Behavioral Economics of Preferences, Choices, and Happiness PDF
Preview Behavioral Economics of Preferences, Choices, and Happiness
Shinsuke Ikeda · Hideaki Kiyoshi Kato Fumio Ohtake · Yoshiro Tsutsui Editors Behavioral Economics of Preferences, Choices, and Happiness Behavioral Economics of Preferences, Choices, and Happiness Shinsuke Ikeda • Hideaki Kiyoshi Kato Fumio Ohtake • Yoshiro Tsutsui Editors Behavioral Economics of Preferences, Choices, and Happiness 123 Editors ShinsukeIkeda HideakiKiyoshiKato InstituteofSocialandEconomicResearch GraduateSchoolofEconomics OsakaUniversity NagoyaUniversity Ibaraki,Osaka,Japan Nagoya,Aichi,Japan FumioOhtake YoshiroTsutsui InstituteofSocialandEconomicResearch FacultyofEconomics OsakaUniversity KonanUniversity Ibaraki,Osaka,Japan Kobe,Hyogo,Japan ISBN978-4-431-55401-1 ISBN978-4-431-55402-8 (eBook) DOI10.1007/978-4-431-55402-8 LibraryofCongressControlNumber:2015942514 SpringerTokyoHeidelbergNewYorkDordrechtLondon ©SpringerJapan2016 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof thematerialisconcerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation, broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,andtransmissionorinformation storageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilarmethodology nowknownorhereafterdeveloped. Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication doesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant protectivelawsandregulationsandthereforefreeforgeneraluse. Thepublisher,theauthorsandtheeditorsaresafetoassumethattheadviceandinformationinthisbook arebelievedtobetrueandaccurateatthedateofpublication.Neitherthepublishernortheauthorsor theeditorsgiveawarranty,expressorimplied,withrespecttothematerialcontainedhereinorforany errorsoromissionsthatmayhavebeenmade. Printedonacid-freepaper SpringerJapanKKispartofSpringerScience+BusinessMedia(www.springer.com) Preface This bookaims to providenew and broaderdirectionsfor the future development ofbehavioraleconomicsandfinance.Todoso, wecollectimportantcontributions in behavioral economics/finance and related topics from journal publications of Japaneseresearcherstodate. All four editors of this book have been interested in extending the reach of standardtheoriesintheirownfieldsusingbehavioraleconomics.A projecttoedit some sort of readings or handbooks on behavioral economics for the promotion ofeconomicresearchcame aboutnaturallyas a resultof ourfrequentinteractions whilerunningacademicmeetingsonbehavioraleconomics,especiallythoseofthe AssociationofBehavioralEconomicsandFinance(ABEF),theJapaneseEconomic Association (JEA), andthe NipponFinanceAssociation (NFA). In addition,these meetings gave us access to important works that were motivated by behavioral economics.Wethereforehavecompiledandeditedacoupleofindependentvolumes inanattempttocapturethemanyworthyarticlesthatliewithinthistopic.Thefirst, titled Behavioral Economics of Preferences, Choices, and Happiness, focuses on worksonbehavioraleconomics;andthesecond,BehavioralInteractions,Markets, andEconomicDynamics:TopicsinBehavioralEconomics,oneconomics-oriented studiesontopicsinbehavioraleconomics.Thisbookistheformer. Thepresentbookcanbecharacterizedbythreespecificfeatures.First,itfocuses on single-agent behavioral issues such as decision making, preference formation, andsubjectivewell-being.Thesetopicscomprisethecoreofbehavioraleconomics, at least at present. In contrast, the other book focuses on economic studies that examine interactions of multiple agents or market phenomena through the use of behavioraleconomicsmodels.Thetwobooksthusarecomplementary. Second, the chapter authors have added newly written addenda to the original articles,inwhichtheydiscusstheirownsubsequentworksandprovidesupplemen- tary analyses, detailed informationon the underlyingdata, and/orrecentliterature surveys.TheaddendumofeachchapterisbasedondiscussionattheDevelopment of BehavioralEconomicsand Finance Conference held in February 2014.During thisconference,participants,includingtheauthorsofthebookchapters,discussed the original studies to be included in these volumes in light of contributions, v vi Preface limitations, and implications for future research developments. We accordingly believe that this work creates a bridge between the original studies and future researchdevelopment. Third, reflecting the diverse fields of the editors, this book, as well as its companion volume, captures the broad influence of behavioral economics and finance on various topics. The topics of this book cover time preference and risk attitudes,addiction,health,socialpreferences,happiness,varioustypesofdecisions, biologicalfoundations,andinvestorbehavior. Part I collects six studies concerning attitudes toward risk and time, which is one of the main topics of behavioral economics. It starts with an article that appeared in the American Economic Review and was authored by Professors TomomiTanaka, Colin F. Camerer,and Quang Nguyen.This chapteris uniquein thatitmeasuresriskandtimepreferencesbyconductingexperimentsinVietnamese villages. Itinvestigateshow wealth, politicalhistory,and economiccircumstances arecorrelatedwithriskandtimediscounting.Theirmainfindingisthatpeopleare less loss-averseandmorepatientin villageswith highermean income.Chapter2, authored by Professors Takanori Ida and Rei Goto, has two characteristics. First, it develops a new method to simultaneously measure the rate of time preference and the coefficientof risk aversion. Since time preference is usually measured by assuming a linear utility function, resulting in estimates that are biased, this is animportantcontribution.Second,itinvestigatesrelationshipsbetweenpreference parametersandcigarettesmoking.Theauthorsfindthatcurrentsmokersare more impatientandrisk-pronethannonsmokers.Chapter3,writtenbyProfessorsYusuke Kinari,FumioOhtake,andYoshiroTsutsui,measurespresentbias, payingspecial attentiontotheseparationofdelayandintervaleffects.Thisconstitutesanimportant contributionbecausemostofthepreviousstudiesdidnotseparatethem.Theyfind thatpresentbiastranspireswhendelayislessthan8weeks.Theyalsofindthatthe interval and magnitude effects are a result of intertemporalchoice being partially basedonthedifferentialinrewardamount.Chapter4,byProfessorKanTakeuchi, analyzesnotonlythepresentbias,butalsofuturebiasusinglaboratoryexperiments. Futurebiasmeansthatsubjectstendtoundervaluetheimmediatereward,whichis the opposite of present bias. Although present bias has been frequently reported, this chapter is unique in reporting that many subjects exhibit future bias, and in proposing an inverse S-curve time discount function to capture this bias. It also presents a new non-parametric model of time preference that assumes neither separabilitybetweendelayandrewardnoranyspecificformoftheutilityfunction. Chapter 5, by Professor Taiki Takahashi, proposes that hyperbolic discounting, whichisoftenobservedinbiology,psychopharmacology,behavioralneuroscience, and neuroeconomics in humans and non-human animals, can be explained by Weber’slaw.Weber’slawstatesthattheexternalstimulus(e.g.,loudness)isscaled into a logarithmic internal representation of sensation. This chapter demonstrates thatevenifsubjectsdiscountdelayedrewardsexponentially,theiractualdiscounting of delayed rewards may follow the hyperbolic function. This chapter is unique in querying the reason why people exhibit hyperbolic discounting. Chapter 6, by Professors Shunichiro Sasaki, Shiyu Xie, Fumio Ohtake, Jie Qin, and Yoshiro Preface vii Tsutsui, investigatesrisk attitudes of Chinese students by conductinga laboratory economicexperimentofsellingandbuyinglotteriesinFudanUniversity,Shanghai. Theyfindthatsubjectsinthesellingexperimentwererisklovingwhentherewasa lowwinprobabilityandriskaverseunderahighwinprobability,whereastheywere riskaversewithanywinprobabilityinthebuyingexperiment.Theyinvestigatehow riskattituderelatestotheattributesofthesubject.Theyalsofindthatsubjects’risk attitudesrevealedintheexperimentscanaccountfortheirriskyassetholding. Part II collects five studies that relate to smoking (or addiction). As four of these studies investigate the effect of smoking on time discounting, Part II has a deep connection to Part I. Chapter 7 was written by Professors Takanori Ida and Rei Goto. This chapter presents the results of a survey conductedin 2006 of four addictivebehaviors:smoking,drinking,pachinko(apopularJapaneseformofpin- ballgambling),andhorse-racebetting.Thischapterprovidesauniqueperspective ontheinterdependenciesamongthe fouraddictivebehaviorsandfindsthathighly significant interdependencies exist between smoking and drinking and between pachinko and horse-race betting. This finding suggests that quitting one addictive behaviorisnotsufficientforcompletelyescapingfromaddiction.Onemoremeritof thisstudyisthatitestimatestimediscountingandriskaversionsimultaneously,asis doneinChap.2.Chapter8waswrittenbyProfessorsYuOhmura,TaikiTakahashi, and Nozomi Kitamura and investigates the effect of smoking on delay effect. In an experiment using 27 smokers and 23 never smokers, the subjects are required tochoosebetweenimmediateanddelayedmonetaryrewards.Theauthorsfindthat thedegreetowhichdelayedmonetarygainswerediscountedwassignificantlyand positively correlated with both the number of cigarettes smoked, indicating that the frequency of nicotine self-administration is positively associated with greater delay discounting of gain. Chapter 9 was written by Professors Myong-Il Kang andShinsukeIkedaandinvestigatestheeffectofsmokingondelayandsigneffect using a nationwide panel survey of Japanese adults, the Japan Household Panel SurveyonConsumerPreferencesandSatisfaction.Theydividetherespondentsinto naïve and sophisticated people and categorize them by smoking participation and cigarette consumption. They find that (1) discount rates are positively associated with both the probability of smoking participation and the number of cigarettes consumed,(2)thesigneffectrestrainsbothtypesofsmokingbehavior,and(3)the degreeofhyperbolicdiscountingpositivelyrelatestobothdecisions.Chapter10was authoredbyProfessorsShokoYamane,HiroyasuYoneda,TaikiTakahashi,Yoshio Kamijo, Yasuhiro Komori, Fumihiko Hiruma, and Yoshiro Tsutsui. This study is unique in that the authorscompare time discountrates not only between smokers and non-smokers but also between smokers and deprived smokers. Additionally, subjects receive not only monetary rewards but also actual tobacco in order to elicit smokers’ true preferences. They find that smokers are more impatient than non-smokers and that nicotine deprivation makes smokers even more impatient, suggestingthatnicotineconcentrationhasdifferenteffectsonshort-runandlong-run timepreferences.Chapter11waswrittenbyProfessorEijiYamamura.Thischapter differsfromtheothersinthatitdoesnotexaminetherelationshipbetweensmoking andtime discounting,butinstead examinesthe effectof socialnormson cigarette viii Preface consumption.Usingprefecture-levelpaneldata,theauthorfindsthata tightlyknit societyresultsin areductioninsmoking.He alsofindsthatsmokinganddrinking haveacomplementaryrelationship.Thatis,agreaterinitialconsumptionofalcohol resultsinalargerconsumptionofcigarettes.Thisfindingisconsistentwiththatin Chap.7. Part III is composed of two chapters that address health-related behaviors. In Chap. 12, Professors Shinsuke Ikeda, Myong-Il Kang, and Fumio Ohtake use nationwide survey data to examine how the Japanese people’s body weights are related to their personal traits captured by time discounting. Their unique contri- butionisthatanassociationbetweentimediscountingandbodyweightisdetected not only via impatience, but also via preference time-inconsistency, captured by hyperbolicdiscounting,andtheagain-lossasymmetryoftimediscounting,captured by the sign effect. Body weight is found to be positively associated with survey responsesindicativeofimpatienceandhyperbolicdiscounting,whereasnegatively associatedwiththoseindicativeofthesigneffect.Thefindingimpliesthatobesity andunderweightatleastpartiallycomefromtemporaldecisionbiases.InChap.13, ProfessorsYoshiroTsutsui,UriBenzion,andShoshShahrabaniaddresseconomic and behavioral determinants of Japanese people’s decisions to receive influenza vaccinations.Based ona large-scalequestionnaire,decisionsareshownto depend notonly onfactorsthatare predictablefromrationaldecision models,suchas the cost and benefits of the vaccination, infection risk, severity of the disease, side effects, and the attitudes toward time and risks, but also on behavioraltendencies due to status-quo bias, overconfidence,and altruism. Policy implications are also discussed, especially regarding the effectiveness of disseminating related medical information. The two chapters of Part IV address social aspects of consumer preferences. In Chap. 14, Professors Katsunori Yamada and Masayuki Sato estimate income comparison effects using the decision utility approach instead of the standard experiencedutilityapproach,inwhichsubjectsstatepreferencesovercombinations ofhypotheticalincomeamountsforthemselvesandcertainreferencepersons.The authors conduct hypothetical discrete choice experiments in an original, large- scale, Internet-based survey of Japanese subjects to estimate the utility function parametersfortheintensityandsignoftheincomecomparisons.Theyfindthatthe incomecomparisoneffectsdependonthecharacteristicsofthesubjectsthemselves and their reference persons. In the addendum, Yamada and Sato show that their estimates of the preference parameters were quite stable after the Great East Japan Earthquake. Social aspects of consumer preferences may well depend on how frequently people interact in society. In Chap. 15, Professor Eiji Yamamura measures the amounts of social capital in prefectures by the average rates of participation in local community activities to estimate the relationship between socialcapitalandpreferencesforincomeredistribution.Peopleinareaswithgreater social capital are found to be more likely to prefer income redistribution. The addendum summarizes further developments with respect to the effect of trust in thegovernmentonredistributionpreferencesandperceptionoftaxburden. Preface ix PartVcollectsthreearticlesconcerninghappinessandwell-being.InChap.16, ProfessorsYoshiroTsutsui,MilesKimball,andFumioOhtakeanalyzehowelection results make some voters happy and others unhappy. Using monthly survey data, theyexaminethegeneralelectionconductedonSeptember11,2005,inwhichPrime MinisterKoizumiwonalandslidevictory.Althoughthereareconsistenttendencies that supporters of ruling parties are happier and supporters of opposition parties are less happy, the effect is not significant. From this result they conclude that theJapanesepeopleare indifferenttopoliticscomparedwith peopleinthe United States. Chapter 17 was written by Professors Yoshiro Tsutsui and Fumio Ohtake, who ask why the level of happiness is constant over time, which is known as the Easterlinparadox.Theirhypothesisisthatthemannerinwhichthequestionisasked maybeoneofthecausesoftheparadox.Thus,theyaskaboutchangesinhappiness intheirdailysurveyandinvestigatewhetherthelevelofhappinessandtheintegrated processofchangesinhappinessarethesame.Theyfindthatthelevelofhappinessis stationary,whereastheintegratedprocessofchangesisnon-stationarywitharising trend,implyingthattheyaredifferentseries.Thisresultisinterestingbecauseifwe usetheintegratedprocessofchangeinhappinessratherthanthelevelofhappiness, the Easterlin paradox would probably not be observed. Chapter 18, written by ProfessorsHiroshiOnoandKristenSchultzLee,proposesaninnovativeconceptof happinessredistribution.Usingdataon42,000individualsfrom29countries,they findthataggregatehappinessisnotgreaterinsocialdemocraticwelfarestates,but thathappinesscloselyreflectstheredistributionofresourcesinthesecountries.For example,theyfindthatthehappinessgapbetweenhigh-andlow-incomeearnersis considerablysmallerinsocialdemocraticwelfarestates,suggestingthathappiness is redistributedfromthe privilegedto the less privileged.Theiridea isuniqueand hasseldombeenanalyzedinthehappinessliterature. PartVIcollectstheoreticalcontributionsonchoicesanddecisions.InChap.19, ProfessorsYusufcanMasatlioglu,Daisuke Nakajima,and ErkutY. Ozbaydevelop a new theory of revealed attention to show how to deduce a decision maker’s preferencesandthealternativeshepaysattentiontogivenhisobservedchoices.The study,originallypublishedintheAmericanEconomicReview,isaunique,important contributionthatfundamentallyrevisesthe standardrevealedpreferencetheoryso as to make it applicable to more general and plausible cases in which decision makers pay only limited attention to their potentially feasible choice set. The criticalimportanceofdistinguishingapreferenceand(in)attentioninunderstanding a decision maker’s observed behavior is clarified, thereby revealing policy and welfare implications. The limited attention theory is also shown to be capable of explaining the often observed “anomalous” behaviors, such as attraction effect and cyclical choice. In Chap. 20, Professors Youichiro Higashi, Kazuya Hyogo, and Norio Takeoka contribute to the literature of intertemporal decision making. Their study provides an axiomatic foundation for the random discounting model, where the decision maker believes her discount factor fluctuates randomly over time.Thedegreeofuncertaintyaboutfuturediscountfactors,measuredbysecond- order stochastic dominance, is characterized in terms of behavioral preference for flexibility. A consumption-savings problem under random discounting is also
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