NUDGE: IMPROVING DECISIONS ABOUT HEALTH, WEALTH, AND HAPPINESS by Richard H. Thaler and Cass R. Sunstein Penguin Books, 2009, 312 pp, ISBN 978-0-14-311526-7This book is best described formally as a general explanation of and advocacy for libertarian paternalism, a term coined by the authors in earlier publications. Informally, it is about how leaders, systems, organizations, and governments can nudge people to do the things the nudgers want and need done for the betterment of the nudgees, or of society. It is paternalism in the sense that "it is legitimate for choice architects to try to influence people's behavior in order to make their lives longer, healthier, and better", (p. 5) It is libertarian in that "people should be free to do what they like - and to opt out of undesirable arrangements if they want to do so", (p. 5) The built-in possibility of opting out or making a different choice preserves freedom of choice even though people's behavior has been influenced by the nature of the presentation of the information or by the structure of the decisionmaking system. I had never heard of libertarian paternalism before reading this book, and I now find it fascinating.Written for a general audience, this book contains mostly social and behavioral science theory and models, but there is considerable discussion of structure and process that has roots in mathematical and quantitative modeling. One of the main applications of this social system is economic choice in investing, selecting and purchasing products and services, systems of taxes, banking (mortgages, borrowing, savings), and retirement systems. Other quantitative social choice systems discussed include environmental effects, health care plans, gambling, and organ donations. Softer issues that are also subject to a nudge-based approach are marriage, education, eating, drinking, smoking, influence, spread of information, and politics. There is something in this book for everyone.The basis for this libertarian paternalism concept is in the social theory called "science of choice", the study of the design and implementation of influence systems on various kinds of people. The terms Econs and Humans, are used to refer to people with either considerable or little rational decision-making talent, respectively. The various libertarian paternalism concepts and systems presented are tested and compared in light of these two types of people. Two foundational issues that this book has in common with another book, Network of Echoes: Imitation, Innovation and Invisible Leaders, that was also reviewed for this issue of the Journal are that 1 ) there are two modes of thinking (or components of the brain) - an automatic (intuitive) process and a reflective (rational) process and 2) the need for conformity and the desire for imitation are powerful forces in human behavior. …

Nudge: Improving Decisions about Health, Wealth, and Happiness

It is commonly believed that HIV testing is essential for disease prevention. Indeed, spending on counseling and testing accounts for over half of the total expenditures on HIV prevention in some African countries. Despite this, there is evidence that even when testing is available most people do not take advantage of it, and there is virtually no persuasive evidence on the behavioral response to knowing one's status. For this paper, I designed and implemented a randomized experiment to evaluate the demand for learning HIV results and to estimate subsequent behavior change. In the experiment, over 2,700 individuals in rural Malawi were randomly assigned monetary incentives to learn their HIV results after testing. Two months later, they were re-interviewed and given the opportunity to purchase condoms. I find that while less than half of the participants attended clinics to learn their HIV status without any incentive, even a very small incentive (about one-tenth of a day’s wage) increased the share learning their results by 50%. Using the exogenously assigned incentives and distance from results centers as instruments for HIV knowledge, I find that HIV positive subjects with a sexual partner who learn their status purchase significantly more condoms; however, the average number of condoms purchased is low. Using these estimates, I calibrate an epidemiological model of infection that suggests that HIV testing is not as cost-effective as other prevention strategies; however, if testing services already exist, offering incentives may more effectively avert new infections. ∗ e-mail: rlthornt@fas.harvard.edu; address: NBER, 1050 Massachusetts Ave, Cambridge, MA 02138; phone: (617)-588-0349; web address: www.people.fas.harvard.edu/~rlthornt. I am grateful to Randy Akee, David Cutler, Eliza Hammel, Richard Holden, Erica Field, Ed Glaeser, Emir Kaminica, Larry Katz, Michael Kremer, David Laibson, Sendhil Mullainathan, Ben Olken, Emily Oster, Michelle Poulin, Mark Rosenzweig, Jesse Shapiro, and participants at the Harvard Development and Labor Lunches for helpful comments and discussion. I thank Jere Behrman, Hans-Peter Kohler, Susan Watkins and the MDICP team for support and data and Kondwani Chavula for excellent assistance with fieldwork. The Malawi Diffusion and Ideational Change Project is supported by grants from the Rockefeller Foundation; NICHD (R01HD4173, R01 HD372-276); NIA (AG1236-S3); the Center for AIDS Research and the Center on the Demography of Aging at the University of Pennsylvania. The project on Information, Incentives and HIV/AIDS Prevention is supported by the University Research Foundation, University of Pennsylvania. Follow-up data is supported by the Warburg Foundation of the Economics of Poverty. I acknowledge financial support from the Harvard Population Center, Harvard Graduate Council, the Harvard Center for International Development, National Bureau of Economic Research Fellowship on Aging, and the University of Pennsylvania.

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The Demand for and Impact of Learning HIV Status: Evidence from a Field Experiment

The high levels of CEO pay are controversial and widely resented. The academic literature on executive compensation has mainly focused on the incentive structure of CEO pay, while its levels have received much less attention. The average pay of a CEO in the largest 100 firms has hovered between $16 and $30 million in recent years. Could anything resembling competition for talent be able to explain such pay levels—or are they prima facie evidence of wrongdoing, or at least of market imperfections? This paper argues that purely competitive models have not been taken as far as they could, and that observed pay levels are consistent with competition for small differences in talent. We develop a simple assignment model and show how it can be used to infer the unobserved distribu tion of ability from the observed joint distribution of CEO pay and market value, assuming it is the competitive equilibrium of a market where heterogeneous firms and individuals match. The model is then calibrated to measure the social value of scarce executive ability and to gauge the extent to which observed levels of CEO pay can be explained by differences in talent, and to what extent by variation of firm size.

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The difference that CEOs make: an assignment model approach

Preface 1. Introduction Part I. Basic Theory: 2. Locational choice of the household 3. Equilibrium land use and optimal land use: single household type 4. Equilibrium land use and optimal land use: multiple household types 5. Urban aggregates and city sizes Part II. Extensions With Externalities: 6. Local public goods 7. Neighborhood externalities and traffic congestion 8. External economies, product variety, and city sizes Appendixes References Author index Subject index.

Urban economic theory : land use and city size

This paper evaluates an experiment in which individuals in rural Malawi were randomly assigned monetary incentives to learn their HIV results after being tested. Distance to the HIV results centers was also randomly assigned. Without any incentive, 34 percent of the participants learned their HIV results. However, even the smallest incentive doubled that share. Using the randomly assigned incentives and distance from results centers as instruments for the knowledge of HIV status, sexually active HIV-positive individuals who learned their results are three times more likely to purchase condoms two months later than sexually active HIV-positive individuals who did not learn their results; however, HIV-positive individuals who learned their results purchase only two additional condoms than those who did not. There is no significant effect of learning HIV-negative status on the purchase of condoms.

https://www.poverty-action.org/sites/default/files/publications/demand-and-impact-learning-hiv-status-evidence-field-experiment.pdf

The Demand for, and Impact of, Learning HIV Status

https://helda.helsinki.fi/bitstream/handle/10138/24559/incomedi.pdf;sequence=3

Income Distribution and Housing Prices: An Assignment Model Approach

In a dynamic setting, housing is both an asset and a consumption good. But should it be taxed like other forms of consumption or like other forms of saving? We consider the optimal taxation of the imputed rent from owner housing within a version of the neoclassical growth model. We find that the optimal tax rate on the imputed rent is quite sensitive to the constraints imposed on the other available tax rates. In general, it is not optimal to tax the imputed rent at the same rate as the business capital income.

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The Optimal Tax Treatment of Housing Capital in the Neoclassical Growth Model

In its draft treaty establishing a constitution for the European Union, Convention suggests that each member state may withdraw from the European Union following its own constitutional requirements. We show that such a rule could lead into an increased use of threat of withdrawal to extract concessions in intergovernmental negotiations. This problem would be exacerbated by national electorates facing an incentive to elect more confrontational politicians. We also suggest a remedy: EU constitution should require that withdrawal from EU membership must be approved by the voters of the withdrawing member state in a referendum.

https://www.econstor.eu/bitstream/10419/63670/1/470462493.pdf

Citizens should vote on secession

We study how a household borrowing constraint in the form of a down payment requirement affects house price dynamics in an OLG model with standard preferences. We find that in certain situations the borrowing constraint shapes house price dynamics substantially. The importance of the constraint depends very much on whether house price changes are driven by interest rate or aggregate income shocks. Moreover, because of the borrowing constraint, house price dynamics display substantial asymmetries between large positive and large negative income shocks. These results are related to the fact that the share of borrowing-constrained households is different following different shocks.

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On the Importance of Borrowing Constraints for House Price Dynamics

The Nordic welfare model has received a lot of positive attention around the world.  High standard of living, small income disparities and substantial social mobility looks like a very attractive p ...

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Niku Määttänen

Papers

Income Distribution and Housing Prices: An Assignment Model Approach

The Optimal Tax Treatment of Housing Capital in the Neoclassical Growth Model

Citizens should vote on secession

On the Importance of Borrowing Constraints for House Price Dynamics

The Nordic model – challenged but capable of reform