Economics Insights @ CBS

The psychological research is clear: bad events affect us much more powerfully than good events. So it stands to reason that burdens weigh more heavily upon our decision processes than do benefits. Negotiations that center around burdens can pose psychological hazards for negotiators — contentiousness, clouded judgment, suspicion, and a diminished understanding of their own interests. The result? A smaller pie of resources, for one thing. Here is a guide to help you avert the dangers.

Friedman's contribution to the consumption literature goes well beyond the seminal permanent-income hypothesis. He conjectured that the marginal propensity to consume out of financial wealth shall be larger than out of "human wealth," the present discounted value of future labor income. I present an explicitly solved model to deliver this widely-noted consumption property by specifying that the conditional variance of changes in income increases with its level.

Valuation models are useful tools, but they need to be handled with care. When taking the form of mathematical formulas, they can easily be made to convey a false sense of precision. In particular, selective choice of long-term growth rates and discount rates can be used to justify almost any desired valuation.

The authors argue that high self-monitors may be more sensitive to the status implications of social exchange and more effective in managing their exchange relations to elicit conferrals of status than low self-monitors. In a series of studies, they found that high self-monitors were more accurate in perceiving the status dynamics involved both in a set of fictitious exchange relations and in real relationships involving other members of their social group.