Behavioral Economics
The Foundation’s Behavioral Economics program supports research that incorporates the insights of psychology and other social sciences into the study of economic behavior. Launched jointly with the Alfred P. Sloan Foundation in 1986, the program was instrumental in the development of this new interdisciplinary field. The Foundation now channels much of its support for behavioral economics through the Behavioral Economics Roundtable, a consortium of leading researchers in the field which provides a small grants program for exploratory research, a two-week summer workshop for younger scholars, and a book series for major works in behavioral economics. The program’s current major initiative is a working group on consumer finance, which aims to use behavioral economics methods to analyze consumer financial decision-making.
Research
Consumer Finance
Working Group
The Russell Sage Foundation, in partnership with the Alfred P. Sloan Foundation, has developed a Working Group on Consumer Finance whose mandate is to explore new lines of behavioral economic research on consumer decision-making with the aim of improving the design of regulatory strategies in retail financial markets. 
Behavioral Economics Roundtable
Project Update
Made up of 28 prominent behavioral economists, the Behavioral Economics Roundtable is the Foundation's principal means of supporting behavioral economics and currently sponsors a small grants program for younger scholars; a two-week summer workshop and a book series.
Featured Awards
The Psychological Cost of Lying: An Experimental Investigation
James McGuire investigates the impact of context on honesty.
The Psychological Cost of Lying: An Experimental Investigation
Objective
To investigate the extent to which men and women are averse to deceiving other people.
A standard economic assumption is that people tell the truth only when it is selfishly advantageous to do so. However, recent work by Uri Gneezy shows that subjects are more likely to make a selfish choice when they choose monetary outcomes for themselves and other subjects than they are to lie to obtain that same selfish outcome.
Hypothesis
- Most people experience finite psychological costs associated with lying; and
- The existence of an option to tell a big lie makes people more willing to tell a small lie.
Key Findings
- Subjects felt that a small lie was less unfair in the presence of a big lie.
- More men than women were willing to lie if their gain from doing so was large enough.
- When given the option, women were more likely than men to tell the big lie.
- Men lied more often than women when a big lie was not an option.
- No one who chose the big lie preferred the truth to the small lie.
- Context appears to have had a greater impact on honesty and judgments of dishonesty for women than for men, whereas the honesty of men depended more on price.
The Vividness of Your Future Self: Virtual Reality and Savings
Hal Ersner-Herschfield uses virtual reality technology to encourage consumers to save more for retirement.
The Vividness of Your Future Self: Virtual Reality and Savings
Objective
To test the theory that if people can more vividly imagine their future, older selves, they will be motivated to save more money for retirement.
In four studies, participants interacted with digitally aged images of themselves using immersive virtual reality hardware before making decisions about whether to consume in the present or the future.
Key Findings
- Participants who interacted with an "old" version of themselves in a virtual reality environment allocated more than twice as much money to their hypothetical retirement account as those in the control group.
- Participants used a computer program to allocate a percentage of their salary for retirement. Those participants who saw an “aged” photo of themselves during this exercised saved more than those in the control group
The Neuroeconomics of Tobacco Dependence
James MacKillop uses functional magnetic resonance imaging (fMRI) to study the decision-making of cigarette smokers.
The Neuroeconomics of Tobacco Dependence
Objective
To examine delay discounting of monetary and cigarette rewards in smokers, using functional magnetic resonance imaging (fMRI) to identify the neurobiological basis for the established pattern of impulsive decision-making in smokers.
Past empirical studies have demonstrated significantly greater delay discounting of money in smokers, or greater preference for smaller amounts of money immediately compared to larger delayed amounts of money.
Hypothesis
- Smokers’ preference for smaller immediate rewards, such as smoking, over larger delayed rewards results from differences in brain activation compared to non-smokers.
Key Findings
- Impulsive choices were associated with lower activity in certain brain regions, whereas restrained choices were associated with higher activity.
- Cigarette choices were associated with left hemisphere activation and money choices were associated with right hemisphere activation; the left hemisphere is associated with more hedonic and affectively informed decision making, which may reflect less deliberate consideration of exact numbers of cigarettes and more consideration of the subjective appeal of smoking.
The Impact of Abduction and Soldiering on Children
Christopher Blattman assesses the social, economic, and psychological impacts of abduction and soldiering on children.
The Impact of Abduction and Soldiering on Children
Objective
To assess the social, economic, and psychological impacts of abduction and soldiering on children. In particular, Blattman seeks to understand the relationship between psychological problems arising from war trauma and their later-life economic outcomes and behavior, as well as the determinants of successful reintegration.
The dominant view holds that these youth are traumatized, violent, social pariahs. Blattman’s results challenge some of the conventional assumptions about ex-combatants.
Key Findings
- Abductees exhibit little difference in aggression, and ex-soldiers are found to be socially and psychologically resilient.
- Community acceptance of former abductees is high, and they report similar levels of social support as do non-abductees.
- Psychological distress is evident among those exposed to severe war violence but is not limited to ex-combatants.
- Economic and educational impacts are widespread and persistent: schooling falls by nearly a year, skilled employment halves, and earnings drop by a third.
Books
Advances in Behavioral Finance
Advances in Behavioral Finance collects together twenty-one recent articles that demonstrate how specific departures from fully rational decision-making by individual market agents can provide explanations of otherwise puzzling market phenomena.
Behavioral Public Finance
Behavioral Public Finance applies the principles of behavioral economics to government's role in constructing economic and social policies of these kinds and suggests that programs crafted with rational participants in mind may require redesign.
Do Emotions Help or Hurt Decision Making?
In Do Emotions Help or Hurt Decision Making? Kathleen Vohs, Roy Baumeister, and George Loewenstein lead a group of prominent psychologists and economists in exploring the empirical evidence on how emotions shape judgments and choices.
Reports
A Behavioral Economics View of Poverty
This paper argues that “behavioral patterns of the poor…may be neither perfectly calculating nor especially deviant. [...]
RSF Review
Consumer Finance Special Issue: Journal of Marketing Research
The Russell Sage and Sloan Foundations sponsored a special issue on consumer finance from the Journal of Marketing Research.
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Russell Sage Foundation offers awards, grants, and positions in our Visiting Scholars program for research that falls under our areas of interest. Learn More
