Welcoming Remarks
Eric S. Rosengren, President and Chief Executive Officer, Federal Reserve Bank of Boston

Session 1: Behavioral Aspects of Price Setting

Author: Julio J. Rotemberg (Professor, Harvard Business School)
Discussants: Jonas D.M. Fisher (Economic Advisor, Federal Reserve Bank of Chicago) and John Leahy (Professor of Economics, New York University)

In standard economic models, consumers react to price changes by recalculating their optimal consumption bundles and methodically adjusting their purchase decisions. But consumers may react to prices in ways that are more complex than standard models assume. Consumers may regret facing new prices that are higher than past prices, and they may get angry at firms that charge prices they view as unfair. Moreover, consumers may fail to take full advantage of all price information when calculating their optimal consumption bundles. A theory based on these three psychological premises may provide an explanation for recent microeconomic evidence on price changes, which has been hard to reconcile with existing theories of price stickiness. A psychological dimension to price reactions may also explain consumer support for laws against “price gouging” and for monetary policies that promise low inflation.

Session 2: Household Saving Behavior: The Role of Literacy, Information and Financial Education Programs

Author: Annamaria Lusardi (Professor of Economics, Dartmouth College)
Discussants: Alan S. Blinder (Gordon S. Rentschler Memorial Professor of Economics, Princeton University) and David I. Laibson (Professor of Economics, Harvard University)

Individuals are increasingly in charge of their own financial security after retirement. But has “financially literacy” among individuals risen to match their increased responsibilities? How often are savers uninformed about the most fundamental components of saving plans, and how often do individuals fail to plan for retirement entirely? Aware of these issues, government agencies and private employers have sponsored initiatives to promote financial literacy and savings, but which programs work best? Given the increased complexity in financial instruments, what can be done to promote saving and individual well-being?

Session 3: Fairness and the Labor Market

Author: Ernst Fehr (Director, Institute for Empirical Research, University of Zurich and MIT), Lorenz Goette (Senior Economist, Federal Reserve Bank of Boston), and Christian Zehnder (Postdoctoral Fellow, Harvard Business School)
Discussants: George P. Baker (Herman C. Krannert Professor of Business Administration, Harvard Business School) and John List (Professor of Economics, University of Chicago)

Economists have traditionally shied away from conceptions of “fairness” in labor markets, despite evidence that employees view fair treatment (however defined) as an important part of the employment bargain. How can labor-market models be changed to reflect the way that perceptions of fairness might affect the labor market? Do perceptions of what is fair help explain the stickiness of wages, relative to employment, over the business cycle

Session 4: Behavioral Economics and the Housing Market

Author: Christopher J. Mayer (Paul Milstein Professor of Real Estate, Finance and Economics Division, Columbia University Graduate School of Business) and Todd M. Sinai (Associate Professor of Real Estate, Wharton School, University of Pennsylvania)
Discussants: Andrew Caplin (Professor and Co-Director Center for Experimental Social Science, NYU) and Robert J. Shiller (Stanley B. Resor Professor of Economics, Yale University)

The housing market is of particular interest to both behavioral economists and policymakers. Behavioral models have linked housing prices to loss aversion on the part of sellers as well as speculative mania on the part of buyers. For policymakers, understanding the linkages between the housing market and the wider economy proved critical for forecasting output growth in 2006 and 2007. This session will explore whether policymakers need behavioral tools to understand housing. Can we make sense of this market using standard theories of asset prices and investment? Or does “psychology” come into play?

Dinner (Harborview Dining Room, 31st Floor)

Session 5: Should Central Banks Maximize Happiness?

Authors: Rafael Di Tella (Joseph C. Wilson Professor of Business Administration, Harvard Business School) and Robert MacCulloch (Chair in Economics, Imperial College, London)
Discussants: Alan B. Krueger (Bendheim Professor of Economics and Public Affairs, Princeton University) and N. Gregory Mankiw (Robert M. Beren Professor of Economics, Harvard University)

The Congressional mandate of the Federal Reserve is to pursue both price stability and full employment. But how should trade-offs between volatility in inflation and unemployment be viewed in the light of recent research on the determinants of individuals’ life satisfaction?

Break

Session 6: Panel Discussion: “Behavioral Economics and Economic Policy in the Past and Future”

Panelists: James M. Poterba (Department Head, Economics Department, MIT), Lawrence H. Summers (Charles W. Eliot University Professor and former President, Harvard University), and Janet L. Yellen (President, Federal Reserve Bank of San Francisco),

This panel will discuss the impact of behavioral economics on policy to date, and sketch out the next, necessary steps for behavioral research to achieve before affecting policy more widely.