http://www.harvardmagazine.com/on-line/0901212.html

Endorphin Rush: PricelessPurse Strings of the Heart

Odysseus struggled to resist the Sirens. Adam Smith warned of dangerous passions for profusion. And we have all, despite our diets, succumbed to that beckoning slice of pie. The desire for instant gratification can run roughshod over our best intentions. Finally, contemporary economists are catching on. After centuries of basing their assumptions on the premise that people act rationally, they are now acknowledging that psychological variables like self-control (or lack thereof) profoundly influence economic behavior.

"Economists had looked for the simplest model, purged of the psychological stuff. That was considered auxiliary," says Sack associate professor of political economy David I. Laibson '88. Now the burgeoning discipline of "behavioral economics" brings emotional factors into economic models. In Laibson's hands, this behavioral approach outdoes traditional models--especially when accounting for apparently irrational phenomena among consumers like debilitating credit-card debt.

The traditional economic model, extrapolating from the rational "economic man," predicts an average household debt of $900. In fact, according to Federal Reserve data, the average American household owes $4,600 on credit cards, often at interest rates of 18 percent or even higher. Meanwhile, many of the same people hold investments earning well under 10 percent. While they may have logical reasons for their behavior, it seems irrational. But to Laibson, credit-card borrowing is no surprise. His behavioral model, which applies "hyperbolic discounting," expects a debt of $3,408.

Laibson has advanced the theory of hyperbolic discounting in a recent series of papers. In a simple illustration, most of us prefer one apple today over two apples tomorrow. But at some point on the time horizon, our preferences reverse: people prefer two apples in 100 days to one apple in 99 days. The difference in one apple's value between today and tomorrow is much greater than the difference between waiting 99 days and waiting a hundred. Hyperbolic discounting means that our discount rates (the values we personally assign to an object like an apple) do not remain constant, but are greater in the short run than the long run. Hence consumers are willing to pay exorbitant interest rates on credit-card debt while earning much smaller returns on long-run illiquid investments.

In his credit-card research, Laibson did not directly confront consumers about their spending habits, but rather constructed mathematical formulas that could reasonably approximate existing empirical data. His formulas simulate consumer spending and saving patterns; Laibson tries to create the best match between the simulated data and reality. Unlike traditional models, Laibson's formulas include variables for credit-card debt, changing household size, and illiquid assets. But the most striking difference is the assumption of hyperbolic discounting. By factoring in a discount rate that declines at different rates over time, Laibson captures the self-control problem in mathematical form.

Laibson's research grows out of a seminal 1956 article by Robert H. Strotz, the revered bellwether of behavioral economics. Strotz's observations on myopia (the inconsistencies between our short- and long-run behavior) inspired Laibson to consider consumers' breakdowns of self-control. Traditional economics, for example, postulates that future intentions accurately predict future behavior: if we plan to save $1,000 by December, we will save $1,000 by December. But while intending to save, we simultaneously crave instant gratification--and achieve this by spending our income now. When the "future" becomes the present, our cravings rule.

"We plan to cut back on sweets tomorrow," Laibson says, "and then tomorrow we're given a slice of chocolate cake and we say, 'Well, just this one piece'"--so we revise our plan and decide to start the following day. This drive for instant gratification, he says, entices households to spend their cash (or liquid wealth), as well as to borrow aggressively on credit cards.

Although consumers like to spend in the short run, they also strive to build illiquid wealth, such as investments in homes and 401(k) programs which provide substantial long-run returns. "We find that households are patient in the long run, and impatient in the short run," Laibson says. "They are dynamically inconsistent."

This notion of conflicting preferences--choosing to act both patiently and impatiently--challenges traditional economics, which posits unified, consistent preferences and assumes that psychological factors are too complex to formalize into models. But Laibson argues that consumers are complicated, and that purely rational models overlook basic elements of behavior in the marketplace. In his research, he assumes that people are sophisticated enough to acknowledge their inconsistencies. "Consumers correctly predict that later selves will not honor the preference of early selves," he argues. Consequently, people adopt various strategies to save for the future. By investing heavily in assets that are difficult and costly to sell, such as homes, consumers tie up their money to forestall splurging. Illiquid assets are bulwarks against eroding will power; they are commitment devices, like scheduling a 9 a.m. appointment to keep from sleeping late--Laibson's personal technique.

"We'll never achieve a perfect model. That would be the world itself," Laibson says. "But we can build richer and richer systems to make better and better approximations of reality."

~Catherine Dupree

http://www.fundadvice.com/FEhtml/PsychHurdles/0206b.html

Lessons Learned at Harvard: Easy Solutions to Baffling Problems

by Paul A. Merriman Publisher and Editor

Late in April I had the privilege of taking part in the Sixth Conference on the Psychology of Investing at Harvard University. It left me feeling more convinced than ever of how important it is for investors to follow something other than their emotions.

This conference focused on the emotional hurdles of real-life investing. That’s my specialty, and I want to share with FundAdvice.com readers a lot of the things I learned. Consider this article a “down payment” on that promise, and watch for more insights in future articles later this year.

ULTIMATELY, MOST AMERICANS ARE NEARLY BROKE WHEN THEY RETIRE.

The conference participants included authors, money managers, academics and one of the nation’s most respected futurists. Their experience and research indicate that investors are often their own worst enemies.

I’d like to start by summarizing some of the ways that happens, based on research described by David I. Laibson, a Harvard economics professor.

Most people don’t save enough money. A survey in 1997 by Public Agenda, a nonpartisan opinion research organization in New York, found that 76 percent of the respondents believed they should be saving more money for retirement. Among those who said they believed they should be “seriously saving” for retirement, only 6 percent said they were ahead of where they should be in their plans, while 55 percent said they were behind where they ought to be. People’s financial habits are counter-productive. Here’s one example: One-third of participants in 401(k) programs are currently borrowing against their retirement savings. This debt is often described as benign because the required interest payments are made “to yourself.” But in fact, these loans carry very high risks. If the borrower changes jobs, is laid off or for any other reason stops participating in the 401(k) plan, the full balance of the loan is due immediately. Any part of the loan that is not paid off is treated by the IRS as a withdrawal subject to taxes and (except for employees who are 59½ or older) a 10 percent penalty for early withdrawal. Worse, I don’t think the majority of 401(k) borrowers understand this risk. People’s financial habits are counter-productive, Part II. Average credit card debt per household is $8,000. The average interest rate on this debt is 16 percent. Typical credit card agreements require 2 percent of the balance to be paid each month (or $20, whichever is less). Even if a household stopped making any new charges, paying off an $8,000 balance by making the minimum payments while incurring interest of 16 percent, would take more than 31 years. And in the process, that household would pay total interest of $14,104.

Ultimately, most people are nearly broke when they retire. The median U.S. household (median means half are above this figure, half are below) retires with liquid wealth of $15,000 and a net worth of $130,000. Most of that net worth is in home equity and vehicles.

All this is very sobering to anyone dedicated to helping other people help themselves.

Why does this happen on such a large scale among a population that’s one of the best-educated and most privileged in the world?

Irrational behavior

Dr. Laibson believes Americans are irrational, have only weak self-control and we are unrealistically and bountifully optimistic. I think there’s a fourth factor at work: Too many Americans are passive and just don’t want to be bothered.

Laibson says mainstream economists assume (incorrectly) that American consumers are rational beings. You can hear this assumption often in newscasts that attempt to explain economic behavior of all sorts: “In response to the deteriorating demand for labor, Americans tightened their belts and deferred purchases of durable goods.” This sounds wonderful in theory. But do you know anybody who decides whether to buy a new washing machine on the basis of economic statistics?

On the other hand, behavioral economists – and Laibson counts himself among them – believe that consumers have a lot to learn. Laibson cited a study by the U.S. Department of Education that found among a group of men and women 21 to 25 years old that:

Only 40 percent could calculate the change due to a customer after a purchase of two items. Only 20 percent could accurately read and interpret a bus schedule.

How many of these young people do you suppose can read and understand the Wall Street Journal?

Obviously, most young people don’t have a lot of incentive to learn to make change and figure out bus schedules. But even when the stakes are high, most people don’t seem to have a lot of motivation. Less than a third of Americans who are over 26 years old and have not yet retired have tried to figure out how much savings they will need in order to live comfortably in retirement.

401(k) follies

But what about people who invest regularly? Surely they must be more sophisticated about finances.

Laibson and other researchers wanted to test that notion, and they figured that an excellent way to do so is to monitor how people manage their 401(k) investments. Most such accounts give employees a range of choices so they can allocate their money between stocks, bonds and cash or the equivalent.

Investment advisors and financial columnists pay a lot of attention to how 401(k) money should be invested. But the research suggests a lot of employees don’t care very much. Laibson described a study in which employees were told how, on average, their fellow 401(k) participants had allocated their assets. Most of the workers in the study said they thought the average allocation of other workers was better than their own.

Other research indicates many employees believe all plan options are of equal value. If a plan has three stock funds and one bond fund, participants’ average allocations are typically 75 percent in equities. If a plan has only one stock fund and three bond funds, average allocations are typically only 25 percent in equities. This is not what I would call the behavior of savvy investors.

A survey of retirement plan participants by John Hancock found a startling level of ignorance. Nearly half (47 percent) believed that money-market funds are made up partly of stocks. About the same number (49 percent) thought money market funds are made up partly of bonds. Only 9 percent knew the truth: Money-market funds contain only short-term fixed-income securities.

That survey also found that only one of every four participants understood the inverse relationship between interest rates and bond prices – that when interest rates rise, bonds lose value. That is very important information for any bond investor to know, especially these days. (I am certain that after a few months of rising interest rates and falling bond prices, I’ll start hearing from investors who have no clue about what has happened to the bond funds they thought were so safe.)

Laibson cited research about taxable accounts as well. He said a typical investor with taxable assets loses three percentage points of return each year in tax payments and unnecessary transaction costs: 2 percent to taxes and 1 percent more than necessary in mutual fund management fees. Load fund investors, of course, pay much more for the privilege of owning funds.

This casual approach is enormously expensive. Laibson cited the cost of losing 3 percentage points of investment returns over 40 years. “If I invest $100,000 for 40 years, a 10 percent return per year will generate a balance of $4.5 million. If I invest $100,000 for 40 years, a 7 percent return per year will generate a balance of $1.5 million.”

“Mainstream” economists believe that consumers make careful plans and carry them out. This assumption is very convenient in an ivory tower, as it gives academics an easy tool to explain behavior. If consumers do a certain thing, that must mean they were planning to do it.

But Laibson thinks that’s a myth. Many consumers make plans. But they aren’t at all diligent about carrying them out. Instead, they give in to temptation. Laibson says Americans are so eager for instant gratification that over and over they short-change themselves. He cited a simple question that researchers often ask subjects during meetings, classes and workshops: Which would you prefer, a 15-minute break today or a 30-minute break tomorrow? Time after time, 15 minutes today is perceived as more valuable than 30 minutes tomorrow.

Here’s an interesting variation: Which would you prefer, a 15-minute break 100 days from now or a 30-minute break 101 days from now? In this case, people seem very willing to wait another day in order to get a longer break – you may have had the same immediate reaction yourself.

But in fact, the choice in these two questions is actually exactly the same: a 15-minute break one day or a 30-minute break one day later.

Overheard in the subway

I once overheard a form of this in what may be an unusually philosophical conversation between two teenage girls on a subway train in New York City. Girl A: “Would you rather be beautiful now, knowing you would gradually get ugly in later life, or would you rather be ugly now and know that you’d be beautiful later?” Girl B: “That’s easy. I’d be beautiful now.”

We make long-term plans, then undermine them with our short-term actions. For the long term, we intend to be patient and delay our gratification. We’ll quit smoking, start exercising, lose weight. Financial planners advise their clients to “save early and save often.” Baby boomers say they want to save 15 percent of their incomes.

But real life seems to get in the way. The actual median savings rate is 5 percent. The average smoker has tried to quit four times. The typical employee procrastinates about two years before enrolling in a 401(k) plan after it is offered or after the employee becomes eligible.

In a survey of 100 workers in a large company, 68 said they were saving too little money. Of those 68, 24 said they planned to increase their savings rate within three months. After three months, only three of the 68 actually did so.

MOST 401(K) PARTICIPANTS CHOSE WHATEVER INVESTMENT OPTIONS WERE THE EASIEST

Two professors found that the average cost of a one-month membership to a health club was $75. On average, members visited their clubs four times a month, meaning they were willing to pay $19 per visit. The same clubs on average charged $10 per session for pay-per-visit memberships.

Americans hold about 10 million “Christmas Club” accounts at banks, thrift institutions and credit unions. These accounts pay no interest, but they are popular because they build savings through automatic deposits from checking accounts – and even from interest-paying savings accounts.

Similarly, the majority of U.S. taxpayers get IRS refunds every year, through excess withholding from their paychecks. Workers like this “forced” savings because the money is automatically taken from their pay before it can be spent.

Garrison Keillor: “In Lake Wobegone, we believe in salting money away, not only as an investment but also to remove it as a temptation.”

Everybody’s above average

In that respect, consumers’ beliefs appear to reflect reality. But many behavioral economists, including Laibson, believe that consumers wear rose-colored glasses. We tend to be so optimistic that we fool ourselves.

When asked to compare themselves with their peers, research subjects almost always report a self-enhancing bias that reminds one of Lake Wobegone, “where all the children are above average.”

Relative to their peers, research subjects reported that in comparison to the general population, they were more intelligent, more likely to succeed at work, more likely to enjoy their job and more likely to have good marriages.

These researchers must love their jobs, since they get to meet such outstanding people!

The list goes on, with subjects reporting that compared to others they are more likely to own homes that appreciate, more likely to live beyond age 80 and more likely to make money in the stock market. In one study, 70 percent of the subjects reported that they were safer drivers than most of the population.

What Laibson calls “unbounded optimism” leads to unrealistic expectations. In 1998, the average investor expected the stock market to continue to grow 20 percent a year for the next decade. A common attitude among young people is: “My financial situation will improve in the future, so I don’t need to start saving now. I’ll do it later.”

Another case study done by Laibson and three other researchers makes me wonder how many workers even care about their 401(k) savings. The study tracked the behavior of employees in two companies that switched their 401(k) signup procedures.

In the first company, before the change, new employees could choose to sign up for the program by checking a box on a form. If they didn’t check the box, they did not participate. Only about 30 percent of the employees in the company signed up.

Then this company made a change. Now, every employee that was not in the plan was given a choice to stay out of it. But unless they actively chose against participation, they were automatically signed up. After the change, about 90 percent of the employees were in the plan.

The great majority of employees in this company took the easiest course (not checking a box), whether that resulted in not participating (before the change) or in participating (after the change). Whatever was easiest, that’s what most of them did.

INVESTORS ARE TOO OPTIMISTIC. THEY HAVE TOO LITTLE SELF DISCIPLINE. AND THEY MAKE NON-RATIONAL DECISIONS

After the change, the workers who were new to the plan could specify what percentage of their pay was saved, and how it was allocated among various investment choices. But if they didn’t check other boxes on the form, they were given the “default” arrangement of 2 percent contribution, all of it going into a money-market fund. About two-thirds of the new participants chose the default allocation, a money-market fund – a pretty poor choice for most people in a 401(k) plan.

The second company in this study, before it made a change, also allowed new employees to sign up for the plan – and those who didn’t sign up were excluded. In other words, the default choice was not to participate. Only about 30 percent of the employees had checked the box and were in the plan.

Then the company changed its forms, and all new employees had to check one box or another, to participate or not. There was no more default option. After this change, participation grew to 50 percent.

After I returned from the Harvard conference, another study of 401(k) behavior was reported that I found equally instructive.

Nebraska as a case study

The state of Nebraska did a study of its 38-year-old 401(k) system in action and pronounced it a failure, largely because of the choices made by employees. Nebraska was an innovative employer. In 1964, it started letting workers choose between staying with the state’s traditional defined-benefit pension plan or joining a new self-directed 401(k).

The state required all workers to contribute part of their pay either to the pension plan, which guaranteed retirement benefits based on salaries and length of service, or to the 401(k), which guaranteed retirees that they could direct their own courses and take their accumulated investments at retirement – while of course they received no pension.

Nebraska didn’t merely leave 401(k) participants to their own devices, as most corporate 401(k) plans do today. The state let participants take time off from work to attend daylong educational investment seminars, something that few employers do today.

Two years ago, the state studied its 401(k) system, one of the oldest in the country, and found that over the past 30 years the typical participant had an average annual return of 6 percent to 7 percent. That compared with about 11 percent annual returns that the state’s traditional pension fund managers achieved in the same time frame.

The bulk of Nebraska’s 401(k) participants did not allocate their investments successfully. Nebraska offered 11 fund choices. But 90 percent of the contributions wound up in only three funds – and half of all 401(k) money was in the default option, a low-paying guaranteed investment contract fund.

State officials began to fear they were wasting taxpayer dollars by giving matching contributions.

The result: Existing employees can stay in the 401(k) plan. But after next January, new Nebraska employees will no longer have the 401(k) plan as a choice.

Whether or not other employers follow suit, Nebraska’s experience is very sobering, especially since it spans a long time period and especially since the state went far out of its way to help employees learn to do the right things. The lesson seems to be that the majority of employees didn’t care enough to be bothered. Unfortunately, Nebraska’s experience reinforces some of the findings reported at the Harvard conference by Laibson.

Investors need an automatic pilot

At the conference, I was pleased to be able to present my answer to many of the problems that were outlined by Laibson and others. While I don’t have the academic credentials of those professors, I have a lot of hands-on experience, and I know a lot about investors and their behavior.

AUTOMATIC SAVING, AUTOMATIC TIMING AND AUTOMATIC DIVERSIFICATION ARE THE KEYS TO REAL-LIFE SUCCESS FOR MOST INVESTORS

Most of the investors I deal with are not as passive or apparently misguided as those studied by the Harvard professors. But many investors are much too optimistic. Many investors have an awful time with self-discipline. And many investors make non-rational decisions about their financial affairs. How else would you explain all the money in non-interest-bearing Christmas Club savings accounts?

Laibson offered four pieces of advice to investors: First, don’t try to pick star managers. “You won’t be the one to discover the next Warren Buffett,” he said. Instead, invest in index funds, including U.S. and international stock funds, U.S. bond funds and inflation-linked bonds. Second, don’t trade; instead, buy and hold. Third, shift your portfolio more toward bonds as you grow older. Four, avoid commission-based financial advice, which he described as “snake-oil.”

I agree with those points. But as I said in my address to the conference, they are insufficient. We already know that people who have great plans, strong intentions and clear instructions can still sabotage themselves with irrational, impulsive behavior.

Readers of this newsletter won’t be surprised at my recommendations, which appeared to impress many people at the conference. My prescriptions could be summed up in a single sentence: Make good saving and investing habits automatic.

Mechanical savings

If people lack the self discipline to set aside money every time they get paid, they can make that automatic in a variety of ways through payroll deductions or regular automatic withdrawals from their checking accounts. The money can go into a bank account, a 401(k) plan, a credit union or a mutual fund through an automatic investment plan. This is the only foolproof way to make sure you “pay yourself first.”

Mechanical diversification

No-load index funds give investors enormous diversification in cost-efficient packages. There’s no need to choose managers or pick stocks. The market does that, automatically, through index funds. These should make up the bulk of a properly diversified buy-and-hold portfolio.

Mechanical timing

I share Laibson’s view that buying and holding is far more likely to succeed than active trading. But market timing, if it is done properly, can reduce risk and improve returns over the long run. Not every investor wants or needs timing. But for those who use this approach, the only timing I practice and the only timing I advocate is mechanical timing. Mechanical systems make it unnecessary to analyze economic and market data or agonize over when to buy and when to sell. These systems are based on facts, not forecasts, and they give unambiguous buy and sell signals.

Automatic saving, automatic timing and automatic diversification can’t work miracles. They can’t make up for decades of lost time when individuals chose to spend instead of save. They can’t change the effects of bear markets.

But if they are applied with discipline and patience, they can make successful investing possible for most individuals. And they don’t require a Harvard education.

http://www.wehaitians.com/calculating%20the%20irrational%20in%20economics.html

Calculating the Irrational in Economics

By STEPHEN J. DUBNER

WHEN the Federal Reserve Bank of Boston invited the leading behavioral economists to a Cape Cod golf resort this month to make their case, it was plainly a signal moment. "It has the feeling of being summoned by the king," said Colin F. Camerer, a star behaviorist who teaches at the California Institute of Technology. "Sort of like: `I understand you're the finest lute player in the region. Will you come and play for me?' "

Until the last few years, behavioral economics — which blends psychology, economics and, increasingly, neuroscience to argue that emotion plays a huge role in how people make economic decisions — was an extremely tight-knit group. It had little influence and few practitioners. One economist at the bank's conference recalled an Alaska kayaking trip that Mr. Camerer took with another prominent behaviorist a decade ago. "If that kayak had flipped," he said, "half the field would have been eradicated."

But the field has grown, as has its influence. In 1996, Alan Greenspan's warning of "irrational exuberance" acknowledged, as the behaviorists do, that the average investor is hardly the superrational "homo economicus" that mainstream economists depict. In 2001, the young behaviorist Matthew Rabin won the John Bates Clark Medal; last fall, the psychologist Daniel Kahneman, a forefather of behavioral economics, was awarded the Nobel in economic science.

And so it was that the Boston Fed summoned the behaviorists to the Wequassett Inn in Chatham, Mass. The conference was given the quaint title "How Humans Behave," as if monetary policymakers had suddenly realized that, lo and behold, on the other end of all that policy are actual people. The collection of mainstream economists and central bankers would be the highest-level audience the behaviorists had ever enjoyed, the best chance yet for their new thinking to hit the bloodstream.

From the outset the mood was civil, especially considering that the behaviorists are essentially calling for an end to economics as we know it. (As one economist grumbled, "What you have to understand is that behavioral economics is attacking the foundation of what welfare economics is built on.") So it was not surprising that some Fed elders seemed wary, as if they were at a family reunion and welcoming a distant cousin about whom they had heard only puzzling rumors. But with the economy stuck in a condition between dismal and desperate, the behaviorists' timing could not have been better.

"All our models and forecasts say we'll see a better second half," Cathy E. Minehan, president of the Boston Fed, said in her opening address. "But we said that last year. Now don't get me wrong: mathematical models are wonderful tools. But are there ways this process can be done better? Can we inform the policymaker from 50,000 feet with wisdom gained on the ground, in the human brain, or in the way humans make decisions and organize themselves? I hope so."

Ms. Minehan and her colleagues were particularly hoping to learn why Americans save too little, acquire too much expensive debt and perform such achingly self-destructive feats of portfolio management. The behaviorists, for their part, were put in a tight spot: eager to prove themselves but leery of overpromising. "Virtually everyone doing behavioral economics agrees we should go slowly in advocating policy change," Mr. Camerer wrote in the paper he presented. "Our thinking was also not designed to precisely answer questions about welfare and policy, but this is a good time in the intellectual history of the field to say something."

Eldar Shafir, who teaches psychology and public affairs at Princeton, began with a behavioral economics primer. It was full of the anomalies the field is known for, including the popular "6 jam-vs.-24 jam" experiment. In an upscale grocery story, researchers set up a tasting booth first with 6 jars of jams, and later with 24 jars. In the first case, 40 percent of the customers stopped to taste and 30 percent bought; in the second, 60 percent tasted but only 3 percent bought. The point is that too many options can flummox a consumer — and if 24 jars of jam pose a problem, imagine what 8,000 mutual funds can do. Standard economics would argue that people are better off with more options. But behavioral economics argues that people behave less like mathematical models than like — well, people.

Among the behaviorists, there is the common sentiment that economics has been ruined by math. "Neoclassical economists came along in the mid-19th century and wanted to mathematize the new science of economics," said George Loewenstein, a professor at Carnegie Mellon University. "They couldn't include `the passions,' or emotions, in their models, because they were too unruly, too complex. But they also thought that the emotions were unknowable."

Mr. Loewenstein described how he and his colleagues want to prove otherwise — that not only are emotions not unknowable but that when it comes to money, they may be more powerful than math. This is why Mr. Loewenstein studies how people make financial choices while they are experiencing various degrees of sadness, hunger and sexual arousal. This is why Colin Camerer has become a student of brain imaging, trying to identify where a subject's brain lights up when, for instance, a lowball offer leaves him disgusted.

But the most radical idea presented at the conference belonged to Richard H. Thaler. His paper, written with the legal scholar Cass R. Sunstein, was called "Libertarian Paternalism Is Not an Oxymoron." Leonine and youthful at 57, Mr. Thaler, who teaches at the University of Chicago, is widely considered the founder of behavioral economics (and some say, its next Nobel winner). He is more confident and, accordingly, more prescriptive than his younger colleagues.

"Behavioral economics offers powerful tools to achieve policy goals," he told the conference. "And libertarian paternalism is an attractive approach to solving policy problems. What else? I think the only other alternative is inept neglect."

Mr. Thaler has concluded that too many people, no matter how educated or vigilant, are poor planners, inconsistent savers and haphazard investors. His solution: public and private institutions should gently steer individuals toward more enlightened choices. That is, they must be saved from themselves. Mr. Thaler's most concrete idea is Save More Tomorrow (SMarT), a savings plan whereby employees pledge a share of their future salary increases to a retirement account. In test cases, the plan has proved remarkably successful.

"This was not pulled out of thin air," Mr. Thaler said. "It was done using what I call first-grade psychology. We knew this was going to work, no question." Indeed, the SMarT plan takes advantage of behavioral economics' basic tenets: "loss aversion" (people fear loss because it causes them far more pain than the pleasure they receive from gain; but since the SMarT plan covers a future raise, they never feel its loss); "status-quo bias" (since people are reluctant to change, the change can be made for them); and "mental accounting" (people have a pressing need to direct different streams of money into different "accounts").

Mr. Thaler was followed by David I. Laibson, a young Harvard behaviorist who also endorsed a paternalistic approach. "There are two enormous travesties in the financial services industry," Mr. Laibson said. "One, people have too much of their own company's stock, and two, mutual-fund management fees are too high." His solution to the first problem: an automatic asset reallocation to keep an employee from holding more than 20 percent of his portfolio in company stock.

"People could opt out," he said. "If you're crazy enough to do that, fine, that's your right, but we'd certainly push them down." His solution to the second problem: warning labels about management fees, modeled after the surgeon general's cigarette warning.

Mr. Laibson's and Mr. Thaler's proposals were warmly received by the bankers and mainstream economists. If this is behavioral economics, what's not to like? The proposals seemed to be sound and not particularly invasive solutions to Americans' troubling money habits. All the earlier talk of sexual-arousal studies and brain imaging may have left them flat; but here were some real action items.

The behaviorists, most of whom are hardcore empiricists, even felt comfortable enough to declare their own research wish lists. Dan Ariely of the Massachusetts Institute of Technology trolled the room for a good contact at the Internal Revenue Service (he wants to study the psychology of tax cheats). Duncan J. Watts, a sociologist at Columbia University, half-jokingly requested access to the phone and e-mail records of all Federal Reserve employees (he is looking for good data to better understand how organizations behave).

The warm reception didn't mean wholesale conversion. When Jeffrey C. Fuhrer, the Boston Fed's chief economist, was asked about Mr. Camerer's desire for a new Economics 101 textbook, one that puts behaviorism at the center and mathematical modeling on the fringe, he responded: "Yeah, that's his `I Have a Dream' speech. I think that's still weeks off."

Still, Mr. Fuhrer, who organized the conference, was delighted with its outcome: "I think we would have been crazy to expect we'd walk out of this conference and say, `O.K., we're going to our next meeting, and now we know what to do because these guys told us.' But having had these conversations, where people look at economics from a different viewpoint, will we think a little differently about how we do research and exactly which people we might talk to? You bet we will."

They may have little choice. As Frederick S. Breimyer, chief economist of the State Street Corporation in Boston, said, "We're looking outside the box because the box we've been looking inside is empty."

Copyright 2003 The New York Times Company. Reprinted from The New York Times, Arts & Ideas, of June 28, 2003.

和9楼相关的网页：

FRBB: How Humans Behave- Papers and Presentations

http://www.bos.frb.org/economic/conf/conf48/

感谢midi51提供的更为全面的信息。波斯顿联储的工作论文以前已经下载，与此相关的好像还有加拿大央行的一个会议，可是俺一时记不起来了。等想起来在一起贴出。

哈佛经济学系的这种学科调整实际山是自身对经济学发展的一种判断。现在国内把研究行为经济学的人称为赶时髦，好像非常不正宗，不仅得不到重视，而且还经常受到嘲讽。

在这些人看来，紧跟国外20年前的研究才是正宗的，嘿嘿，还说自己经常向学生传授自己的新思想！也不知道这些人怎么想的，俺一直不明白，他们的这种自信建立在何种心理基础上？倒是想做做研究

呵呵，李稻葵老师说过————哈佛经济系诺奖获的少的原因之一就是一直在赶时髦。 当然这有利有弊。

“现在国内把研究行为经济学的人称为赶时髦，好像非常不正宗，不仅得不到重视，而且还经常受到嘲讽。”

————————呵呵，不知道国内有多少人能说的上是在“研究”行为经济学。我仅仅知道的是-----龚六堂和其一个助研（CCER毕业，今年去NYU读PHD了）写了几篇Hyperbolic Discounting方面的文章，其中有几篇还和LAIBSION本人，以及IDEI的GOLLIER等人交流过。 其实从很多方法来说，行为经济学还是比较主流的东西啊！LAIBSION本人其实在HARVARD的多数学期里开的也不是行为经济学的课程，而是高级宏观（消费理论）、动态规划。

两种想法都不太准确吧，一种是行为经济学是异端邪说，没什么前途。一种是行为经济学是“伟大”的革命，颠覆了主流经济学。

我到是觉得经济学研究有多种路数吧！ 一般均衡、理性预期、货币中性这些基准还是非常重要的。 就象LUCAS在评价PRESCOTT的研究风格时说的那样：“有时候大家想，是不是离开”动态一般均衡理论“的研究风格，换点别的。ED在别人眼里象是在走钢丝，可是他却从来没有从钢丝上掉下来。。。。。”

呵呵，弄懂20年前的东西也是一项很困难、令人骄傲的任务啊，比如SARGENT上世纪70年代到80年代中期写的《MACROECONOMIC THEORY》，不知道国内有几个人真的能讲这些书。

[此贴子已经被作者于2004-10-25 15:24:19编辑过]

广种博收吧,既要跟上时代的潮流,又需打好基础

如midi51所言，国内的确还达不到研究行为经济学的程度。从俺了解的情况看，国内研究行为经济学来自五个途径：

1、的确是赶时髦的，因为卡尼曼等拿了诺奖，才开始转向行为经济学。

2、因为行为金融的研究兴趣转向行为经济学，这群人中很多的确是从中国金融市场的异常中感到有效市场假说的乏力，才探索行为金融。当然，不排除其中赶时髦的人占一定比例。这些研究者大多活跃在各个机构的研究所。从高校来看，主要集中在夏大和上海财大。清华的朱武详对行为公司金融有研究。

3、研究宏观经济学的一些人引入雷波森等人的模型，开始探索行为经济学，比如龚六堂等人对双曲线模型的介绍和山东大学藏旭恒等人对预防性储蓄理论的介绍和研究

4、原先学心理学的转向行为经济学的，好像南京大学的李心丹是一个，中科院和社科院的心里所的一些人也在研究

5、原先研究新制度经济学的，由于受到诺思后期研究的影响，开始探索行为经济学的，这些人开始研究的时间大约在1999－2000年间，代表性的机构如北京奥尔多投资研究中心，他们在02还是03年的经济研究上发表过一篇初步成果。有机会再传上来。

以上大概就是国内的现状。从现有研究看，行为金融的部分应该讲还是进步比较大，尽管总体水平还是很低的。行为制度理论已经有一些探索，但刚刚起步。行为宏观的也是如此。其它的就比较少见了。

至于龚六堂的论文，上次在天则的讲座的确很差，而且对国外的论文引而不注。这点俺在本版已经说过。其它的论文没有见到。如果midi51有，请传上来，大家学习学习

行为经济学研究的重镇，给力啊。收藏了