Behavioral Economics

Submission Deadlines: See upcoming deadlines

The Russell Sage Foundation's program on Behavioral Economics supports novel research that uses insights and methods from psychology, economics, sociology, political science and other social sciences to examine and improve social and living conditions in the United States. We seek investigator-initiated research proposals that will broaden our understanding of the social, economic and political consequences of actual behaviors and decisions.

RSF is especially interested in research at the intersection of behavioral economics and behavioral sciences and its other programs—Future of WorkRace, Ethnicity and ImmigrationSocial Inequality. Priority will be given to field experiments, as opposed to lab experiments. Projects that can contribute to a more unified theory of human behavior to eventually eliminate the distinction between behavioral economics and the rest of economics are also of interest.

The following examples illustrate, but do not exhaust, the topics and types of research the foundation would be interested in supporting:

Choice Architecture

Choice architecture describes the ways in which options can be presented to consumers, and their impacts on decision-making. For example, in Nudge: Improving Decisions About Health, Wealth, and Happiness (2009), Thaler and Sunstein show that choice architecture can nudge people toward better decisions. Johnson et al. (2013) examine how well people make choices, how well they think they do, and what can be done to improve these choices in the new health insurance exchanges. They show that performance can be improved by providing calculation aids and by choosing a “smart” default.

Time Preferences

Individuals tend to prefer present rewards over future ones. Shapiro (2005) finds high impatience among food-stamp recipients, implying a preference for immediate consumption. This suggests the timing of benefits may have important consequences for the welfare of recipients.

Oreopoulos (2007) uses compulsory schooling laws to evaluate dropout behavior and finds high levels of impatience among students who drop out of school, reducing their future returns. This explanation is consistent with studies in neurology and psychology that suggest adolescents are predisposed to myopic behavior, which may harm their future wellbeing.

Schafer (2017) uses a behavioral measure of delayed gratification to examine time discounting in politics. He finds that less patient individuals are less willing to vote and to donate, which suggests a behavioral basis for patterns of low and unequal participation

Poverty, Inequality and Mobility

Recent studies find that poverty and other forms of resource scarcity burden people’s mental capacities and leave less 'mind' for other concerns. What does it mean for people's lives and their ability to function and make decisions? Behavioral insights may improve our understanding of how financial scarcity, and individuals’ responses to it, affects their lives. For example, in Scarcity: Why Having Too Little Means So Much (2014), Mullainathan and Shafir show that scarcity creates a distinct psychology for everyone struggling to effectively manage with less than they need, including why the poor and those maxed out on credit cards may fail to manage their money, and contribute to persistent poverty.

Hastings and Shapiro (2017), using loyalty card data from a retailer, study how households think about and spend money from different sources. They find evidence of mental accounting and reject the hypothesis that households respect the fungibility of money.

Public perceptions about inequality and mobility are often inaccurate. For example, Norton and Ariely (2011) show that there is a significant difference between what Americans think the distribution of wealth is (somewhat even), what they would prefer (more even than socialist Sweden), and how wealth is actually distributed. Behavioral insights may improve our understanding of why individuals misperceive information, the consequences of such biases, and how these misperceptions might be corrected.

Labor Markets

Kahneman, Knetsch and Thaler (1986) provided survey evidence on notions of fairness which could justify the observed wage compression in several industries. Thaler (1989) found that behavioral factors could explain puzzling features of inter-industry wage differentials.

Regarding job search, DellaVigna et al. (2017) observe that newly unemployed individuals search hard for a job in response to loss of income, but over time, they may get used to the lower level of income and search less. They then search hard again in anticipation of unemployment benefits being cut, but ultimately may get used to this as well (reference dependence with a backward-looking reference point).

Racial and Ethnic Bias

While social and legal changes have reduced many institutionalized forms of racial discrimination, the same policy tools may have less leverage against implicit racial stereotypes. Bertrand and Mullainathan (2004) show that race affects the benefits of a better resume—for Caucasian names, a higher quality resume elicits 30 percent more callbacks whereas for African American names, it elicits a far smaller increase—suggesting that racial discrimination persists in the labor market. Milkman, Akinola and Chugh (2014) found that when considering requests from prospective students seeking mentoring in the future, faculty were significantly more responsive to Caucasian males than to all other students, particularly in higher-paying disciplines and private institutions.

Public Finance

A better understanding of human behavior may provide a more useful framework for analyzing public finance issues, such as social insurance, income support and redistribution, and taxation. Congdon, Kling, and Mullainathan (2011) explore the extent to which psychological factors, like framing, reshape key concepts in public finance, such as moral hazards and deadweight loss. Chetty et al. (2013) use Danish administrative wealth data to show that defaults are a more effective way to increase savings rates than changes in tax subsidies.

Application Information

 

References:

Bertrand, M. & Mullainathan, S. (2004). Are Emily and Greg More Employable than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination. The American Economic Review, 94 (4): 991-1013

Chetty, R., Friedman, J., Leth-Petersen, S., Nielsen, T. & Olsen, T. (2014). Active vs. Passive Decisions and Crowd-Out in Retirement Savings Accounts: Evidence from Denmark. Quarterly Journal of Economics 129 (3): 1141-1219.

Congdon, W.J., Kling, J.R. & Mullainathan, S. (2011). Policy and Choice: Public Finance through the Lens of Behavioral Economics. Washington, DC: Brookings Institution Press.

DellaVigna, S., Lindner, A., Reizer, B. & Schmieder, J. (2017). Reference-Dependent Job Search: Evidence from Hungary. Quarterly Journal of Economics, 132: 1969–2018.

Hastings, J. & Shapiro, J. (2018). How Are SNAP Benefits Spent? Evidence From a Retail Panel. American Economic Review, forthcoming.

Johnson, E.J., Hassin, R., Baker, T., Bajger, A.T., & Treuer, G. (2013) Can Consumers Make Affordable Care Affordable? The Value of Choice Architecture. PLoS ONE 8 (12): e81521.

Kahneman, D., Knetsch, J. L. & Thaler, R.H. (1986). Fairness as a Constraint on Profit Seeking: Entitlements in the Market. American Economic Review, 76 (4): 728-741.

Milkman, K.L., Akinola, M. & Chugh, D. (2015). What Happens Before? A Field Experiment Exploring How Pay and Representation Differentially Shape Bias on the Pathway into Organizations. Journal of Applied Psychology, 100 (6): 1678-1712.

Mullainathan, S. & Shafir, E. (2014). Scarcity: Why Having Too Little Means So Much. New York, NY: Time Books, Henry Holt & Company LLC.

Norton, M. I. & Ariely, D. (2011). Building a Better America—One Wealth Quintile at a Time. Perspectives on Psychological Science, 6 (1): 9–12.

Oreopoulos, P. (2007). Do dropouts drop out too soon? Wealth, health and happiness from compulsory schooling. Journal of Public Economics, 91 (11-12): 2213-229.

Schafer, J. (2017). Delayed Gratification in Political Behavior: Time Preferences Predict Turnout and Donations. Under review.

Shapiro, J. M. (2005). Is there a Daily Discount Rate? Evidence from the Food Stamp Nutrition Cycle. Journal of Public Economics, 89 (2-3): 303-325

Thaler, R.H. (1989). Interindustry Wage Differentials. Journal of Economic Perspectives 3 (2): 181-193.

Thaler, R. H. & Sunstein, C. R. (2008). Nudge: Improving Decisions about Health, Wealth, and Happiness. New Haven, CT: Yale University Press.

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