nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒11‒25
twelve papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Born to be mild? Cohort effects don't explain why well-being is U-shaped in age. By Andrew E. Clark
  2. Distinguishing Social Preferences from Preferences for Altruism By Raymond Fisman; Shachar Kariv; Daniel Markovits
  3. Group and individual risk preferences : a lottery-choice experiment. By David Masclet; Youenn Loheac; Laurent Denant-Boemont; Nathalie Colombier
  4. Behavioural Development Economics: Lessons from field labs in the developing world By Jeffery Carpenter; Juan Camilo Cardenas
  5. Voluntary contributions with imperfect information: An experimental study By Annamaria Fiore; M. Vittoria Levati; Andrea Morone
  6. Does Consumer Confidence Forecast Household Spending? The Euro Area Case By DION, David Pascal
  7. Emotional Impact Analysis in Financial Regulation: Going Beyond Cost-Benefit Analysis By Peter H. Huang
  8. What Determines Adult Cognitive Skills? Impacts of Pre-Schooling, Schooling and Post-Schooling Experiences in Guatemala By John Maluccio; John Hoddinott, International Food Policy Research Institute; Jere R. Behrman, University of Pennsylvania; Reynaldo Martorell, Emory University; Erica Soler-Hampejsek, University of Pennsylvania; Aryeh D. Stein, Emory University; Emily L. Behrman, University of Pennsylvania; Manuel Ramirez-Zea, Institute of Nutrition for Central America and Panama
  9. Transfer of Metacognitive Skills and Hint Seeking in Monkeys By Nate Kornell; Lisa K Son; Herbert S. Terrace
  10. Metacognitive Control and Optimal Learning By Lisa K. Son; Rajiv Sethi
  11. Willpower and the Optimal Control of Visceral Urges By Emre Ozdenoren; Stephen Salant; Dan Silverman
  12. A Psychology of Emotional Legal Decision Making: Revulsion and Saving Face in Legal Theory and Practice By Peter H Huang; Christopher J Anderson

  1. By: Andrew E. Clark
    Abstract: The statistical analysis of cross-section data very often reveals a U-shaped relationship between subjective well-being and age. This paper uses fourteen waves of British panel data to distinguish between a pure life-cycle or aging effect, and a fixed cohort effect that depends on year of birth. Panel analysis controlling for fixed effects continues to produce a U-shaped relationship between well-being and age, although this U-shape is flatter for life satisfaction than for the GHQ measure of mental well-being. The pattern of the estimated cohort effects differs between the two well-being measures and, to an extent, by demographic group. In particular, those born earlier report more positive GHQ scores, controlling for their current age; this phenomenon is especially found for women.
    Date: 2006
  2. By: Raymond Fisman (Graduate School of Business, Columbia University); Shachar Kariv (Department of Economics, University of California, Berkeley); Daniel Markovits (Yale Law School)
    Abstract: We report a laboratory experiment that enables us to distinguish preferences for altruism (concerning tradeoffs between own payoffs and the payoffs of others) from social preferences (concerning tradeoffs between the payoffs of others). By using graphical representations of three-person Dictator Games that vary the relative prices of giving, we generate a very rich data set well-suited to studying behavior at the level of the individual subject. We attempt to recover subjects’ underlying preferences by estimating a constant elasticity of substitution (CES) model that represents altruistic and social preferences. We find that both social preferences and preferences for altruism are highly heterogeneous, ranging from utilitarian to Rawlsian. In spite of this heterogeneity across subjects, there exists a strong positive withinsubject correlation between the efficiency-equity tradeoffs made in altruistic and social preferences.
    JEL: C79 C91 D64
    Date: 2005–11
  3. By: David Masclet (CREM, Department of Economics, University of Rennes 1 et CIRANO,Montréal); Youenn Loheac (Graduate School of Management of Brittany et Centre d'Economie de la Sorbonne); Laurent Denant-Boemont (CREM, Department of Economics, University of Rennes 1); Nathalie Colombier (CREM, Department of Economics, University of Rennes 1)
    Abstract: This paper focuses on decision making under risk, comparing group and individual risk preferences in a lottery-choice experiment inspired by Holt and Laury (2002). The experiment presents subjects with a menu of unordered lottery choices which allows us to measure risk aversion. In the individual treatment, subjects make lottery choices individually ; in the group treatment, each subject was placed in an anonymous group of three, where unanimous lottery choice decisions were made via voting. Finally, in a third treatment, called the choice treatment, subjects could choose whether to be on their own or in a group. our main findings are that groups are more likely than individuals to choose safe lotteries for decisions with low winning percentages. Moreover, groups converge toward less risky decisions because subjects who were relatively less risk averse were more likely to change their vote in order to conform to the group average decision ; more risk-averse individuals were less likely to change their preferences. Finally our results reveal a positive relationship between preference for risk and willingness to decide alone.
    Keywords: Experiment, decision rule, individual decision, group decision.
    JEL: C91 C92 D81 D70 M10
    Date: 2004–10
  4. By: Jeffery Carpenter; Juan Camilo Cardenas
    Abstract: Explanations of poverty, growth and development more generally depend on the assumptions made about individual preferences and the willingness to engage in strategic behaviour. Economic experiments, especially those conducted in the field, have begun to paint a picture of economic agents in developing communities that is at some variance from the traditional portrait. We review this growing literature with an eye towards preference-related experiments conducted in the field. We rely on these studies, in addition to our own experiences in the field, to offer lessons on what development economists might learn from experiments. We conclude by sharing our thoughts on how to conduct experiments in the field, and then offer a few ideas for future research.
    Date: 2006
  5. By: Annamaria Fiore; M. Vittoria Levati; Andrea Morone
    Abstract: We use a two-person linear voluntary contribution mechanism with stochastic marginal benefits from the public good to examine the effect of imperfect information on contributions levels. To assess prior risk attitudes, individual valuations of several risky prospects are elicited via a second-price auction. We find that limited information about the productivity of the public good lowers significantly initial contributions in comparison to a setting with perfect information, whereas different information conditions do not result in qualitatively different contribution patterns. Moreover, our results show clear evidence of risk aversion, and of a negative relationship between the latter and willingness to cooperate.
    Keywords: Public goods experiments, Vickrey auctions, Imperfect information, Risk attitudes
    JEL: C72 C92 D80 H41
    Date: 2006–11
  6. By: DION, David Pascal
    Abstract: The following analysis, based on error correction models, suggests that consumer confidence, together with traditional macroeconomic variables, contains a forecasting and explicative power on consumption. By including consumer confidence in a consumption function, consumer confidence releases a significant coefficient. Such a confidence-augmented consumption model provides good forecasting results.
    Keywords: Consumer confidence; consumption function; forecasting; consumer attitudes and behaviour; households
    JEL: D12 C52 D11 E27 E21 C53
    Date: 2006–11–22
  7. By: Peter H. Huang (Temple University, James E. Beasley School of Law)
    Abstract: This Article advocates that financial regulators analyze, measure, and take into account the emotional impacts of their policies and procedures. Examples of emotional impacts are investor confidence, process concerns, and overall market or social mood. Investor confidence or trust in securities markets, process concerns about how much securities regulators actually deliberate over proposed rules, and financial anxiety or investment stress affect and are affected by financial economic variables, such as consumer debt, consumer expenditures, consumer wealth, corporate investment, initial public offerings, and securities market demand, liquidity, prices, supply, and volume. Cost-benefit analysis does not quantitatively consider interdependencies between regulations’ emotional impacts and their financial outcomes. Emotional impact analysis does. This Article addresses general conceptual and measurement issues about emotional impact analysis. Because financial regulations affect investors’ confidence, process concerns, and social moods, this Article analyzes how financial regulators can quantitatively analyze emotional impacts of their regulations.
    Date: 2006–09
  8. By: John Maluccio; John Hoddinott, International Food Policy Research Institute; Jere R. Behrman, University of Pennsylvania; Reynaldo Martorell, Emory University; Erica Soler-Hampejsek, University of Pennsylvania; Aryeh D. Stein, Emory University; Emily L. Behrman, University of Pennsylvania; Manuel Ramirez-Zea, Institute of Nutrition for Central America and Panama
    Abstract: Most investigations of the importance of and the determinants of adult cognitive skills assume that (a) they are produced primarily by schooling and (b) schooling is statistically predetermined. But these assumptions may lead to misleading inferences about impacts of schooling and of pre-schooling and post-schooling experiences on adult cognitive skills. This study uses an unusually rich longitudinal data set collected over 35 years in Guatemala to investigate production functions for adult (i) reading-comprehension and (ii) nonverbal cognitive skills as dependent on behaviorally-determined pre-schooling, schooling and post-schooling experiences. Major results are: (1) Schooling has significant and substantial impact on adult reading comprehension (but not on adult nonverbal cognitive skills)—but estimates of this impact are biased upwards substantially if there are no controls for behavioral determinants of schooling in the presence of persistent unobserved factors such as genetic endowments and/or if family background factors that appear to be correlated with genetic endowments are included among the first-stage instruments. (2) Both pre-schooling and post-schooling experiences have substantial significant impacts on one or both of the adult cognitive skill measures that tend to be underestimated if these pre- and post-schooling experiences are treated as statistically predetermined—in contrast to the upward bias for schooling, which suggests that the underlying physical and job-related components of genetic endowments are negatively correlated with those for cognitive skills. (3) The failure in most studies to incorporate pre- and post-schooling experiences in the analysis of adult cognitive skills or outcomes affected by adult cognitive skills is likely to lead to misleading over-emphasis on schooling relative to these pre-and post-schooling experiences. (4) Gender differences in the coefficients of the adult cognitive skills production functions are not significant, suggesting that most of the fairly substantial differences in adult cognitive skills favoring males on average originate from gender differences in schooling attainment and in experience in skilled jobs favoring males. These four sets of findings are of substantial interest in themselves. But they also have important implications for broader literatures, reinforcing the importance of early life investments in disadvantaged children in determining adult skills and options, pointing to limitations in the cross-country growth literature of using schooling of adults to represent human capital, supporting hypotheses about the importance of childhood nutrition and work complexity in explaining the “Flynn effect” of substantial increases in measured cognitive skills over time, and questioning the interpretation of studies that report productivity impacts of cognitive skills without controlling for the endogeneity of such skills.
    Date: 2006
  9. By: Nate Kornell (University of California, Los Angeles); Lisa K Son (Barnard College); Herbert S. Terrace (Columbia University)
    Abstract: Metacognition is knowledge that can be expressed as confidence judgments about what we know (monitoring) and by strategies for learning what we don’t know (control). Although a substantial literature exists on cognitive processes in animals, little is known about their metacognitive abilities. Here we show that rhesus macaques, trained previously to make retrospective confidence judgments about their performance on perceptual tasks, transferred that ability immediately to a new perceptual task and to a working memory task. In a second experiment we show that monkeys can also learn to request “hints” when they are given problems that they would otherwise have to solve by trial and error. This shows, for the first time, that non-human primates share with humans the ability to monitor and transfer their metacognitive ability both within and between different cognitive tasks, and to seek new knowledge on a need to know basis.
    Date: 2006–04
  10. By: Lisa K. Son (Barnard College); Rajiv Sethi (Department of Economics, Barnard College)
    Abstract: The notion of optimality is often invoked informally in the literature on metacognitive control. We provide a precise formulation of the optimization problem and show that optimal time allocation strategies depend critically on certain characteristics of the learning environment, such as the extent of time pressure, and the nature of the uptake function. When the learning curve is concave, optimality requires that items at lower levels of initial competence be allocated greater time. On the other hand, with logistic learning curves, optimal allocations vary with time availability in complex and surprising ways. Hence there are conditions under which optimal strategies will be intuitive and easy to learn, and others in which they will be considerably more complicated. The model can therefore be used to address the question of whether and when learners should be able to exercise good metacognitive control in practice.
    Date: 2006–04
  11. By: Emre Ozdenoren (Department of Economics, University of Michigan); Stephen Salant (Department of Economics, University of Michigan); Dan Silverman (Department of Economics, University of Michigan)
    Abstract: Common intuition and experimental psychology suggest that the ability to self-regulate, willpower, is a depletable resource. We investigate the behavior of an agent who optimally consumes a cake (or paycheck or workload) over time and who recognizes that restraining his consumption too much would exhaust his willpower and leave him unable to manage his consumption. Unlike prior models of self-control, a model with willpower depletion can explain the increasing consumption sequences observable in high frequency data (and corresponding laboratory findings), the apparent links between unrelated self-control behaviors, and the altered economic behavior following imposition of cognitive loads. At the same time, willpower depletion provides an alternative explanation for a taste for commitment, intertemporal preference reversals, and procrastination. Accounting for willpower depletion thus provides a more unified theory of time preference. It also provides an explanation for anomalous intratemporal behaviors such as low correlations between health-related activities.
    Date: 2006–05
  12. By: Peter H Huang (Temple University, James E. Beasley School of Law); Christopher J Anderson (Psychology Department, Temple University)
    Date: 2006–03

This nep-cbe issue is ©2006 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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