Coordination is a central feature of economic life. If we do not coordinate our activities, we are destined to waste our time and effort. However, often the way we coordinate has distributional consequences – some people receive more benefits than others. Such situations establish what Ullman Margalit (1977) call “norms of partiality” where the convention created to solve a problem bestows privileges on one set of people. If you are on the short end of the convention, you may be upset. We investigate the creation and evolution of conventions of behavior in these situations using our “intergenerational games” framework or games in which a sequence of non-overlapping “generations” of players play a stage game for a finite number of periods and are then replaced by other agents, who continue the game in their role for an identical length of time. Players in generation t can offer advice to their successors in generation t + 1. What we find is that word-of-mouth social learning (in the form of advice from laboratory “parents” to laboratory “children”) can be a strong force in the creation of social conventions.

Consider a worker with a nosy boss who continually offers suggestions and advice. Such a meddlesome supervisor creates a problem for the worker, since he or she may not want to insult the supervisor by ignoring his advice, his or her raise may depend on pleasing him, yet he or she may know that such advice is foolish and would only decrease firm profits if followed. The question we ask in this chapter is, does such a meddlesome relationship between worker and boss interfere with the learning abilities of the worker? We find the answer is a resounding no. In fact, subjects in our laboratory experiment who have what we have called meddlesome bosses advising them actually learn better than those with bosses whose advice can be ignored and fare much better than those subjects with no laboratory bosses at all.

In recent years there has been a great deal of interest in designing matching mechanisms that can be used to match public school students to schools (the student matching problem). The premise of this chapter is that, when testing mechanisms, we must do so in the environment in which they are used in the real world rather than in the environment envisioned by theory. More precisely, in theory, the school matching problem is a static one-shot game played by parents of children seeking places in a finite number of schools and played non-cooperatively without any form of communication or commitment between parents. However, in the real world, the school choice program is played out in a different manner. Typically, parents choose their strategies after consulting with other parents in their social networks and exchanging advice on both the quality of schools and the proper way they should play the “school matching game”. The question we ask here is whether chat between parents affects the strategies they choose, and if so, whether it does so in a welfare-increasing or welfare-decreasing manner. We find that advice received by chatting has proven to have a very powerful influence on decision makers, in the sense that advice tends not only to be followed but typically has a welfare-increasing consequence.

In the real world, when people play games, they often receive advice from those that have played it before them. Such advice can facilitate the creation of a convention of behavior. This chapter studies the impact of advice on the behavior of subjects who engage in a non-overlapping generational ultimatum game where, after a subject plays, she is replaced by another subject to whom she can offer advice. Our results document the fact that allowing advice fosters the creation of a convention of behavior in ultimatum games. In addition, by reading the advice offered, we conclude that arguments of fairness are rarely used to justify the offers of senders but are relied upon to justify rejections by receivers.

Social learning describes any situation in which individuals learn by observing the behavior of others. In the real world, however, individuals learn not just by observing the actions of others, but also learn from advice. This chapter introduces advice giving into the standard social learning experiment of Çelen and Kariv (2005). The experiments are designed so that both pieces of information action and advice are equally informative (in fact, identical) in equilibrium. Despite the informational equivalence of advice and actions, we ... find that subjects in a laboratory social-learning situation appear to be more willing to follow the advice given to them by their predecessor than to copy their action, and that the presence of advice increases subjects’ ’welfare.

In this chapter we start by defining an intergenerational game and its equilibria. We then discuss conventions of behavior, their relationship to intergenerational-game equilibria, and what it takes to make such conventions stable. This is followed by describing the relationship between our use of the term “social learning” and what standard economic theory interprets it to mean. At the end of the chapter we discuss two other types of games, dynastic games (Anderlini, Gerardi, and Laguno, 2008) and overlapping generations games (Kandori, 1992), which also have generational structures.

The willingness to trust others does not just happen. We are taught to trust by those who have lived before us and by observing whether it is safe to do so. We are also schooled in the benefits of trustworthiness. The level of trust existing in a society influences the way life is organized. These concerns raise certain questions that we hope to answer in this chapter. For example, how do we learn to trust each other? Once a convention of trust is created, how is it passed on from generation to generation? Does intergenerational communication increase or decrease trust? Does it increase or decrease trustworthiness? Is trust profitable? What is the causal relationship between trust and trustworthiness? In this chapter we use an intergenerational version of the well-known trust game (Berg, Dickhaut, and McCabe, 1995) to help us answer these questions about how trust is developed and communicated to others. We find that advice seems to decrease the amount of trust that evolves when this game is played in an intergenerational manner in that it decreases the amount of money sent from senders to receivers. Ironically, advice increases trustworthiness in that receivers tend to send more back. However, in no case, on average, does it pay to send any money. We explain this contradiction by examining the asymmetrical impact that advice has when serving as an anchor from which sending and returning behavior is adjusted. Further, we have discovered that subjects appear to follow conventions of reciprocity in that they tend to send more if they think the receivers acted in a “kind” manner, where “kind” means the sender sent more money than the receiver expected. Finally, while we find a causal relationship between trustworthiness and trust, the opposite cannot be established. We note that many of our results can only be achieved using the tools offered by intergenerational games. The intergenerational advice offered provides information not available when games are played in their static form. Combining that information with elicited beliefs of the senders and receivers adds even more information that can be used to investigate the motives that subjects have for doing what they do.

This is a book on advice, its importance for decision making, and its influence on the evolution of conventions of behavior. The idea is simple. As societies progress, old generations of social agents die and are replaced by new ones. We are interested in what happens in this transition as the old guard instructs the new arrivals about the wisdom of their ways. Do new entrants listen to and follow the advice of their elders or dismiss it? Is intergenerational advice welfare-improving or can it be destructive? Many times wise advice is rejected only to have new generations repeat the mistakes of their parents instead of learning from them. The advice offered from one generation to the next allows for a type of social learning that leads to the creation of conventions of behavior.

The unemployed are generally significantly and substantially less satisfied with their lives than the employed. This relationship tends to be stronger in high-income countries where there are sharper differences between employment and unemployment. In studies that look at within-person changes over time, unemployment typically reduces wellbeing by at least 0.6 points (out of 10).

Studying plant closures allows researchers to distinguish between endogenous and exogenous effects of unemployment. Workers who lose their jobs due to reasons outside of their control are generally more dissatisfied, although the effect of job loss remains negative and statistically significant for both groups.

The negative wellbeing impacts of unemployment can also spillover onto the general population – and this cause more total loss of wellbeing than the direct effect on the unemployed. Longer periods of unemployment can have scarring effects with long-lasting negative implications for wellbeing even after those affected have returned to work.

The psychosocial effects of unemployment on wellbeing are greater than the effect of lost income. Policy approaches targeting unemployment are therefore likely to be most conducive to wellbeing if they are able to protect and provide for the psychological and social benefits of work, as opposed to simply providing income support.