While we find that risk attitudes fully converged in the second decade of reunification, it will take at least one generation for social trust and possibly much longer for perceived cooperativeness to converge.
That is from a new published paper titled "A Different Look at Lenin’s Legacy: Social Capital and Risk Taking in the two Germanies" by Heineck & Süssmuth (Journal of Comparative Economics, March 2013). A draft is here.
Prospect theory, first described in a 1979 paper by Daniel Kahneman and Amos Tversky, is widely viewed as the best available description of how people evaluate risk in experimental settings. While the theory contains many remarkable insights, it has proven challenging to apply these insights in economic settings, and it is only recently that there has been real progress in doing so. In this paper, after first reviewing prospect theory and the difficulties inherent in applying it, I discuss some of this recent work. It is too early to declare this research effort an unqualified success. But the rapid progress of the last decade makes me optimistic that at least some of the insights of prospect theory will eventually find a permanent and significant place in mainstream economic analysis. [A good video explaining prospect theory is here].
That is Nicholas Barberis in a new working paper (November 2012), "Thirty Years of Prospect Theory in Economics: A Review and Assessment."
He concludes:
Even prospect theory’s most ardent fan would concede that economic analysis based on this theory is unlikely to replace the analysis that we currently present in our introductory textbooks. It makes sense to teach students the fundamental concepts of economics using a traditional utility function, not least because this is simpler than using prospect theory. Indeed, while Mankiw’s best-selling undergraduate economics textbook devotes part of a chapter to behavioral economics, it makes no specific mention of prospect theory anywhere in its 900 pages. However, as prospect theory becomes more established in economics, a reasonable vision for future textbooks is that, once they complete the traditional coverage of some topic – of consumer behavior, say, or of consumption-savings decisions, industrial organization, or labor supply – they will follow this with a section or chapter that asks: Can we make more sense of the data using models that are based on psychologically more realistic assumptions? I expect prospect theory to figure prominently in some of these, as yet unwritten, chapters.
In this paper, we explore the extent to which marriages influence inter-region risk sharing. We find that US states, where the married population represents a higher fraction of the total population, manage to share a larger fraction of their idiosyncratic risks. We draw two broad conclusions from our results: First, even in the US, where highly developed financial markets should be capable of providing substantial risk sharing, informal insurance mechanisms, such as marriages, still play a role. And second, we find that marriages do not only improve risk sharing at the individual level and within states, but also result in a higher degree of risk sharing across states. That is, marriages also help to smooth the impact of state-specific shocks which cannot be smoothed within states.
We also find some evidence that the impact of marriage on risk sharing is quantitatively more important in periods of economic downturns . . .
That is from the paper "Marriage, Divorce and Interstate Risk Sharing" by Halla and Scharler (Scandinavian Journal of Economics, March 2012), see a draft here (October 2008). Regarding the introduction of unilateral divorce legislation, the authors claim: ". . . unilateral divorce has reduced the risk sharing enhancing effect of marriage" (p.16).
