As GDP is a measure of market capacity and not economic well-being, this report has been commissioned to more accurately understand the social progress indicators of any given state. Gross domestic product (GDP) is the most widely used measure of economic activity. There are international standards for its calculation, and much thought has gone into its statistical and conceptual bases. But GDP mainly measures market production, though it has often been treated as if it were a measure of economic well-being. Conflating the two can lead to misleading indications about how well-off people are and entail the wrong policy decisions. One reason why money measures of economic performance and living standards have come to play such an important role in our societies is that the monetary valuation of goods and services makes it easy to add up quantities of a very different nature. When we know the prices of apple juice and DVD players, we can add up their values and make statements about production and consumption in a single figure. But market prices are more than an accounting device. Economic theory tells us that when markets are functioning properly, the ratio of one market price to another is reflective of the relative appreciation of the two products by those who purchase them. Moreover, GDP captures all final goods in the economy, whether they are consumed by households, firms or government. Valuing them with their prices would thus seem to be a good way of capturing, in a single number, how well-off society is at a particular moment. Furthermore, keeping prices unchanged while observing how quantities of goods and services that enter GDP move over time would seem like a reasonable way of making a statement about how society’s living standards are evolving in real terms. As it turns out, things are more complicated. First, prices may not exist for some goods and services (if for instance government provides free health insurance or if households are engaged in child care), raising the question of how these services should be valued. Second, even where there are market prices, they may deviate from society’s underlying valuation. In particular, when the consumption or production of particular products affects society as a whole, the price that individuals pay for those products will differ from their value to society at large. Environmental damage caused by production or consumption activities that is not reflected in market prices is a well-known example.

https://andrewoswald.com/docs/stiglitz20report_commission20final20200920sept.pdf

Report by the commission on the measurement of economic performance and social progress

This paper introduces a three-item "Cognitive Reflection Test" (CRT) as a simple measure of one type of cognitive ability—the ability or disposition to reflect on a question and resist reporting the first response that comes to mind. The author will show that CRT scores are predictive of the types of choices that feature prominently in tests of decision-making theories, like expected utility theory and prospect theory. Indeed, the relation is sometimes so strong that the preferences themselves effectively function as expressions of cognitive ability—an empirical fact begging for a theoretical explanation. The author examines the relation between CRT scores and two important decision-making characteristics: time preference and risk preference. The CRT scores are then compared with other measures of cognitive ability or cognitive "style." The CRT scores exhibit considerable difference between men and women and the article explores how this relates to sex differences in time and risk preferences. The final section addresses the interpretation of correlations between cognitive abilities and decision-making characteristics.

/pdf/cognitive-reflection-and-decision-making-u372g0yreb.pdf

Cognitive Reflection and Decision Making

All organisms must maintain a complex dynamic equilibrium, or homeostasis, which is constantly challenged by internal or external adverse forces termed stressors. stress occurs when homeostasis is threatened or perceived to be so; homeostasis is re-established by various physiological and behavioral adaptive responses. Neuroendocrine hormones have major roles in the regulation of both basal homeostasis and responses to threats, and are involved in the pathogenesis of diseases characterized by dyshomeostasis or cacostasis. The stress response is mediated by the stress system, partly located in the central nervous system and partly in peripheral organs. The central, greatly interconnected effectors of this system include the hypothalamic hormones arginine vasopressin, corticotropin-releasing hormone and pro-opiomelanocortin- derived peptides, and the locus ceruleus and autonomic norepinephrine centers in the brainstem. Targets of these effectors include the executive and/or cognitive, reward and fear systems, the wake-sleep centers of the brain, the growth, reproductive and thyroid hormone axes, and the gastrointestinal, cardiorespiratory, metabolic, and immune systems. Optimal basal activity and responsiveness of the stress system is essential for a sense of well-being, successful performance of tasks, and appropriate social interactions. By contrast, excessive or inadequate basal activity and responsiveness of this system might impair development, growth and body composition, and lead to a host of behavioral and somatic pathological conditions.

/pdf/stress-and-disorders-of-the-stress-system-3tj676e2p1.pdf

Stress and disorders of the stress system

This paper undertakes an assessment of a rapidly growing body of economic research on financial literacy. We start with an overview of theoretical research, which casts financial knowledge as a form of investment in human capital. Endogenizing financial knowledge has important implications for welfare, as well as policies intended to enhance levels of financial knowledge in the larger population. Next, we draw on recent surveys to establish how much (or how little) people know and identify the least financially savvy population subgroups. This is followed by an examination of the impact of financial literacy on economic decision making in the United States and elsewhere. While the literature is still young, conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps. A final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy. (JEL A20, D14, G11, I20, J26)

/pdf/the-economic-importance-of-financial-literacy-theory-and-2yhcozat6n.pdf

The economic importance of financial literacy: theory and evidence

Both social isolation and loneliness are associated with increased mortality, but it is uncertain whether their effects are independent or whether loneliness represents the emotional pathway through which social isolation impairs health. We therefore assessed the extent to which the association between social isolation and mortality is mediated by loneliness. We assessed social isolation in terms of contact with family and friends and participation in civic organizations in 6,500 men and women aged 52 and older who took part in the English Longitudinal Study of Ageing in 2004–2005. A standard questionnaire measure of loneliness was administered also. We monitored all-cause mortality up to March 2012 (mean follow-up 7.25 y) and analyzed results using Cox proportional hazards regression. We found that mortality was higher among more socially isolated and more lonely participants. However, after adjusting statistically for demographic factors and baseline health, social isolation remained significantly associated with mortality (hazard ratio 1.26, 95% confidence interval, 1.08–1.48 for the top quintile of isolation), but loneliness did not (hazard ratio 0.92, 95% confidence interval, 0.78–1.09). The association of social isolation with mortality was unchanged when loneliness was included in the model. Both social isolation and loneliness were associated with increased mortality. However, the effect of loneliness was not independent of demographic characteristics or health problems and did not contribute to the risk associated with social isolation. Although both isolation and loneliness impair quality of life and well-being, efforts to reduce isolation are likely to be more relevant to mortality.

https://www.pnas.org/content/pnas/110/15/5797.full.pdf

Social isolation, loneliness, and all-cause mortality in older men and women

ContextThe United States spends considerably more money on health care than the United Kingdom, but whether that translates to better health outcomes is unknown.ObjectiveTo assess the relative heath status of older individuals in England and the United States, especially how their health status varies by important indicators of socioeconomic position.Design, Setting, and ParticipantsWe analyzed representative samples of residents aged 55 to 64 years from both countries using 2002 data from the US Health and Retirement Survey (n = 4386) and the English Longitudinal Study of Aging (n = 3681), which were designed to have directly comparable measures of health, income, and education. This analysis is supplemented by samples of those aged 40 to 70 years from the 1999-2002 waves of National Health and Nutrition Examination Survey (n = 2097) and the 2003 wave of the Health Survey for England (n = 5526). These surveys contain extensive and comparable biological disease markers on respondents, which are used to determine whether differential propensities to report illness can explain these health differences. To ensure that health differences are not solely due to health issues in the black or Latino populations in the United States, the analysis is limited to non-Hispanic whites in both countries.Main Outcome MeasureSelf-reported prevalence rates of several chronic diseases related to diabetes and heart disease, adjusted for age and health behavior risk factors, were compared between the 2 countries and across education and income classes within each country.ResultsThe US population in late middle age is less healthy than the equivalent British population for diabetes, hypertension, heart disease, myocardial infarction, stroke, lung disease, and cancer. Within each country, there exists a pronounced negative socioeconomic status (SES) gradient with self-reported disease so that health disparities are largest at the bottom of the education or income variants of the SES hierarchy. This conclusion is generally robust to control for a standard set of behavioral risk factors, including smoking, overweight, obesity, and alcohol drinking, which explain very little of these health differences. These differences between countries or across SES groups within each country are not due to biases in self-reported disease because biological markers of disease exhibit exactly the same patterns. To illustrate, among those aged 55 to 64 years, diabetes prevalence is twice as high in the United States and only one fifth of this difference can be explained by a common set of risk factors. Similarly, among middle-aged adults, mean levels of C-reactive protein are 20% higher in the United States compared with England and mean high-density lipoprotein cholesterol levels are 14% lower. These differences are not solely driven by the bottom of the SES distribution. In many diseases, the top of the SES distribution is less healthy in the United States as well.ConclusionBased on self-reported illnesses and biological markers of disease, US residents are much less healthy than their English counterparts and these differences exist at all points of the SES distribution.

/pdf/disease-and-disadvantage-in-the-united-states-and-in-england-302vz07ibc.pdf

Disease and Disadvantage in the United States and in England

As the degree to which individuals are expected to provide their own resources forretirement increases, there is a correspondingly increasing importance of individualsbeing able to understand the financial choices they face and to choose savings products,portfolios and contribution rates accordingly. In this paper we look at numerical abilityand other dimensions of cognitive function in a sample of older adults in England andexamine the extent to which these abilities are correlated with various measures ofwealth and retirement saving outcomes. The key findings are:a) Relatively large fractions of the population can be seen to have relatively low levels offinancial numeracy and these numeracy levels decline systematically with age.b) Numeracy levels are correlated with measures of retirement saving and investmentportfolios, even when we control for other cognitive ability and education.c) Numeracy is correlated with knowledge and understanding of pension arrangements,and with perceived financial security, even when we control for other cognitive ability,education and the level of overall retirement saving.The lessons of our analysis are threefold, even though at this point we have only crosssectionaldata available on which to base our analysis. Firstly, it shows yet anotherdimension in which inequalities amongst older individuals are apparent. Second, theanalysis suggests that in the short run there may be a role for targeting simple retirementplanning information at low numeracy, low wealth, low education groups. Third, itsuggests that a longer run policy goal might want to target numeracy levels moregenerally in order to reduce the fraction of the population with low basic skills. Whethersuch a policy would have knock on effects on to retirement planning arrangements,however, is a more difficult question to answer on the basis of the conditionalcorrelations we present here. On this topic in particular, there is much further work to bedone. As the degree to which individuals are expected to provide their own resources forretirement increases, there is a correspondingly increasing importance of individualsbeing able to understand the financial choices they face and to choose savings products,portfolios and contribution rates accordingly. In this paper we look at numerical abilityand other dimensions of cognitive function in a sample of older adults in England andexamine the extent to which these abilities are correlated with various measures ofwealth and retirement saving outcomes. The key findings are:a) Relatively large fractions of the population can be seen to have relatively low levels offinancial numeracy and these numeracy levels decline systematically with age.b) Numeracy levels are correlated with measures of retirement saving and investmentportfolios, even when we control for other cognitive ability and education.c) Numeracy is correlated with knowledge and understanding of pension arrangements,and with perceived financial security, even when we control for other cognitive ability,education and the level of overall retirement saving.The lessons of our analysis are threefold, even though at this point we have only crosssectionaldata available on which to base our analysis. Firstly, it shows yet anotherdimension in which inequalities amongst older individuals are apparent. Second, theanalysis suggests that in the short run there may be a role for targeting simple retirementplanning information at low numeracy, low wealth, low education groups. Third, itsuggests that a longer run policy goal might want to target numeracy levels moregenerally in order to reduce the fraction of the population with low basic skills. Whethersuch a policy would have knock on effects on to retirement planning arrangements,however, is a more difficult question to answer on the basis of the conditionalcorrelations we present here. On this topic in particular, there is much further work to bedone.

/pdf/understanding-pensions-cognitive-function-numerical-ability-7j7j5933wh.pdf

Understanding pensions: cognitive function, numerical ability and retirement saving

This paper examines the extent to which cognitive abilities relate to differences in trajectories for key economic outcomes as individuals move towards and through their retirement. We look at whether differences in baseline numeracy (measured in the English Longitudinal Study of Ageing in 2002) and broader cognitive ability predict the subsequent trajectories of outcomes such as wealth, retirement income and key dimensions of retirement expectations. Those with lower numeracy are shown to have different wealth trajectories both pre- and post-retirement than their more numerate counterparts, but the distributions of retirement expectations and net replacement rates are similar across numeracy groups.

/pdf/cognitive-function-numeracy-and-retirement-saving-5gm0iae9a3.pdf

Cognitive function, numeracy and retirement saving trajectories.

• The inequality in wealth across the older population is much greater than that observed in incomes. As an indication of this inequality, and also the degree to which the ‘average’ wealth measures are driven by a small number of very wealthy individuals, despite average financial wealth being over £40,000, half the population aged 50 and over have less than £12,000 and a quarter have less than £1,500.

https://www.ifs.org.uk/elsa/report03/ch3.pdf

Socio-economic position

This paper examines geographic mobility and housing downsizing at older ages in Britain and the USA. Americans downsize housing much more than the British largely because Americans are much more mobile. The principal reasons for greater mobility among older Americans are twofold: (1) greater spatial distribution of geographic distribution of amenities (such as warm weather) and housing costs; (2) greater institutional rigidities in subsidized British rental housing providing stronger incentives for British renters not to move. This relatively flat British housing consumption with age may have significant implications for the form and amount of consumption smoothing at older ages.

/pdf/housing-mobility-and-downsizing-at-older-ages-in-britain-and-3eilg6ji9i.pdf

Zoe Oldfield

Papers

Disease and Disadvantage in the United States and in England

Understanding pensions: cognitive function, numerical ability and retirement saving

Cognitive function, numeracy and retirement saving trajectories.

Socio-economic position

Housing Mobility and Downsizing at Older Ages in Britain and the United States