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With Age Comes (Economic) Wisdom

A new study seems to confirm the adage that older means wiser, at least when it comes to making decisions about economic matters. From ScienceDaily:

To conduct their research, [Ye] Li and his colleagues recruited a group of 336 people — 173 younger (ages 18 to 29) and 163 older (ages 60 to 82) — and asked them a series of questions that measured economic decision making traits. They also administered a battery of standard fluid and crystallized intelligence tests.

These traits included temporal discounting (how much people discount future gains and losses), loss aversion (how much the valuation of losses outweigh gains of the same magnitude), financial literacy (understanding financial information and decisions) and debt literacy (understanding debt contracts and interest rates).

They found the older participants performed as well or better than the younger participants in all four decision-making measures. The older group exhibited greater patience in temporal discounting and better financial and debt literacy. The older participants were somewhat less loss averse, but the result did not reach standard levels of significance.

“The findings confirm our hypothesis that experience and acquired knowledge from a lifetime of decision making offset the declining ability to learn new information,” Li said.

(HT: R.E. Riker)

How Cost Impacts College Applications

A new NBER paper (abstract; PDF) by Amanda Pallais looks at how small fees impact the application behavior and outcomes of low-income students. Using data from the ACT, she found that an increase in the number of free score reports that students were permitted to send to colleges resulted in students sending their scores to a wider range of colleges, with low-income students attending more selective colleges. These outcomes were surprising because the non-free score reports were a mere $6. The abstract:

This paper estimates the sensitivity of students’ college application decisions to a small change in the cost of sending standardized test scores to colleges. Using confidential ACT micro data, I find that when the ACT increased from three to four the number of free score reports that ACT-takers could send, the fraction of test-takers sending four reports rose substantially while the fraction sending three fell by an offsetting amount. Students simultaneously sent their scores to a wider range of colleges. Using micro data from the American Freshman Survey, two identification strategies show that ACT-takers sent more college applications and low-income ACT-takers attended more selective colleges after the cost change. The first strategy compares ACT-takers before and after the cost change, controlling for time trends and covariates, and the second estimates difference-in-difference regressions using SAT-takers as a control group. Back-of-the-envelope calculations suggest that by inducing low-income students to attend more selective colleges, the policy change significantly increased their expected earnings. Because the cost of sending an additional (non-free) ACT score was merely $6 throughout, this sizable behavioral change is surprising and suggests that students may use simple heuristics in making their application decisions. In such a setting, small policy perturbations can have large effects on welfare.

Would a Big Bucket of Cash Really Change Your Life? Full Transcript

This is a transcript of the Freakonomics Radio podcast “Would a Big Bucket of Cash Really Change Your Life?“  [MUSIC: Louis Thorne, “La Sauterelle”]   Stephen J. DUBNER: The other day, we heard from a Freakonomics Radio listener named Thomas Appleton. He’d been talking with a friend about giving money to charity, and he had […] Read More »

More Evidence on the Unreliability of Memory

Our podcast about false memory, “Sure, I Remember That,” featured the research of Steven J. FrendaEric D. KnowlesWilliam Saletanand Elizabeth Loftus. If you enjoyed that, you may want to check out Loftus’s recent TED talk about her research on embedding false memories in U.S. soldiers.  It focused on soldiers who had recently gone through “Survival School” training, during which they are “captured,” sent to a mock prisoner of war camp, and aggressively interrogated:

Psychiatrist Charles Morgan and his collaborators have been studying the effects of Survival School for a number of years. We worked together to conduct a study with the soldiers who’d gone through the training in which some would be fed erroneous information. Some have been exposed to misinformation about the “perpetrator” who conducted the hostile interview. They were showed a photograph of a man who was identified as the one conducting the interrogation, and were asked questions such as, “Did your interrogator give you anything to eat? Did he give you a blanket?” The trick was that the photograph was of a completely different person. When the soldiers were fed this misinformation, 84% of them later on went ahead and identified the person whose photograph was shown. All of them were, of course, mistaken.

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A New Tool for Estimating College Costs

Last year, we did a podcast on college tuition which discussed the growing gap between a college’s “sticker price” and the actual tuition paid by low- and middle-income working families.  In order to demystify this gap — and help low-income families understand that many expensive private colleges are actually well within their reach — Wellesley College has just released a “Quick College Cost Estimator” calculator.

“The conversation that takes place around college costs is largely misguided,” Phillip B. Levine, an economics professor at Wellesley, told David Leonhardt of the Times. “People focus only on the sticker price. The sticker price is a meaningful statistic for roughly 40 percent of our students. The majority of our students are receiving financial aid, and for them the sticker price is an irrelevant number.”  While The College Board and Harvard have similar calculators, Leonhardt likes the simplicity of Wellesley’s version. “The larger point is that Wellesley’s calculator is a significant step in the growing effort to spread accurate information about college costs,” writes Leonhardt.  “As Mr. Levine says, the widespread misunderstanding of tuition ‘clos

Is Twitter Making Kids Smarter?

In the Globe and Mail, Clive Thomas argues that all the time kids spend on Facebook, Twitter, and blogs may be making them better writers and thinkers.  Thomas cites the work of Andrea Lunsford, an English professor at Stanford, who recently compared freshman composition papers from 1917, 1930, 1986, and 2006 and found that, while the average rate of errors hasn’t changed much since 1917, students today write longer, more intellectually complex papers:

In 1917, a freshman paper was on average only 162 words long and the majority were simple “personal narratives.” By 1986, the length of papers more than doubled, averaging 422 words. By 2006, they were more than six times longer, clocking in at 1,038 words – and they were substantially more complex, with the majority consisting of a “researched argument or report,” with the student taking a point of view and marshalling evidence to support it.

“Student writers today are tackling the kinds of issues that require inquiry and investigation as well as reflection,” Prof. Lunsford concluded.

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How Does the Value of Driving Differ Across States?

Michael Sivak, a transportation scholar at the University of Michigan whose work has appeared on this blog before, released a new study on inter-state variations in economic activity per unit of driving.  His findings are interesting and reflect significant differences in GDP per distance driven among U.S. states:

In 2011, the highest GDP per distance driven was in the District of Columbia ($30.04/mile, followed by Alaska, New York, Connecticut, and Delaware. The lowest GDP per distance driven was in Mississippi ($2.51/mile), followed by Alabama, New Mexico, Arkansas, and Oklahoma. The median value was $4.66/mile. In comparison, the standard federal reimbursement rate for fixed and variable costs of operating an automobile in 2011 was $0.51/mile.

From 1997 to 2011, the largest absolute increase in GDP per distance driven (with GDP measured in current dollars) was in the District of Columbia (+$14.95/mile), followed by Alaska, New York, Delaware, and Oregon. The smallest increase was in Mississippi(+$0.67/mile), followed by Alabama, Michigan. Florida, and New Mexico.

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Women and Philosophy

In our podcast “Women Are Not Men,” we explored why Wikipedia has such a low percentage of female editors. John Riedl, the researcher who studied the Wikipedia gender gap (and who passed away this summer), had this to say:

RIEDL: We know from a bunch of psychology studies that women tend to be made more uncomfortable by conflict than men are made uncomfortable by conflict. And so one of the ideas is maybe in Wikipedia where the fundamental nature of the site is that if you want to correct what someone else has done, the way you do that is you delete it and write them a really mean message. Well, maybe that’s creating a culture of conflict that is driving women away. They just don’t find it a place they enjoy being, and so they go places where they’re happier.

An op-ed by Linda Martín Alcoff in The New York Times reports a similar discussion in the field of philosophy, where only 16.6 percent of professors are women, and none are women of color. Read More »