Economists have long emphasized the importance of expectations in determining macroeconomic outcomes. Yet there has been almost no recent effort to model actual empirical expectations data; instead, macroeconomists usually simply assume that expectations are "rational." This paper shows that while empirical household expectations are not rational in the usual sense, expectational dynamics are well captured by a model in which households' views derive from news reports of the views of professional forecasters, which in turn may be rational. The model's estimates imply that people only occasionally pay attention to news reports; this inattention generates "stickyness" in aggregate expectations, with important macroeconomic consequences.

In this paper we examine the role of social security in an economy populated by overlapping generations of individuals with time-inconsistent preferences who face mortality risk, individual income risk, and borrowing constraints. We find that unfunded social security lowers the capital stock, output, and consumption for consumers with time-consistent or time-inconsistent preferences. However, it may raise or lower welfare depending on the strength of time inconsistency.

In six experiments we show that initial valuations of familiar products and simple hedonic experiences are strongly inuenced by arbitrary “anchors ” (some-times derived from a person’s social security number). Because subsequent valua-tions are also coherent with respect to salient differences in perceived quality or quantity of these products and experiences, the entire pattern of valuations can easily create an illusion of order, as if it is being generated by stable underlying preferences. The experiments show that this combinationof coherent arbitrariness (1) cannot be interpreted as a rational response to information, (2) does not decrease as a result of experience with a good, (3) is not necessarily reduced by market forces, and (4) is not unique to cash prices. The results imply that demand curves estimated from market data need not reveal true consumer preferences, in any normatively signicant sense of the term. Economic theories of valuation generally assume that prices of commodities and assets are derived from underlying “funda-mental ” values. For example, in nance theory, asset prices are believed to reect the market estimate of the discounted present value of the asset’s payoff stream. In labor theory, the supply of labor is established by the trade-off between the desire for con-sumption and the displeasure of work. Finally, and most impor-tantly for this paper, consumer microeconomics assumes that the demand curves for consumer products—chocolates, CDs, movies, vacations, drugs, etc.—can be ultimately traced to the valuation of pleasures that consumers anticipate receiving from these products. Because it is difcult, as a rule, to measure fundamental values directly, empirical tests of economic theory typically ex-amine whether the effects of changes in circumstances on valua-tions are consistent with theoretical prediction—for example, whether labor supply responds appropriately to a change in the wage rate, whether (compensated) demand curves for commodi-

We develop an algorithm for detecting teacher cheating that combines information on unexpected test score fluctuations and suspicious patterns of answers for students in a classroom. Using data from the Chicago public schools, we estimate that serious cases of teacher or administrator cheating on standardized tests occur in a minimum of 4–5 percent of elementary school classrooms annually. The observed frequency of cheating appears to respond strongly to relatively minor changes in incentives. Our results highlight the fact that high-powered incentive systems, especially those with bright line rules, may induce unexpected behavioral distortions such as cheating. Statistical analysis, however, may provide a means of detecting illicit acts, despite the best attempts of perpetrators to keep them clandestine.

Between 1984 and 2001, the share of nonelderly adults receiving Social Security Disability Insurance income (DI) rose by 60 percent to 5.3 million beneficiaries. Rapid program growth despite improving aggregate health appears to be explained by reduced screening stringency, declining demand for less skilled workers, and an unforeseen increase in the earnings replacement rate. We estimate that the sum of these forces doubled the labor force exit propensity of displaced high school dropouts after 1984, lowering measured U. S. unemployment by one-half a percentage point. Steady state calculations augur a further 40 percent increase in the rate of DI receipt.

We propose a boundedly rational model of opinion formation in which individuals are subject to persuasion bias; that is, they fail to account for possible repetition in the information they receive. We show that persuasion bias implies the phenomenon of social influence, whereby one's influence on group opinions depends not only on accuracy, but also on how well-connected one is in the social network that determines communication. Persuasion bias also implies the phenomenon of unidimensional opinions; that is, individuals' opinions over a multidimensional set of issues converge to a single “left-right” spectrum. We explore the implications of our model in several natural settings, including political science and marketing, and we obtain a number of novel empirical implications.

We apply an understanding of what computers do to study how computerization alters job skill demands. We argue that computer capital (1) substitutes for workers in performing cognitive and manual tasks that can be accomplished by following explicit rules; and (2) complements workers in performing nonroutine problem-solving and complex communications tasks. Provided that these tasks are imperfect substitutes, our model implies measurable changes in the composition of job tasks, which we explore using representative data on task input for 1960 to 1998. We find that within industries, occupations, and education groups, computerization is associated with reduced labor input of routine manual and routine cognitive tasks and increased labor input of nonroutine cognitive tasks. Translating task shifts into education demand, the model can explain 60 percent of the estimated relative demand shift favoring college labor during 1970 to 1998. Task changes within nominally identical occupations account for almost half of this impact.

This paper studies whether agents must agglomerate at a single location in a class of models of two-sided interaction. In these models there is an increasing returns effect that favors agglomeration, but also a crowding or market-impact effect that makes agents prefer to be in a market with fewer agents of their own type. We show that such models do not tip in the way the term is commonly used. Instead, they have a broad plateau of equilibria with two active markets, and tipping occurs only when one market is below a critical size threshold. Our assumptions are fairly weak, and are satisfied in Krugman's model of labor market pooling, a heterogeneous-agent version of Pagano's asset market model, and Ellison, Fudenberg, and Möbius' model of competing auctions.

Although forests have diminished globally over the past 400 years, forest cover has increased in some areas, including India in the last two decades. Aggregate time-series evidence on forest growth rates and income growth across countries and within India and a newly assembled data set that combines national household survey data, census data, and satellite images of land use in rural India at the village level over a 29-year period are used to explore the hypothesis that increases in the demand for forest products associated with income and population growth lead to forest growth. The evidence is consistent with this hypothesis, which also shows that neither the expansion of agricultural productivity nor rising wages in India increased local forest cover.

What motivated men to risk death in the most horrific war in U. S. history when pay was low and irregular and military punishment strategies were weak? In such a situation creating group loyalty by promoting social capital is of paramount importance and in the Civil War was the cement of both armies. We find that individual and company socioeconomic and demographic characteristics, ideology, and morale were important predictors of group loyalty in the Union Army. Company characteristics were more important than ideology or morale. Soldiers in companies that were more homogeneous in ethnicity, occupation, and age were less likely to shirk.