Observations on happiness, biases and preferences

This year’s Australian Conference of Economists had a few behavioural/experimental economists among the invited speaker list. This post is a short record of some of the main things I took away from their presentations (which is not necessarily the focus of the presentation).

From Andrew Clarke: Ignore cross-country comparisons of happiness. The word happiness (or whatever term is intended to capture it) is ambiguous enough in survey questions without the added complications of language translations and cross-cultural interpretation.

From Glenn Harrison: Don’t rest on the work done by Kahneman and other behavioural psychology pioneers. Go out and test these biases to ensure that they hold up in incentivised environments. Don’t gives biases a name until they have a theoretical basis - otherwise we are giving too much weight to poorly tested and considered observations. Do decent, robust econometric analysis (some of the examples Harrison gave of work published in high-ranking journals was embarrassing).

From Graham Loomes: Considering preferences as probabilistic and not deterministic (that is, “I will choose the first alternative X per cent of the time”) can shed light on some observations such as preference reversals.

From Robert Sugden (author of one of my favourite papers): Behavioural economists have taken on every challenge thrown down by those who believe in rational choice. Almost every “rational” explanation for these biases has tested and they almost never explain the anomaly, even if they are partially “true”. For example, using the income effect to explain differences between willingness-to-pay and willingness-to-accept explains only a fraction of the observed disparity (this was more from a panel session than Sugden’s main presentation).