Research  

(Last updated 08/13)

Health and Labor Economics:

The Health Consequences of Retirement  (PDF - forthcoming in the Journal of Human Resources)

This paper examines the impact of retirement on individuals' health. Declines in health commonly compel workers to retire, so the challenge is to disentangle the simultaneous causal effects. The estimation strategy employs an instrumental variables specification. The instrument is based on workers' self-reported probabilities of working past ages 62 and 65, taken from the first period in which they are observed. Results indicate that the retirement effect on health is beneficial and significant. Investigation into behavioral data, such as smoking and exercise, suggests that retirement may affect health through such channels; with additional leisure time, many retirees practice healthier habits.

Diet or Exercise? Evidence from Body Mass Index of U.S. Immigrants (with Sukanya Basu - PDF updated 07/13 - submitted)

We investigate the factors behind the well-documented unhealthy Body Mass Index (BMI) assimilation of immigrants as they continue to reside in the United States. Controlling for a range of economic, demographic, and behavioral characteristics, we find that immigrants' consumption of fatty foods was lower upon entry and increases with their duration of stay. The contribution of fats to immigrant BMI increases is significant. On the other hand, immigrants tend to be less physically active, both at work and leisure, at the time of arrival compared to natives, but they increase such activity with years of residency. There are possible price responses to low-cost-lower-nutrition foods, since we find that the poorer income quartiles increase their consumption of fats more. Viewing immigrant assimilation patterns as a type of “natural experiment,” we conclude that diet is more central to Americans’ weight-related health.

Applied Behavioral Finance:

Does Everyone Accept a Free Lunch? Decision Making Under (almost) Zero Cost Borrowing (with James Compton and Pamela Schmitt - PDF - forthcoming in Research in Experimental Economics, vol. 16)

We examine decision making by a group of college students who have the opportunity to take out a sizable, very low-interest, non-credit dependent loan which, if simply invested in low-risk assets, would effectively yield a free lunch in net interest earnings. We exploit this natural experiment to study the characteristics of those willing and unwilling to take the loan. We characterize the latter as debt averse, and for those who accept the loan, we also consider whether they anticipate repaying it early. In particular, we use simple linear and non-linear binary choice models to explore how these two decisions relate to individual and family demographics as well as socio-economic characteristics, personality traits (as measured by the Myers-Briggs Type Indicator), cognitive ability (as measured by the Cognitive Reflection Test), and intellectual ability (as measured by SAT scores and grade point average). We find no consistent relationships between debt aversion and intellectual ability or gender. Individuals willing to accept the loan tend to have prior debt, longer planning horizons, come from middle-income families, and may have higher cognitive ability.

“Open Line of Credit:” Under No Borrowing Constraints, How Do Young Adults Invest? (with James Compton and Pamela Schmitt - new version coming soon)

Students at the United States Naval Academy have the opportunity to take a “Career Starter Loan.” Two military-oriented banks provide these loans exogenously at a low interest rate that does not depend on individual credit scores. Using survey data, this paper examines investment behavior in relation to risk profiles, self-reported planning horizons, and other individual characteristics. The data offers novel insights into the investment behavior of college-aged individuals, an infrequently studied group in behavioral finance. Simple OLS and Tobit models reveal that: (1) cognitive ability is strongly and positively associated with more investment and riskier choices; (2) demographic background characteristics relate to investment behavior, as respondents from wealthier backgrounds invest more and with more risk; (3) individuals with superior financial literacy tend to invest more, typically in equity markets; (4) personality traits, such as the Myers-Briggs Type Indicator and planning horizon length, can also predict investment behavior. Lastly, we explore a notion of “investment exuberance” to see which factors might relate to young investors’ confidence in their choices.

Housing and Neighborhood Choice:

Did the Pursuit of Good Schools Contribute to the U.S. Housing Bubble? (with Kurtis Swope - PDF updated 08/13 - submitted)

Using data from the American Housing Survey 2001-2009, we find that households’ expenditures for homes in neighborhoods with self-identified “good schools” and the resulting mortgage-to-income ratios for such households rose during the key bubble period relative to the periods before and after the bubble. This pattern persists after conditioning on a variety of household, demographic, and socioeconomic controls. Most notably, difference in differences models and propensity score matching techniques provide evidence that the pursuit of good schools contributed to the housing bubble.