Behavioral economics questions the basic underpinnings of economic theory, showing that people often do not act consistently in their own self-interest when making economic decisions. While these findings have important theoretical implications, they also provide a new lens for examining public policies, such as taxation, public spending, and the provision of adequate pensions. How can people be encouraged to save adequately for retirement when evidence shows that they tend to spend their money as soon as they can? Would closer monitoring of income tax returns lead to more honest taxpayers or a more distrustful, uncooperative citizenry? Behavioral Public Finance, edited by Edward McCaffery and Joel Slemrod, 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.
Behavioral Public Finance looks at several facets of economic life and asks how behavioral research can increase public welfare. Deborah A. Small, George Loewenstein, and Jeff Strnad note that public support for a tax often depends not only on who bears its burdens, but also on how the tax is framed. For example, people tend to prefer corporate taxes over sales taxes, even though the cost of both is eventually extracted from the consumer. James J. Choi, David Laibson, Brigitte C. Madrian, and Andrew Metrick assess the impact of several different features of 401(k) plans on employee savings behavior. They find that when employees are automatically enrolled in a retirement savings plan, they overwhelmingly accept the status quo and continue participating, while employees without automatic enrollment typically take over a year to join the saving plan. Behavioral Public Finance also looks at taxpayer compliance. While the classic economic model suggests that the low rate of IRS audits means far fewer people should voluntarily pay their taxes than actually do, John Cullis, Philip Jones, and Alan Lewis present new research showing that many people do not underreport their incomes even when the probability of getting caught is a mere one percent.

Human beings are not always rational, utility-maximizing economic agents. Behavioral economics has shown how human behavior departs from the assumptions made by generations of economists. Now, Behavioral Public Finance brings the insights of behavioral economics to analysis of policies that affect us all.

EDWARD J. MCCAFFERY is Robert C. Packard Trustee Chair in Law and Political Science at the University of Southern California and visiting professor of law and economics at the California Institute of Technology.

JOEL SLEMROD is Paul W. McCracken Collegiate Professor of Business Economics and Public Policy, director of the Office of Tax Policy Research in the Stephen M. Ross School of Business, and professor of economics at the University of Michigan.

CONTRIBUTORS: Caroline Adams, Jonathan Baron, James J. Choi, Terrence Chorvat, John Cullis, Henk Elffers, Richard A. Epstein, Hanming Fang, Lee Anne Fennell, Bruno S. Frey, Howell E. Jackson, Philip Jones, David Laibson, Alan Lewis, George Loewenstein, Brigitte C. Madrian, Edward J. McCaffery, Andrew Metrick, Joel Slemrod, Dan Silverman, Deborah A. Small, Jeff Strnad, Alois Stutzer, and Paul Webley.

Owning a home has always been central to the American dream. For the more than one million Muslims in the United States, this is no exception. However, the Qur'an forbids the payment of interest, which places conventional home financing out of reach for observant Muslims. To meet the growing Muslim demand for home purchases, a market for home financing that would be halal, or permissible under Islamic law, has emerged. In Pious Property, anthropologist William Maurer profiles the emergence of this new religiously based financial service and explores the ways it reflects the influence of Muslim practices on American economic life and vice versa.

Pious Property charts the development of Islamic mortgages in America, starting with Islamic interpretations of the prohibition against riba—literally translated as "increase" but interpreted as "usury" or "interest." Maurer then explores the different practices that have emerged as permissible options for Islamic homebuyers—such as lease-to-own arrangements, profit-loss sharing, and cost-plus contracts—and explains how they have gained acceptance in the Islamic community by relying on payment schemes that avoid standard interest rate payments. Using interviews with Muslim homebuyers and financiers, and in-depth analysis of two companies that provide mortgage alternatives to Muslims, Maurer discovers an interesting paradox: progressive Muslims tend to use financial contracts that seemingly comply better with the prohibition against interest, while traditional Muslims seem more inclined to take on financing very similar to interest-based mortgages. Maurer finds that Muslims make their decisions about using Islamic mortgage alternatives based not only on the views of religious scholars, but also on their conceptions of how business is supposed to be conducted in America. While one form of Islamic financing is seemingly more congruent with the prohibition against riba, the other exhibits more of the qualities of American mortgages—anonymity and standardized forms. The appearance that an Islamic financing instrument is legal and professional leaves many Muslim homebuyers with the impression that it is halal, revealing the influence of American capitalism on Muslim Americans’ understanding of their religious rules.

The market for halal financial products exists at the intersection of American and Islamic culture and is emblematic of the way that, for centuries, America's newcomers have adapted to and changed the fabric of American life. In Pious Property, William Maurer explores this rapidly growing economic phenomenon with historical perspective and scholarly insight.

BILL MAURER is associate professor of anthropology at the University of California, Irvine.
 

Stewart Macaulay teaches contracts at the University of Wisconsin Law School and is interested in the part the legal system plays in implementing, regulating, and hindering economic relationships, and how it does these things. This book is a descriptive analysis of organizational change that has resulted from automobile dealers' attempts to find a legal remedy for what they consider unfair practices of the manufacturers. It advances our understanding of the limitations and the positive functions of formal rules in the regulation of human conduct, and shows how informal procedures can develop as a result of pressure for changes in the formal rules.

STEWART MACAULAY teaches contracts at the University of Wisconsin Law School.

This comprehensive work—relevant to the major issue of the relation of social knowledge to political power—argues for strengthening the role of the social sciences in the federal government. It calls for a central organization for the social sciences and for better integration of research within the federal agencies. It underscores the various factors that might help to bring about this goal.

GENE M. LYONS is professor of government at Dartmouth College.
 

The reach of the social and behavioral sciences is currently so broad and interdisciplinary that staying abreast of developments has become a daunting task. The thirty papers that constitute Leading Edges in Social and Behavioral Science provide a unique composite picture of recent findings and promising new research opportunities within most areas of social and behavioral research. Prepared by expert scholars under the auspices of the National Academy of Sciences, these timely and well-documented reports define research priorities for an impressive range of topics:

Part I: Mind and Brain

Part II: Behavior in Social Context

Part III: Choice and Allocation

Part IV: Evolving Institutions

Part V: Societies and International Orders

Part VI: Data and Analysis

R. DUNCAN LUCE is Distinguished Professor of Cognitive Science and director of the Irvine Research Center in Mathematic Behavioral Science at the University of California, Irvine.

NEIL J. SMELSER is University Professor of Sociology at the University of California, Berkeley.

DEAN R. GERSTEIN is study director at the National Research Council, National Academy of Sciences.

CONTRIBUTORS: Norma Graham, Linda Bartosik, Albert S. Bregman, Julian Hichberg, Azriel Rosenfeld, Michael Studdert-Kennedy, R. Duncan Luce, Richard Thompson, Carol Barnes, Thomas Carew, Lon Cooper, Michela Gallagher, Michael Posner, Robert Rescola, Daniel Schachter, Larry Squire, Alan Wagner, Saul Steinebers, Fergus I.M. Clark, John Jonedes, Walter Kinsch, Stephen M. Kosslyn, James L. McClelland, Raymond S. Nickerson, James Greeno, Frederick J. Newmeyer, Antonio R. Damasio, Merrill Garrett, Mark Lieberman, David Lightfoot, Howard Poizner, Thomas Roeper, Eleanor Saffran, Ivan Sag, Victoria Fromkin, Herbert Pick, Ann L. Brown, Carol Dweck, Robert Emde, Frank Keil, David Klahr, Ross S. Parke, Steven Pinker, Rochel Gelman, David S. Krantz, Leonard Epstein, Norman Garmezy, Marcha Ory, Leonard Perlin, Judith Rodin, Marvin Stein, John F. Kihlstrom, Ellen Berscheid, John Darley, Reid Hastie, Harold Kelley, Sheldon Stryker, Edward E. Jones, Nancy M,. Henley, Rose Laub Cosner, Jane Flax, Naomi Quinn, Kathryn Rish Sklar, Sherry B. Ortner, Alfred Blumstein, Richard Berk, Philip Cook, David Farrington, Samuel Krislov, Albert J. Reiss Jr., Franklin Zimring, William Riker, James S. Coleman, Bernard Grofman, Michael Hechter, John Ledyard, Charles Plott, Kenneth Shepsle, John Ferejohn,  Mark Machina, Robin Hogarth, Kenneth MacCrimmon, John Roberts, Alvin Roth, Paul Slovic, Rihard Thaler, Oliver Williamson, Jerry Hausman, Paul Joskow, Roger Noll, Vernon Smith, David Wise, Stanley Reiter, Kenneth Arrow, Lance Davis, Paul Dimaggio, Mark Granovetter, Jerry Green, Theodore Groves, Michael Hannan, Andrew Postlewaite, Roy Radner, Karl Shell, Leonid Hurwicz, Frank Stafford, Jamoes Baron, Danier Hamermesh, Christopher Jencks, Ross Stolzenberg, Donald J. Treiman, Stanley Fischer, William Beeman, Rudiger Dornbusch, Thomas Sargent, Robert Schiller, Lawrence Summers, Glynn Isaac, Robert Blumenschine, Margaret Conkey, Terry Deacon, Irven Devore, Peter Ellison, Richard Milton, David Pilbeam, Richard Potts, Kathy Schick, Margaret Schoeninger, Andrew Sillen, John Speth, Nicholas Toth, Sherwood Washburn, Douglas C. North, Robert Bates, Robert Brenner, Elizabeth Colson, Kent Flannery, Vernon Smith, Neil Smelser, Samuel Preson, Ansley Coale, Kingsley Davis, Geoffrey McNicoll, Jane Menken, T. Paul Schultz, Daniel Vining, John Modell, Margaret Clark, William Goode, William Kessen, Robert Willis, John Quigley, Alex Anas, Geoffrey Hewings, Risa Palm, James Fernandez, Keith Basso, Karen Blu, Kenneth Boulding, Stepher Gudeman, Michael Kearney, Goerge Marcus, Dennis McGilvary, Emiko Ohnuki-Tierney, William Sewell, Daniel H. Levine, Leonard Binder, Thomas Bruneau, Jean Comaroff, Susan Harding, Charles Keyes, Robert Wuthnow, Dorothy Nelkin, Charles Rosenberg, Theda Skocpol, Martin Bulmer, Thomas Joster, Donald McCloskey, Arnold Thackeray, Carol Weiss, Peter Evans, Bruce Cumings, Albert Fishlow, Peter Gourevitch, John Meyer, Alejandro Portes, Barbara Stallings, Robert Jervis, Josh Lederberg, Robert North, Steven Rosen, Dina Zinnes, Warren Miller, Martin David, James Davis, Bruce Russett, Kimball Romney, Norman Bradburn, J. Douglas Carol. Roy D'Andrade, Jean Claude Falmagne, Paul Holland, Lawrence Hubert, Edward E. Leamer, John W. Pratt, Cliffors C. Clogg, Bert F. Green, Michael Hannan, Jerry A. Hausman, William H. Kruskal, Donald B. Rubin, I. Richard Savaga, John W. Turkey, Kenneth W. Wachter, Leo A. Goodman.

How do people decide whether to sacrifice now for a future reward or to enjoy themselves in the present? Do the future gains of putting money in a pension fund outweigh going to Hawaii for New Year's Eve? Why does a person's self-discipline one day often give way to impulsive behavior the next? Time and Decision takes up these questions with a comprehensive collection of new research on intertemporal choice, examining how people face the problem of deciding over time.

Economists approach intertemporal choice by means of a model in which people discount the value of future events at a constant rate. A vacation two years from now is worth less to most people than a vacation next week. Psychologists, on the other hand, have focused on the cognitive and emotional underpinnings of intertemporal choice. Time and Decision draws from both disciplinary approaches to provide a comprehensive picture of the various layers of choice involved.

Shane Frederick, George Loewenstein, and Ted O'Donoghue introduce the volume with an overview of the research on time discounting and focus on how people actually discount the future compared to the standard economic model. Alex Kacelnik discusses the crucial role that the ability to delay gratification must have played in evolution. Walter Mischel and colleagues review classic research showing that four year olds who are able to delay gratification subsequently grow up to perform better in college than their counterparts who chose instant gratification. The book also delves into the neurobiology of patience, examining the brain structures involved in the ability to withstand an impulse.

Turning to the issue of self-control, Klaus Wertenbroch examines the relationship between consumption and available resources, showing, for example, how a high credit limit can lead people to overspend. Ted O'Donoghue and Matthew Rabin show how people's awareness of their self-control problems affects their decision-making. The final section of the book examines intertemporal choice with regard to health, drug addiction, dieting, marketing, savings, and public policy.

All of us make important decisions every day-many of which profoundly affect the quality of our lives. Time and Decision provides a fascinating look at the complex factors involved in how and why we make our choices, so many of them short-sighted, and helps us understand more precisely this crucial human frailty.

GEORGE LOEWENSTEIN is professor of economics and psychology, Department of Social and Decision Sciences, Carnegie Mellon University.

DANIEL READ is reader in operational research, London School of Economics and Political Science.

ROY F. BAUMEISTER is the Eppes Professor of Psychology, Florida State University.

Many of our most urgent national problems suggest a widespread lack of concern for the future. Alarming economic conditions, such as low national savings rates, declining corporate investment in long-term capital projects, and ballooning private and public debt are matched by such social ills as diminished educational achievement, environmental degradation, and high rates of infant mortality, crime, and teenage pregnancy. At the heart of all these troubles lies an important behavioral phenomenon: in the role of consumer, manager, voter, student, or parent, many Americans choose inferior but immediate rewards over greater long-term benefits.

Choice Over Time offers a rich sampling of original research on intertemporal choice—how and why people decide between immediate and delayed consequences—from a broad range of theoretical and methodological perspectives in philosophy, political science, psychology, and economics. George Loewenstein, Jon Elster, and their distinguished colleagues review existing theories and forge new approaches to understanding significant questions: Why do people seem to "discount" future benefits? Do individuals use the same decision-making strategy in all aspects of their lives? What part is played by situational factors such as the certainty of delayed consequences? How are decisions affected by personal factors such as willpower and taste?

In addressing these issues, the contributors to Choice Over Time address many social, economic, psychological, and personal time problems. Their work demonstrates the predictive power of short-term preferences in behavior as varied as addiction and phobia, the effect of prices on consumption, and the dramatic rise in debt and decline in savings. Choice Over Time provides an essential source for the most recent research and theory on intertemporal choice, offering new models for time preference patterns—and their aberrations—and presenting a diversity of potential solutions to the problem of "temporal myopia."

GEORGE LOEWENSTEIN is professor of economics and psychology, Department of Social and Decision Sciences, Carnegie Mellon University.

JON ELSTER is Edward L. Ryerson Distinguished Service Professor of Political Science and Philosophy at the University of Chicago.

CONTRIBUTORS: George Ainslie, Gary S. Becker, Robert H. Frank, Michael Grossman, Nick Haslam, Richard J. Herrnstein, Walter Mishel, Kevin M. Murphy, Drazen Prelec, Howard Rachlin, Andres Raineri, Monica L. Rodriquez, Thomas Schelling, Hersh M. Shefrin, Yuichi Shoda, Richard H. Thaler.

The United Kingdom's labor market policies place it in a kind of institutional middle ground between the United States and continental Europe. Low pay grew sharply between the late 1970s and the mid-1990s, in large part due to the decline of unions and collective bargaining and the removal of protections for the low paid. The changes instituted by Tony Blair's New Labour government since 1997, including the introduction of the National Minimum Wage, halted the growth in low pay but have not reversed it. Low-Wage Work in the United Kingdom explains why the current level of low-paying work remains one of the highest in Europe. The authors argue that the failure to deal with low pay reflects a policy approach which stressed reducing poverty, but also centers on the importance of moving people off benefits and into work, even at low wages. The U.K. government has introduced a version of the U.S. welfare to work policies and continues to stress the importance of a highly flexible and competitive labor market. A central policy theme has been that education and training can empower people to both enter work and to move into better paying jobs. The case study research reveals the endemic nature of low paid work and the difficulties workers face in escaping from the bottom end of the jobs ladder. However, compared to the United States, low paid workers in the United Kingdom do benefit from in-work social security benefits, targeted predominately at those with children, and entitlements to non-pay benefits such as annual leave, maternity and sick pay, and crucially, access to state-funded health care. Low-Wage Work in the United Kingdom skillfully illustrates the way that the interactions between government policies, labor market institutions, and the economy have ensured that low pay remains a persistent problem within the United Kingdom.

CAROLINE LLOYD is a senior research fellow at the Economic and Social Research Council Centre on Skills, Knowledge, and Organizational Performance.

GEOFF MASON is senior research fellow at the National Institute of Economic and Social Research, London.

KEN MAYHEW is fellow in economics at Pembroke College, Oxford.

CONTRIBUTORS: Marilyn Carroll, Johanna Commander, Eli Dutton, Damian Grimshaw, Susan James, Dennis Nickson,  Matthew Osborne, Jonathan Payne, Robert Solow, Philip Stevens , Chris Warhurst.

A Volume in the RSF Case Studies of Job Quality in Advanced Economies

Foreword by Nicholas Lemann

"A brilliant book that both clarifies and explains the seemingly contradictory trends of a booming economy, wage stagnation, and growing income inequality." —Thomas B. Edsall, author, The New Politics of Inequality and political reporter at The Washington Post

More than a decade ago, Frank Levy's classic Dollars and Dreams offered an incisive analysis of the dramatic changes then taking place in the American standard of living. As wage stagnation and rising income inequality in the 1970s and early 80s began to undermine Americans' traditional economic optimism, Levy's book provided the first diagnosis of what he called the quiet depression. Since then, the U.S. economy has made a dramatic comeback, but economic insecurity remains widespread. New technologies, increased immigration, and global competition have opened up a new economic playing field, one with new rules and new winners and losers. The New Dollars and Dreams explores this puzzling economic landscape, in which low unemployment goes hand in hand with sluggish wage growth and high income inequality. This completely revised and expanded version of Levy's original book offers an invaluable guide to the sweeping economic, social, and political changes that have remade life in the United States over the past twenty-five years.

Levy tells a fascinating and insightful story about what happened to American incomes and jobs. His plot resists the simple truths of everyday journalism, and explains the economic and political twists and turns that have shaped the current American economy—including the oil and food price inflations of the 1970s, the market deregulations and corporate downsizings of the 1980s, the emergence of women as sole breadwinners in many families, the migration of jobs to the suburbs, and the computerization of work. The New Dollars and Dreams illuminates the key sources of inequality, with chapters that examine the disparate employment progress of whites, minorities, men, and women, and it carefully investigates the claim that the concentration of very high incomes is the result of a winner-take-all economy. Although the growth of the service economy is often blamed for inequality, Levy locates a more fundamental cause in the rising educational and skill demands brought about by restructuring of work in all sectors of the economy. An important part of the story also involves the transformation of the American family from extended and two-parent households to those headed by single mothers and lone individuals. By making sense of these complex trends, The New Dollars and Dreams offers crucial insights into why, despite a thriving economy, many Americans no longer feel secure in their financial futures.

FRANK LEVY is Daniel Rose Professor of Urban Economics at the Massachusetts Institute of Technology.

A Volume in the RSF Census Series

How diverse can, and should, TV programming be? And especially, in what precise ways does governmental regulation of TV affect (or fail to affect) the programs station owners produce—programs which, in the final analysis, shape in such large measure the values of Americans? It is to these timely and beguiling questions that Harvey Levin addresses his dispassionate assessment of the complex relationship between government and the TV industry. Analyzing data drawn from the history of the FCC's regulatory decisions, as well as from interviews with numerous government and industry officials, Professor Levin shows how the present form of restrictive governmental regulation almost always results in higher profits and rents for TV stations, with no concomitant increase in programming diversity.

In addition, Professor Levin investigates various other aspects of the media market, from the particular kinds of crucial decisions that are made when, for example, a newspaper owns a TV station, to the kinds of problems that arise when commercial rents are taxed to fund public TV; from the brand of programming we are offered when a monopoly controls a given TV market to the nature of programming in a situation of steady and fair competition. Following a comprehensive assessment, the author makes a compelling case for diversification of station ownership, in order to be "safe rather than sorry." He also argues for the entry of new stations, more extensive support of public TV, and some form of quantitative program requirements—all of which will help bring about greater program diversity.

Professor Levin's volume provides us with a fully documented and sharply focused analysis of the theories, policies, and problems of one of the most powerful and misunderstood of contemporary institutions.

HARVEY J. LEVIN is professor of economics at Hofstra University and senior research associate at the Center for Policy Research.