Why do so many Americans receive such a big tax refund? Every year, the IRS sends a check of around $3,000 to Americans who paid more taxes than they should. The excess withholding is a puzzle: why do consumers prefer to give the U.S. government an interest-free loan? Wouldn't a quick trip to the payroll administrator be worth the effort if it meant a bigger paycheck? Michael Barr, an editor of the RSF volume Insufficient Funds, spoke to the Wall Street Journal last week about his research on the problem:

"People want to have a ready way to save," says Michael Barr, a University of Michigan law professor and a former Obama and Clinton Treasury official. "For some families, tax time is a good time to do so."

In the mid-2000s, Mr. Barr and colleagues surveyed about 650 low- and moderate-income families in the Detroit area who had filed tax returns in 2003 or 2004. About 82% received refunds—either because they had overpaid or because they qualified for the federal Earned Income Credit, a federal cash bonus to low-wage workers that is paid through the IRS. [...]

In fact, Mr. Barr and co-author Jane Dokko of the Federal Reserve Board, found these folks don't want smaller tax refunds. In the survey, researchers offered them choices: Withhold $100 a month more and get a bigger refund (an option favored by 35%), withhold the same amount and get the same refund (46%) or withhold less and get a smaller refund (only 19%.) This and other survey findings appear in a coming Brookings Institution book, "No Slack: The Financial Lives of Low-Income Americans."

The Wall Street Journal profiled economist Yale psychologist Laurie Santos and her work on the origins of human irrationality. Santos, who co-published a study funded by the Russell Sage Foundation, conducts experiments with Capuchin monkeys in her lab to observe if systemic decision-making errors like loss aversion extend beyond the human species. Her research has produced some surprising results:

In one experiment, they gave each monkey a wallet filled with 12 flat aluminum tokens, monkey money that the animals could trade for food. Right away, the scientists saw the similarities to human behavior. When researchers slashed the price on certain foods, the monkeys sought out the best deal. They also typically spent all their cash at once and didn't bother to save.

Then researchers decided to test a more complex economic theory which shows that people do not judge price in a vacuum. Sitting with the team at the coffee shop, Dr. Santos could see how the concept worked in her own life. Many days, she feels guilty about spending $2.20 on a cup of coffee. But when she looks up at the chalk board listing drink prices, the Nutella Latte goes for $3.85 and the Ginger Snap is $4.15. "My $2 cup doesn't seem as expensive anymore," she said.

Monkeys make similar assessments. In one experiment, a researcher showed a monkey two pieces of apple but handed over one in exchange for a token. A second researcher showed one piece of apple and gave the slice to the monkey for the token. The monkeys strongly preferred to trade with the second researcher. They did not like being offered two apple pieces and then only getting one.

For more information on this line of inquiry, see Santos' RSF-funded study: "How Basic Are Behavioral Biases? Evidence from Capuchin Monkey Trading Behavior." Here is the abstract:

Economist Jesse Rothstein has published a working paper supported by the Foundation's Great Recession initiative. Entitled "The Labor Market Four Years Into the Crisis: Assessing Structural Explanations," the report seeks to understand why unemployment has remained so high in America since the economic crisis. As he states in the paper, economists offer two possible explanations:

One camp, of which Paul Krugman is perhaps the most prominent member (see also Romer 2011), argues that recent poor outcomes are primarily reflective of a shortfall of aggregate demand. This camp prescribes aggressively stimulative monetary policy – which would have to take unconventional forms, as the federal funds rate has been at or near its zero lower bound since late 2008 – and additional fiscal stimulus to raise effective demand.

A second camp points to “structural” factors as important impediments to labor market recovery. This diagnosis comes in several flavors. Some focus on mismatch between the types of labor supplied by workers and the types demanded by employers. As Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, described it in a 2010 speech, “Firms have jobs, but can’t find appropriate workers. The workers want to work, but can’t find appropriate jobs. There are many possible sources of mismatch—geography, skills, demography—and they are probably all at work” (Kocherlakota 2010).

But after reviewing the evidence, Rothstein argues there is little evidence for the structural hypothesis:

In the second installment of our Election 2012 series, economist David Neumark discusses President Obama's proposal to increase funding for community colleges. Read more of his research on education and labor policy in his RSF book Improving School-to-Work Transitions.

One component of President Obama’s efforts to increase educational levels of the workforce is increased support for community colleges. Research points to the potential value of community colleges in helping young people make successful school-to-work transitions, in part by highlighting the links between what community colleges offer and the needs of the labor market, and how community colleges are able to respond to these needs. Community colleges can perform an important function in adult education, which can help meet the challenges of an aging population by enabling older workers to retool and remain productive at work.

A volume I edited based on a conference supported by the Russell Sage Foundation (Neumark, 2007) explored a number of policies and programs to improve the school-to-work transition, at both the high school and college level. The high school-level policies include activities supported under the School-to-Work Opportunities Act of 1994 and Career Academies. Career and Technical Education programs span high schools and community colleges. And the post-high school manifestation of school-to-work is community colleges. There is longitudinal evidence that high school programs boosted subsequent employment or the accumulation of skills. And the most compelling evidence of positive impacts comes from an experimental evaluation of the Career Academy model (Kemple, 2008).

COMMUNITY COLLEGES AND EMPLOYMENT

What about community colleges? In support of the President’s efforts, the White House argues that “Community Colleges are particularly important for students who are older, working, or need remedial classes. Community colleges work with businesses, industry and government to create tailored training programs to meet economic needs like nursing, health information technology, advanced manufacturing, and green jobs."

The research record is supportive of this claim on both counts.

As we discussed in this post, the Russell Sage Foundation played an instrumental role in the development of behavioral economics. Readers looking for a quick introduction to the discipline can find a series of articles below from the field's leading scholars. As with our reading list on inequality and mobility, this list is not meant to be exhaustive; users looking for more advanced research should see these reading lists, as well as the Foundation's behavioral economics program page, which lists our current research initiatives.

GENERAL INTRODUCTION

"A Short Course in Behavioral Economics." The Edge.org. October 1 2008. Web. March 23 2012.

Camerer, Colin. 1999. "Behavioral economics: Reunifying psychology and economics." Proceedings of the National Academy of Sciences 96 (19): 10575-10577.

Kahneman, Daniel. 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics." American Economic Review 93 (5): 1449-1475. (PDF)

Laibson, David and Richard Zeckhauser. 1998. "Amos Tversky and the Ascent of Behavioral Economics." Journal of Risk and Uncertainty 16 (7): 7-47. (PDF)

Lambert, Craig. 2006. "The Marketplace of Perceptions." Harvard Magazine. Online. March 23, 2012.

Mullainathan, Sendhil and Richard Thaler. 2000. "Behavioral Economics." MIT Working Paper 00-27.

Rabin, Matthew. 1998. "Psychology and Economics." Journal of Economic Literature 36 (1): 11-46. (PDF)

Rabin, Matthew. 2002. "A Perspective on Psychology and Economics." U.C. Berkeley Working Paper E02-313.

Thaler, Richard and Cass Sunstein. Nudge: Improving Decisions about Health, Wealth and Happiness. New Haven: Yale University Press, 2008.

The Foundation's U.S. 2010 Census project has released a new report on home ownership in America between 2001-2011. Here are some of the report's main findings:

More from RSF's U.S. 2010 Project
• A Very Uneven Road: U.S. Labor Markets in the Past 30 Years
• Unauthorized Immigrant Parents: Do Their Migration Histories Limit Their Children's Education?
• Separate and Unequal: The Neighborhood Gap for Blacks, Hispanics and Asians in Metropolitan America
• How Changes in Employment, Earnings and Public Transfers Make the First Two Years of the Great Recession (2007-2009) Different from Previous Recessions and Why It Matters

• Between 2001 and 2011, the overall home ownership rate dropped by one percentage point. However, this small net change masks a general rise in ownership that peaked in 2005 and fell after that. For certain kinds of households – the least-educated, poorest, and non-Hispanic black households – the first half of the decade brought little, if any, growth while the second half of the decade resulted in devastatingly large losses. As a result, the gaps in ownership separating black from white households and households at the top and bottom of the education and income distributions widened considerably in this decade.

• The housing market collapse and ensuing Great Recession during the second half of the last decade also had a disproportionate impact on young adults, who typically begin the transition to home ownership in their late twenties and early thirties. In particular, Generation X (ages 25-34 in 2001) had the misfortune to pass a life-course stage typified by steep inclines in ownership during a period when becoming and remaining a homeowner was fragile. Generation Y (ages 25-34 in 2011), the most recent cohort to launch its housing career, is likely to fare even worse, as it faces numerous obstacles to entering the ownership market. Absent a dramatic shift in the economy and the housing market, the stalled progress of these cohorts threatens to have a permanent impact.

As Republican voters in Illinois head to the polls, we're pleased to announce a new feature on RSF Review: the Election 2012 series. Through the campaign season, we hope to add insights, data and commentary from our scholars and research programs to the political conversation. In our first installment, RSF Visiting Scholar Delia Baldassarri discusses the conventional wisdom about political polarization in the United States—and why it may be wrong.

More on Polarization
• Website: Delia Baldassarri
• Study: Partisan Joiners: Associational Membership and Political Polarization in the United States (1974–2004)
• Study: Dynamics of Political Polarization (PDF)
• Study: Partisans without Constraint: Political Polarization and Trends in American Public Opinion (PDF)

Q: Although it is widely assumed that public opinion in America has sharply polarized over the past 40 years, your analysis of the evidence and scholarly literature suggests a more nuanced conclusion. What does the research show?

A: Over the last four decades, and especially starting in the 1990s, public opinion increasingly divided on a few specific issues, such as abortion, gay rights and the war in Iraq, while we observe relative stability and even depolarization on all remaining economic, civil rights, social, and foreign policy issues. Indeed, Americans are actually less divided in their opinion on the role of women in society, racial integration, and criminality than they were forty years ago. As new generations replace old ones, and women achieve higher positions in society, the collective mood shifts accordingly.

However, there is clear evidence of polarization among political partisans: those who are politically active, who identify with a party or strongly identify as liberal or conservative, tend to have more extreme positions than the rest of the population. In sum, while the distribution of opinions across the population has not changed a lot, with the exception of a few ‘hot-button’ issues, Republicans and Democrats are significantly more divided on a wide range of issues. This is a process of partisan alignment, which is partly consequence of the increased polarization of the parties, Congress, and political activists: since parties are more polarized, they are now better at sorting individuals along ideological lines.

A verdict has been reached in the Dharun Ravi trial. The ex-Rutgers student faced a series of charges, including bias intimidation and invasion of privacy, after he used a webcam to watch his college roommate Tyler Clementi kissing a man. The incident drew international attention after Clementi killed himself, raising difficult questions about homophobia, bullying, and the level of tolerance and diversity in American colleges. This week, we spoke with RSF Visiting Scholar Elizabeth Paluck about the Ravi trial and its implications. Paluck, a social psychologist at Princeton, studies prejudice and intergroup conflict reduction and has used large-scale field experiments to test theoretically driven interventions.

Q: A large part of the Dharun Ravi trial centered on the intentions and actions of Tyler Clementi’s peers—what they thought about his homosexuality, what they said to him and others about it and how they acted around him. What do we know about the importance of peer influence on prejudice and attitudes in school settings?

A: We think that peers have a strong influence, especially because much of the behavior that we care about unfolds in situations that are dominated by peers. Peers exert their influence by setting a standard, through their own behavior or expressions of belief, about what is appropriate and typical to do in that situation. In my field, that is what we call a social norm--a perception of what is appropriate and typical to do in the situation. Sometimes these peer-based social norms are so pervasive across situations that students internalize them as private attitudes. But the powerful thing about peer influence is that it can exert a pressure on students to behave in ways that they normally would not, or that go against the student's private attitudes.

More on Prejudice Reduction
• Website: Elizabeth Paluck
• Study: Peer Pressure Against Prejudice: A High School Field Experiment Examining Social Network change
• Study: What’s in a Norm? Sources and Processes of Norm Change
• Study: Diversity Training and Intergroup Contact: A Call to Action Research

Students report in surveys that they believe if they stand up against prejudice or bias then their peers will not like them as much. Other research shows that they are right! In those studies, students who object to teasing and harassment lose a bit of face, of their reputation, and are liked a little bit less. This is not to say that being an active bystander is a lost cause. Students have ways of shooting down prejudice or bias that can preserve their reputation, and in fact many of them do this every day, by supporting the target of harassment, or calming down someone who is doing the harassment. Many programs that urge students to stand up, speak out, are a bit less sensitive to this fact than they should be. Students can have a major positive influence on one another, and I think they have some great strategies for doing this in a sustainable way.

Q: In a 2011 paper, you looked at whether tolerance could be spread through student leaders who were trained confront expressions of prejudice. Give us a snapshot of some of the major findings and their implications for combating bullying.