Incorporating subjective and psychometric measures into economics: issues and applications
Professor Liam Delaney
The use of subjective and psychometric scales is becoming increasingly common in economics and offers a key point of intersection between economics and psychology. Such measures can be used in many different designs, including studies that seek to explain an important variable measured by self-report (such as health or well-being) or studies that seek to use self-reported variables as explanatory variables. This course outlines a number of key features that need to be taken into account when using self-reported or subjective measures in economic applications.
Firstly, we examine survey design and the principles for sound construction of survey measures. Secondly, we examine basic linear and non-linear econometric methods for the analysis of survey data. Thirdly, we examine the use of subjective measures as dependent variables in standard regression designs. In particular, we consider the problem of differential item function, namely what happens when respondents to survey questions use different criteria for judging what the question means (King et al., 2004). We consider the use of anchoring vignettes and hierarchical regression models to take into account these errors. Finally, we examine the incorporation of self-reported and subjective measures in economic studies as explanatory variables explaining outcomes such as health and education.
A recent literature (e.g. Borghans, Heckman, Duckworth and ter Weel, 2008) has examined how to integrate constructs from psychology into understanding economic outcomes. This literature is rapidly becoming one of the major areas in fields such as health economics and education economics. However, there are many issues with using variables such as personality in econometric functions. We examine new statistical designs for incorporating such measures.
1. Survey Design and Economics
(i) Butz & Torrey (2006), Some frontiers in social science, Science
(ii) Tourangeau, Rips, & Rasinski (2000), The Psychology of Survey Response, Cambridge University Press.
2. Econometric Methods
(i) Baltagi (2008), Econometric Analysis of Panel Data
(ii) Wooldridge (2010), Econometric Analysis of Cross Section and Panel Data
3. Subjective Measures as Dependent Variables
(i) Daly, Delaney, Doran, Harmon & MacLachlan (2010), Naturalistic monitoring of the affect-heart rate relationship: A Day Reconstruction Study, Health Psychology
(ii) Ferrer-i-Carbonel & Frijters (2004), How important is methodology for the estimates of the determinants of happiness, Economic Journal
(iii) Frijters & Aydogan (2008), Robustness in health research: do differences in health measures, techniques, and time frame matter?, Journal of Health Economics
(iv) Hsee, Hastie & Chen (2008), Hedonomics:Bridging decision research with happiness research, Perspectives on Psychological Science
(v) Hsee, & Hastie (2006), Decision and experience: Why don't we choose what makes us happy?, Trends in Cognitive Sciences
(vi) Kahneman, Krueger, Schkade, Schwarz & Stone (2004), Would you be happier if you were richer?, Science
(vii) Kahneman, Krueger, Schkade, Schwarz & Stone (2006), Day Reconstruction Method, Science
4. Differential Item Functioning
(i) Bago d’Uva, Van Doorslaer, Lindeboom & O’Donnell (2008), Does reporting heterogeneity bias the measurement of health disparities?, Health Economics
(ii) Bago d’Uva, O O'Donnell, & van Doorslaer (2008), Differential health reporting by education level and its impact on the measurement of health inequalities among older Europeans, International Journal of Epidemiology
(iii) Lindeboom & van Doorslaer (2004), Cut-point shift and index shift in self reported health, Journal of Health Economics
(iv) Kapteyn, Smith & Van Soest (2007), Vignettes and self-reported work disability in the US and the Netherlands, American Economic Review
(v) King, Murray, Salomon & Tandon (2004), Enhancing the Validity and Cross-cultural Comparability of Measurement in Survey Research, American Political Science Review
(vi) Van Soest, Delaney, Harmon, Kapteyn & Smith (2011), Validating the use of anchoring vignettes for the correction of response scale differences in subjective questions, Journal of the Royal Statistical Society
5. Subjective Measures as Independent Variables
(i) Borghans, Duckworth, Heckman, & ter Weel (2008), The Economics and Psychology of Personality Traits, Journal of Human Resources
(ii) Cunha, Heckman, & Schennach (2010), Estimating the Technology of Cognitive and Noncognitive Skill Formation, Econometrica
(iii) Daly, Delaney & Harmon (2009), Psychological and Biological Foundations of Time Preference, Journal of the European Economic Association
(iv) Dohmen, Falk, Huffman & Sunde (2010), Are Risk Aversion and Impatience Related to Cognitive Ability?, American Economic Review
(v) Dohmen, Falk, Huffman, Sunde, Schupp & Wagner (2011), Individual Risk Attitudes: Measurement, Determinants, And Behavioral Consequences, Journal of the European Economic Association
(vi) Heckman (2012), The developmental origins of health, Health Economics