Economists Ronen Avraham, Leemore Dafny, and Max Schanzenbach show that tort reform reduces aggregate healthcare costs. After analyzing a dataset of health plans representing over 10 million Americans in each year between 1998 and 2006, they find that caps on non-economic damages, collateral-source reform, and joint-and-several liability reform each reduce health insurance premiums by between one and two percent. The reductions are concentrated in Preferred Payer Organizations rather than Health Maintenance Organizations (HMOs) -- HMOs might be able to reduce their “defensive” healthcare costs even without tort reform.

In OECD countries from 1970 to 2007, fiscal stimulus based on tax cuts was more likely to increase growth than stimulus based on spending increases, Alberto Alesina and Silvia Ardagna find. Also, fiscal adjustments based on spending cuts without tax increases were more likely to reduce deficits and debt-over-GDP ratios than spending cuts in tandem with tax increases. The authors conclude that adjustments on the spending side rather than on the tax side were also less likely to lead to slowdowns in economic activity.

Hedge funds using Lehman Brothers as prime broker could not trade after its September 15, 2008 bankruptcy, and George Aragon and Philip Strahan show that that those funds failed twice as often as otherwise-similar funds after September 15 (but not before). Stocks traded by the Lehman-connected hedge funds in turn experienced greater declines in market liquidity following Lehman’s bankruptcy than other stocks. Aragon and Strahan conclude that shocks to traders’ funding liquidity reduce the market liquidity of the assets that they trade.

Will shrinking retirement accounts and falling home equity lead older workers to delay their retirement, or will a weaker labor market, making it difficult to find work, lead them to retire sooner? Based on 30 years of census data, Courtney Coile and Phil Levine find that workers aged 62 to 69 respond to both the unemployment rate and to long-run fluctuations in stock market returns: less-educated workers are more sensitive to labor market conditions and more-educated workers are more sensitive to stock market conditions. Workers aged 55 to 61 do not respond to either type of fluctuation, and workers of any age do not respond to fluctuating housing markets. These historical patterns lead them to conclude that the increase in retirement rates associated with the current rise in the unemployment rate will be about 50 percent larger than the decrease in retirement rates associated with the decline in the stock market.

Game theory predicts that in two-player, zero-sum games, players will follow a “minimax” strategy: minimizing their maximum possible loss. When economists Ken Kovash and Steve Levitt study a sample of more than three million pitches thrown in Major League Baseball games and 125,000 play choices by quarterbacks in National Football League games, they find that players do not follow the minimax strategy. Instead, pitchers appear to throw too many fastballs and football teams pass less often than they should.

Schooling not only affects income but also the degree to which one enjoys work and the likelihood of being unemployed. It leads individuals to make better decisions about health, marriage, and parenting; improves patience, making individuals more goal-oriented and less likely to engage in risky behavior; improves trust and social interaction; and may offer substantial consumption value to some students. Now Phil Oreopoulos and Kjell Salvanes show that these non-pecuniary returns to schooling may be at least as large as pecuniary ones. Ironically, one explanation for why some who leave school early miss out on these “high returns” is that they lack the very same decision making skills that more schooling would help to improve.