Right in the Short Run

David Laibson mentioned how if you give people randomly assigned health care, and then give them the options to change two weeks later, they tend not to.  Sendhil Mullainathan mentioned how health care providers systematically recommend the same plan no matter what medical history the caller (a senior citizen) had and no matter what cocktail of medicines (s)he was on.  Thoughts?

I never cease to be amazed at the power of economics in providing a language to discuss social phenomena. Take for instance, Flavio Cunha and James Heckman’s “The Technology of Skill Formation”. Abstract below:

This paper uses a simple economic model of skill formation to organize this and other evidence summarized below and the findings of related literatures in psychology, education and neuroscience. The existing theoretical literature on child development in economics treats childhood as a single period (see, e.g., Becker and Nigel Tomes, 1986; S. Rao Aiyagari et al., 2002; Roland Benabou, 2002). The implicit assumption in this approach is that inputs into the production of skills at different stages of childhood are perfect substitutes. We argue that to account for a large body of evidence, it is important to build a model of skill formation with multiple stages of childhood, where inputs at different stages are complements and where there is self-productivity of investment. In addition, in order to rationalize the evidence, it is important to recognize three distinct credit constraints operating on the family and its children. (i) The inability of a child to choose its parents. This is the fundamental constraint imposed by the accident of birth. (ii) The inability of parents to borrow against their children’s future income to finance investments in them. (iii) The inability of parents to borrow against their own income to finance investments in their children. This paper summarizes findings from the recent literature on child development and presents a model that explains them.

Thoughts?

There is some pretty interesting research being done in Economics & Psychology over at NYU. Economic theorist Andrew Caplin and Mark Dean are working on an axiomatic approach to neuroeconomics, together with the help of Paul Glimcher.

Reinforcement learning theory has produced important insights into economic behavior. Intriguingly, neuroscientists recently discovered a plausible mechanism through which reinforcement may be encoded in the brain. Yet their resulting “dopaminergic reward prediction error” hypothesis has not yet been incorporated into economics. We develop an axiomatic model that characterizes the empirical implications of this theory for an idealized data set comprising both neuroscientific measurements and choices. Our axiomatization removes the language barrier between economics and neuroscience. This will allow “neuroeconomic” experimental protocols to be developed appropriate to the questions motivating economic, as opposed to purely neuroscientific, interest in learning.

In the words of a good friend, “it’s really strange to see ‘dopamine’ and ‘metric space’ in the same sentence”.

Whether integrating experimental psychology and brain imaging results into economic theory will have practical value remains to be seen. However, in my limited comprehension of the field, it seems ripe with potential. For instance, neuroscience results on inter-temporal discounting and status-quo bias in decision-making could be translated into the language of decision theory. By axiomatizing some of the experimental results into the economic theory, models may better articulate and predict consumer behavior.