Inaugural Issue of New Journal Edited by Dr. Barkley Rosser Published

“The man is happiest whose wife’s sister’s husband makes less money than he does,” says Economist Robert Frank, whose paper “Expenditure Cascades” appears in the inaugural issue of the Review of Behavioral Economics (ROBE). 

The term expenditure cascade already has a Wikipedia entry. Frank and his theory have been cited in other scholarly papers more than 50 times as well as numerous times in the media.

In the paper, Frank discusses what makes people happy. He believes in the real world, happiness is determined by how people compare their situations to those of other people. Much of this has to do with one’s reference point – who are you comparing yourself to.

When one’s reference person spends a lot of money, it compels others to spend money, trickling down through a number of social networks, thus the expenditure cascade.

Studying this economic behavior is part of the realm of behavioral economics.

Educating people about the role of behavioral economics in today’s world is one goal of the newly created and released ROBE.  Dr. J. Barkley Rosser, Jr., Professor of Economics and Kirby L. Cramer, Jr., Professor of Business Administration, is the editor-in-chief of the quarterly publication.

In a narrow view, behavioral economics is the intersection between psychology and conventional economics.  It studies the effects of outside influences on the economic decisions of individuals and institutions and the consequences for market prices, returns, and resource allocation.

Conventional economics assumes people behave in a rational way when they make decisions. It also assumes people:

• know what their preferences are,
• are consistent,
• have good information about the economic environment,
• can calculate when they make economic decisions,
• and they can rank things and make decisions that are optimal for themselves

The traditional view is that people are selfish; they simply want to maximize their profits, happiness, or satisfaction. Psychologists, on the other hand, study how people actually behave,concluding that people aren’t rational.  

Behavioral economics concentrates on studying the implications of economic behavior occurring as a result of the fact that people are not perfectly rational. Even when they are rational, they aren’t completely self-regarding.  They care about other people. They have someone else’s utility in their “utility function,” or personal satisfaction.

Herbert Simon, the father of behavioral economics and Nobel Prize winner, coined the terms bounded rationality and satisficing. He believed people had imperfect information and inability to calculate, or bounded rationality. Even for very intelligent, well educated people, it’s difficult to gather together all the information necessary to make a rational decision.

Satisficing refers to aiming for a target level of profit, not necessarily maximizing profits. Managers are trying to reach an optimal level that will satisfy themselves and their bosses in terms of profits.

Behavioral economics has become more popular over the past several years. Rosser felt that there was a niche place for ROBE. Prior to this editorial position, he had edited the Journal of Economic Behavior in Organizations, JEBO. He stepped down from editing JEBO in 2010, after advancing the journal to #19 out of 1,100 economic journals in the world.

He says, “I didn’t initiate ROBE. Actually, I was approached by Zac Rolnik, entrepreneur and publisher, at an American Economics Association and Allied Social Science Association meeting two years ago. He encouraged me to take on the role of founding editor for this new publication.”

When asked why the journal was important, Rosser explains, “We don’t want to have another giant crash that destroys the world’s economy like we did in 2008. To the extent that policy makers understand how people behave, in things like financial markets and so on, maybe we can make sure that we don’t do certain things that let things happen like that. Behavioral economics is very important. This journal has a niche. We are going to cover certain things that other journals don’t cover.”

Some of the well-known economists in the inaugural issue include:

• Bart Wilson and Vernon Smith, “Fair and Impartial Spectators in Experimental Economic behavior”
• Thorsten Chmura, Sebastian J. Goerg and Reinhard Selten, “Generalized Impulse Balance: An Experimental Test for a Class of 3 x 3 Games”
• Robert Frank, Adam Seth Levine and Oege Dijk, “Expenditure Cascades”
• Nassim Taleb and Constantine Sandis, “The Skin In The Game Heuristic for Protection Against Tail Events”

Both Vernon Smith and Reinhard Selten are Nobel Prize winners. Dr. Smith visited JMU in December and presented “Adam Smith’s Humanomics: From Propriety and Sentiments to Property and Wealth.”  Nassim Taleb is author of the bestselling book, The Black Swan.

Rosser notes, “This first issue is a smash hit. These are very good papers by very well-known people. ROBE fills a niche. It could be the journal that’s both heterodox and respected.”

He adds, “I do have the ability to attract good heterodox articles, and make judgments on their intellectual appeal. I was known for publishing unusual, innovative papers while at JEBO.”