Beneficial safety decreases

We construct a model of rational choice under risk with biased risk judgement. On its basis, we argue that sometimes, a regulator aiming at maximising social welfare should affect the environment in such a way that it becomes ‘less safe’ in common perception. More specifically, we introduce a bias into each agent’s choice of optimal risk levels: consequently, in certain environments, agents choose a behaviour that realises higher risks than intended. Individuals incur a welfare loss through this bias. We show that by deteriorating the environment, the regulator can motivate individuals to choose behaviour that is less biased, and hence realises risk levels closer to what individuals intended. We formally investigate the conditions under which such a Beneficial Safety Decrease—i.e. a deteriorating intervention that has a positive welfare effect—exists. Finally, we discuss three applications of our model.     

Does product complexity matter for competition in experimental retail markets?

We describe a first experiment on whether product complexity affects competition and consumers in retail markets. We are unable to detect a significant effect of product complexity on prices, except insofar as the demand elasticity for complex products is higher. However, there is qualified evidence that complex products have the potential to induce consumers to buy more than they would otherwise. In this sense, consumer exploitability in quantities cannot be ruled out. We also find evidence for shaping effects: consumers’ preferences are shaped by past experience with prices, and firms may in principle exploit this to sell more.     

An Experimental Test of the Effects of Fictional Framing on Attitudes*

Objectives. Most studies of media effects in political communication focus on news media. A smaller body of work extends theories of news media effects to fictional entertainment media. Just as news media engage in priming and agenda setting, these studies suggest that fictional media do as well. In this study, we deal with fictional media's framing of issues. No research has sought to test the effects of framing in explicitly fictional media on political opinions. We develop the outlines of a theory we call “fictional framing” and test it in an experiment. Methods. Participants in our treatment group watched the film Cider House Rules. The movie frames the issue of abortion in the case of incest in a pro‐choice way, and frames morality in terms of following one's own conscience. Results. The film influenced opinions in ways consistent with the framing of these issues. Conclusions. Since abortion opinions and moral values tend to be entrenched, we consider this a strong first test of the effects of fictional framing.     

Digit ratios (2D:4D) as predictors of risky decision making for both sexes

Many important decisions involve financial risk, and substantial evidence suggests that women tend to be more risk averse than men. We explore a potential biological basis of risk-taking variation within and between the sexes by studying how the ratio between the length of the second and fourth fingers (2D:4D) predicts risk-taking. A smaller 2D:4D ratio has been linked to higher exposure to prenatal testosterone relative to estradiol, with men having lower ratios than women. In financially motivated decision-making tasks, we find that men and women with smaller 2D:4D ratios chose significantly riskier options. We further find that the ratio partially explains the variation in risk-taking between the sexes. Moreover, for men and women at the extremes of the digit-ratio distribution the difference in risk-taking disappears. Thus, the 2D:4D ratio partially explains variation in financial risk-taking behavior within and between sexes and offers evidence of a biological basis for risk-taking behavior.     

A Diamond-Stiglitz approach to the demand for self-protection

The existing research concerning the relationship between risk aversion and prudence and the demand for self-protection assumes that the loss variable follows a Bernoulli distribution, and that changes in the level of self-protection are mean preserving. The analysis here replaces these two very strong conditions with ones which are more general. When doing this, the method of analysis is also significantly modified. This modification includes representing a change in the level of self-protection using the procedure developed by Diamond and Stiglitz (Journal of Economic Theory 8:337-360, 1974) for representing a change in risk. This alternate representation allows the existing findings to be generalized considerably, and also simplifies the analysis.     

Two-sided intergenerational moral hazard,long-term care insurance,and nursing home use

Two-sided intergenerational moral hazard occurs (i) if the parent’s decision to purchase long-term care (LTC) coverage undermines the child’s incentive to exert effort because the insurance protects the bequest from the cost of nursing home care, and (ii) when the parent purchases less LTC coverage, relying on child’s effort to keep him out of the nursing home. However, a “net” moral hazard effect obtains only if the two players’ responses to exogenous shocks fail to neutralize each other, entailing a negative relationship between child’s effort and parental LTC coverage. We focus on outcomes out of equilibrium, interpreting them as a break in the relationship resulting in no informal care provided and hence high probability nursing home admission. Changes in the parent’s initial wealth, LTC subsidy received, and child’s expected inheritance are shown to induce “net” moral hazard, in contradistinction to changes in child’s opportunity cost and share in the bequest.     

Religious affiliation and Hispanic health in Utah

Two research hypotheses are addressed in this study. (1) Do health trajectories of Hispanics in Utah differ from what has been documented in states with longstanding large Hispanic populations? (2) Do non-Mormon groups in Utah have less favorable health status than Mormons in Utah? This study employs three health outcome measures: activity limitations caused by emotional problems, activity limitations caused by physical problems, and self-rated health status using the 2001 Utah Health Status Survey. Comparisons of Hispanics in their traditional settings within the U.S. generally show more favorable health status for Hispanics than for whites. We find little difference in health status between Hispanics in Utah and their Anglo counterparts. Hispanics were more likely than Anglos to have “a little” activity limitation due to physical problems, but were not more likely to report “a little” or “considerable” activity limitations due to emotional or physical problems. Hispanics and Anglos were statistically equal in probability of self-reported fair to poor health. Important in relation to studies outside of Utah, we find little support for the epidemiologic paradox, the usual finding of more favorable health for Hispanics than for whites. As with ethnicity, we find little difference between non-Mormon and Mormons with respect to health. The most notable exception is that Mormon Hispanics are at a significantly greater risk of emotional problems than Catholic Hispanics in Utah.     

Policy relevant heterogeneity in the value of statistical life: New evidence from panel data quantile regressions

We examine differences in the value of statistical life (VSL) across potential wage levels in panel data using quantile regressions with intercept heterogeneity. Latent heterogeneity is econometrically important and affects the estimated VSL. Our findings indicate that a reasonable average cost per expected life saved cut-off for health and safety regulations is 7 million to7 million to 8 million per life saved, but the VSL varies considerably across the labor force. Our results reconcile the previous discrepancies between hedonic VSL estimates and the values implied by theories linked to the coefficient of relative risk aversion. Because the VSL varies elastically with income, regulatory agencies should regularly update the VSL used in benefit assessments, increasing the VSL proportionally with changes in income over time.