finds that male microborrowers are more likely to be over indebted so are borrowers with adverse economic shocks low returns on investment and non productive loan use over indebtedness is lower for borrowers with good debt literacy general financial literacy and numeracy seem insufficient to reduce over indebtedness the paper details the relationship of the above factors to the specific sacrifices borrowers make and suggests that policy measures address the full complexity of the over indebtedness phenomenon

what should government do problems of social cost externalities and all that public choice as a field introduced the framework for a methodical economic analysis of political markets the output of these markets of course is reflected by the role that government plays that is specifically true with respect to the organization of economic activity gordon tullock has studied a myriad of aspects of this topic for more than half a century we examine his answers to the question of what should government do and how they have influenced and are still impacting the discussion on the proper role of government in the economy

estimating individual discount rates in denmark a field experiment we estimate individual discount rates with respect to time streams of money using controlled laboratory experiments these discount rates are elicited by means of field experiments involving real monetary rewards the experiments were carried out across denmark using a representative sample of 268 people between 19 and 75 years of age individual discount rates are estimated for various households differentiated by socio demographic characteristics such as income and age our conclusions are that discount rates are constant over the 12 month to 3 year horizons used in these experiments and that discount rates vary substantially with respect to several socio demographic variables hence we conclude that it would be reasonable to assume constant discount rates for specific household types but not the same rates across all households

estimating time preferences from convex budgets experimentally elicited discount rates are frequently higher than what seems reasonable for economic decision making such high rates are often attributed to present biased discounting a well known bias of standard measurements is the assumption of linear consumption utility attempting to correct this bias using measures of risk aversion to identify concavity researchers find reasonable discounting but at the cost of exceptionally high utility function curvature we present a new methodology for identifying time preferences both discounting and curvature from simple allocation decisions we find reasonable levels of both discounting and curvature and surprisingly dynamically consistent time preferences jel c91 d12 d81 understanding and estimating time preferences is obviously of great importance to economists marketers and policy makers consumers decide how much to invest in savings education real estate and life insurance how much to diet exercise and smoke whether to marry when to have children and what to leave in their wills while there has been substantial research estimating time preferences using aggregate consumption data 1 the bulk of the effort has occurred in laboratory environments 2 among the many laboratory techniques employed recent studies have favored multiple price lists mpl with monetary payments 3 with mpls individuals are asked multiple times to choose between smaller payment amounts closer to the present and larger amounts further into the future the interest rate increases monotonically in a price list such that the point where an individual switches from preferring sooner payments to later payments carries interval

consume now or later time inconsistency collective choice and revealed preference this paper develops a revealed preference methodology for exploring whether time inconsistencies in household choice are the product of nonstationarities at the individual level or the result of individual heterogeneity and renegotiation within the collective unit an empirical application to household level microdata highlights that an explicit recognition of the collective nature of choice allows the vast majority of household behaviour to be rationalised by theory that assumes preference stationarity at the individual level for our particular short panel data set simply permitting limited intrahousehold heterogeneity in time preferences allows the choices of 98 4 of the sample to be rationalised by a model that assumes exponential discounting at the individual level we also find that couples characterized by lower divergence in spousal discount rates are older more likely to have children and wealthier which we take as indications of experiencing higher match quality

risk preferences are not time preferences risk and time are intertwined the present is known while the future is inherently risky this is problematic when studying time prefer ences since uncontrolled risk can generate apparently present biased behavior we systematically manipulate risk in an intertemporal choice experiment discounted expected utility performs well with risk but when certainty is added common ratio predictions fail sharply the data cannot be explained by prospect theory hyperbolic discounting or preferences for resolution of uncertainty but seem consistent with a direct preference for certainty the data suggest strongly a difference between risk and time preferences jel c91 d81 d91 understanding individual decision making under risk and over time are two foundations of economic analysis 1 in both areas there has been research to suggest that standard models of expected utility eu and exponential discounting are flawed or incomplete regarding time experimental research has uncovered evidence of a present bias or hyperbolic discounting frederick loewenstein and o donoghue 2002 regarding risk there are number of well documented departures from eu such as the allais 1953 common consequence and common ratio paradoxes an organizing principle behind expected utility violations is that they seem to arise as so called boundary effects where certainty and uncertainty are combined camerer 1992 harless and camerer 1994 and starmer 2000 indicate that violations of expected utility are notably less prevalent when all choices are uncertain this observation is especially interesting when considering decisions about risk taking over time in particular certainty and uncertainty are combined in intertemporal decisions the present is known and certain while the future is inherently risky this observation is problematic if one intends to study time preference in isolation from

simultaneous equations models of the structure performance paradigm abstract this paper is concerned with determining the dimension of the simultaneous equations model surrounding the basic profits concentration relationship a very general model is considered and then simplified using a simple test for exogeneity and it is concluded that the model is nonlinear in concentration and that simultaneous interaction occurs between profits and foreign competition variables

patience among children abstract recent policy initiatives offer cash payments to children and often their families to induce better health and educational choices these policies implicitly assume that children are especially impatient i e have high discount rates however little is known about the nature of children s patience how it varies across children and whether children can even make rational inter temporal choices this paper examines the inter temporal choices of 5 to 16 year old children in an artefactual field experiment we examine their choices between varying levels of compensation received in 2 or 4 months in the future and in 0 or 2 months in the future we find that children s choices are consistent with hyperbolic discounting boys are less patient than girls older children are more patient and that mathematical achievement test scores private schooling and parent s patience are not correlated with children s patience we also find that although more than 25 of children do not make rational inter temporal choices within a single two period time frame we cannot find variables that explain this behavior other than age and standardized mathematical achievement test scores

oligopoly power in british industry in this paper a model of industrial behaviour encompassing factor demand and output supply decisions by industries is developed and then estimated for ten industries in the united kingdom over the period 1954 79 the derivation of the provides within a consistent framework insight into conjectural variation lerner s index of monopoly power measures of industrial concentration and thereby makes explict the notion of oligopoly power the estimates provide an empirical basis for evaluating the structure of industry in the united kingdom and the estimated measures of oligopoly power are finally compared with more conventional measures of industrial concentration