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PhD Defense Mr. V.H. Gonzalez Jimenez, MSc

Title: On the Psychological Motives of Economic Performance
Supervisor: Prof. C.N. Noussair
Co-supervisor: Dr. P.D. Dalton

The topic of this dissertation is the influence of psychological and social factors on the individual’s motivation to pursue economic outcomes. Specifically, I study how emotionsand cognitive biases influence economic success and how social factors that are external to the individual, such as being in the state of poverty, affect this relationship.

The motivation of this subject stems from the scandalous poverty rates in developing countries, as well as the dramatic rise in income inequality in some of the most advancedeconomies (Piketty, 2014; Piketty and Saez, 2014, 2006, 2003; United Nations, 2015).

Notwithstanding the efforts to palliate these phenomena in the last 70 years, poverty rates persist over time and the social mobility rates in advanced economies are decreasing (TheWorld Bank, 2013; Chetty et al., 2014; Bourguignon and Sundberg, 2007; Easterly, 2007). This denotes a profound need for alternative and more effective redistributive policies. This thesis is an effort to understand alternative mechanisms through which poverty and income inequality manifest and persist. Particularly, those that underscore the role of the psychological states induced by these phenomena, and their harmful influence on the individual’s economic success in life. The existence of a mechanism whereby emotions and psychological biases alone are able to lock the individual in poverty contradicts standard economic theory, inasmuch as the market outcomes may not be a reflection of the individual preferences and beliefs, but instead are contextual-based.

Throughout the chapters contained in this dissertation, I demonstrate that including more realistic underpinnings about the decision-maker’s behavior, based on psychologicalresearch, guarantee the existence of the aforementioned mechanism. This implies that the traditional redistributive policies of market (de) regulation, may be insufficient, and that policies and institutions that help consumers and investors to overcome some of their behavioral and emotional shortcomings are urgently needed.

Chapters 2 and 3 study the psychological effects of poverty and low social status and their influence on an individual?s attainment and performance. The main message of thesechapters is that disadvantaged individuals may exhibit suboptimal economic performance due to the psychological component associated to their position in the society, rather than for their own abilities or their material constraints.

Chapters 4 and 5, focus on solutions to the problem that poverty and inequality may persist may means of psychological states. I focus on how to motivate the individual using incentive schemes that motivate the individual. The idea is to design cost-efficient contracts whose novelty does not rely on the monetary incentives that they deliver, but on their capacity to use the individual?s psychological biases at the benefit of the employer. I envision these contracts as policy instruments used by governments and firms to improve the motivation of disadvantaged individuals.

The contract studied in Chapter 4 features the formation of reference points by means of a self-chosen production threshold. This contract takes advantage of the psychologicalloss that the individual feels from falling short of her target. The contract studied in Chapter 5, exploits the regularity that individuals overweight small probabilities. A random performance evaluation featuring different frequency evaluations is implemented. These two incentives schemes deliver higher economic outcomes, than standard pay-for-performance contracts.

The methodology used in this dissertation, combines applied economic theory, laboratory experiments, and survey data. I use applied theory to predict the behavior of individualsunder the situation of disadvantage and under different contracts. I use both psychological and standard economics assumptions about the behavior of these individuals. The results under both sets of assumptions are evaluated in a controlled laboratory environment. In Chapter 2 survey evidence is used to motivate the problem, the stage of laboratory experiments, and to gain external validation.


References

Bourguignon, F. and Sundberg, M. (2007). Aid Effectiveness : Opening the Black Box. The American Economic Review, 97(2):316–321.

Chetty, R., Hendren, N., Kline, P., and Saez, E. (2014). Where is the Land of Opportunity?

The Geopgraphy of Intergenerational Mobility in the United States. Quarterly Journal of Economics, 129(November):1553–1623.

Easterly, W. (2007). Was Development Assitance a Mistake? The American Economic Review, 97(2):328–332.

Piketty, T. (2014). Capital in the Twenty-First Century. Harvard University Press.

Piketty, T. and Saez, E. (2003). Income Inequality in the United States. The Quarterly Journal of Economics, CXVIII(February):1–39.

Piketty, T. and Saez, E. (2006). The evolution of top incomes: A historical and international

perspective. American Economic Review, 96(1953):200–205.

Piketty, T. and Saez, E. (2014). Income inequality in Europe and the United States,.

344(6186).

The World Bank (2013). End Extreme Poverty and Promote Shared Prosperity. Technical
report.
United Nations (2015). The Millennium Development Goals Report. Technical report.

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Location: Cobbenhagen building, Auditorium (access via Koopmans building)


Order the PhD thesis









When: 08 December 2017 10:00

Where: Route description Tilburg University campus