Behavioral
Behavioral Economics
- Note* Just so that everyone is aware, no one told me you were changing the plans for our group, so I will not have this done by the time we meet tomorrow. I will work on it over the weekend though. I printed out everything other groups have done in this field for us to go through and truly discuss. Hopefully that'll help. -Sharyn 10/31/07 5:11p
The five neutralities discussed by Akerlof are (everyone should pick one of these, but Professor McPhail does not agree with most of Ricardian equivalence, so maybe we should eliminate that):
1. The independence of consumption and current income (KATIE)
2. The independence of investment and finance decisions (Eli)
3. Inflation stability only at the natural rate of unemployment
4. The ineffectiveness of macro-stabilization policy with rational expectations
5. Ricardian equivalence
Akerlof addresses the neutrality of consumption and current income. Keynes argues that an individual will make economic decisions based on current income. However, Akerlof's research suggests that an individual will consider other things occurring in their lives, also.
Consumption responds to income because:
1. Sociology argues that consumption is determined by what people believe they should consume, whether these are qualified as entitlements or as obligations, and current income can be an entitlement or an obligation.
2. Sociologists also say that consumption is largely dictated by social expectations, and what people believe they are expected to do, and what they aspire to be.
3. Entitlements are when people believe they have earned something special, after working for a while. Obligations are when people feel pressured to spend, according to the standards in their social circle.
