New Economics Papers
on Neuroeconomics
Issue of 2009‒05‒16
ten papers chosen by

  1. Empathy Conditioned Conservation: "Walking-in-the-Shoes-of-Others" as a Conservation Farmer By Sheeder, Robert; Lynne, Gary D.
  2. Scale Dependence of Overconfidence in Stock Market Volatility Forecasts By Glaser, Markus; Langer, Thomas; Reynders, Jens; Weber, Martin
  3. Emotional Decision-Makers and Anomalous Attitudes towards Information By F. Barigozzi; R. Levaggi
  4. The Effect of Ability on Young Men’s Self-Employment Decision: Evidence from the NELS By Ozkan Eren; Ozan Sula
  5. Dissatisfied with life, but having a good day- time-use and well-being of the unemployed By Andreas Knabe; Steffen Rätzel; Ronnie Schöb; Steffen Rätzel; Joachim Weimann
  6. âPocket and Potâ: Hypothetical Bias in a No-Free-Riding Public Contribution Game By Gubanova, Tatiana; Adamowicz, W.L.; McMillan, Melville
  7. Educational Assortative Mating and Children’s School Readiness By Audrey Beck; Carlos González-Sancho
  8. The effect of early tracking on participation in higher education By Roel van Elk; Marc van der Steeg; Dinand Webbink
  9. Family Background, School Quality, Ability and Student Achievement in Rural China âIdentification Using Famine-Generated Instruments By Chen, Qihui
  10. How are social ties formed? : Interaction of neighborhood and individual immobility. By Yamamura, Eiji

  1. By: Sheeder, Robert; Lynne, Gary D.
    Abstract: Since the destruction and despair caused by the dust bowl of the 1930âs, Americans and their government have taken a keen interest in natural resource conservation policy on agricultural land. The Soil Conservation and Domestic Allotment Act of 1936 was the first farm bill to include provisions that provided payments to farmers willing to employ soil conservation measures (Cain and Lovejoy, 2004). While the main purpose of this bill was to provide financial support to impoverished farmers, the fact remains that natural resource conservation was starting to become an important issue for the American public. Over time, conservation titles in the farm bill have evolved into legislation that protects several resources, including surface water. Expenditures have also significantly increased. While giving monetary payments to individual producers engaging in conservation activities is ultimately a policy decision, the underlying assumption for these payments is one outlined in traditional microeconomic theory, which presumes producers are engaging in activities that will maximize profits. Since conservation activities are not inherently profitable to the individual farmer, payments are provided under the presumption that the only way to increase conservation efforts is to increase profits. The environmental results from these payment schemes have been mixed. With this in mind, the USDA has begun funding research that examines the underlying factors that motivate producers to engage in conservation activities. As part of this new research, a collaboration of researchers from a group of Midwestern universities and government agencies recently engaged in a study of conservation behavior exhibited by producers located in the Blue River/Tuttle Creek Lake watershed of Nebraska and Kansas. Examination of this particular watershed was conducted because it currently provides drinking water to areas of northeast Kansas that are exhibiting rapid population expansion, such as Manhattan, Lawrence, and Kansas City. The Blue River/Tuttle Creek Lake watershed covers a large portion of southcentral and southeast Nebraska, as well as northeast Kansas. However, the use of natural resource assessment maps and empirical surface water quality data served to identify a critical four county area of nonpoint source runoff near the Nebraska-Kansas border that may have the largest impact on Tuttle Creek Lake. Particular attention was paid to the adoption of no-till/conservation tillage strategies in this area due to the sedimentation problem in the Lake. Data was obtained through the use of both focus groups and a mail survey. Overall, the survey response rate was 17.1 percent (639 survey responses; 498 surveys were used in the statistical analysis). Variables used to assess what motivates farmers to engage in conservation tillage technologies included income capacity; psychological tendencies for jointly pursuing self-interest and an empathy conditioned, shared other-interest; habitual tendencies; and preferences for control over farming operations. Results confirmed some old notions and added several new insights into what actually motivates being a conservation farmer. As economic (and policy) tradition suggests, we confirmed that income (i.e. financial capacity) was a significant variable. However, the models showed that a one thousand dollar increase in income only increased the odds of conservation tillage adoption by 0.4 to 0.6 percent (i.e. less than 1 percent). The first new insight suggests that farmers who recognize the water quality problem in the watershed and subsequently empathize with downstream water users (i.e. âwalk-in-their-shoesâ) are much more likely to engage in conservation tillage strategies. In fact, we show that farmers with even a small interest in identifying with downstream water users are anywhere from four to nine percent more likely to use conservation tillage technologies. Related to this empathy phenomenon, we also show that people other than the individual farmer can influence the decision to use conservation tillage. We found that the odds of conservation tillage adoption increase by nine percent for those farmers that think farm entities (i.e. lenders, chemical and seed suppliers, equipment dealers, etc) believe that they should use conservation tillage technologies. Intriguingly, though, we also found that the opinions of family members and downstream water users do not have a significant impact on the tillage decision. Another new insight points to how preferences for control impact the decision. Our results indicated that a farmer who believes the use of conservation tillage results in a loss of control over farming operations is less likely to use the technology. In fact, the odds of conservation tillage adoption decrease by about nine percent for those that perceive just a small loss of control over farm operations when using conservation tillage technologies. Finally, we find that a farmerâs habitual tendencies play a large role on the tillage adoption decision in the study area, with the odds of conservation tillage adoption increasing by nearly forty percent if a farmer has used conservation tillage in the past. While some would argue that âwe always knew that current choice is affected by past (habit) choice,â the underpinnings are in fact quite new. Only in recent years have behavioral and neuroeconomics researchers documented that we run on automatic most of the time. So, it takes greater financial incentives to move a farmer to a conservation path (i.e. change habits) than it does to keep someone on that path. So what is the bottomline? We conclude that a single over-arching conservation policy based in traditional economics will not work. Rather, a behavioral economics framework gives a a more reasonable and rational basis for said policy. In particular, in addition to financial incentives, policy needs to recognize habits and control, and especially the role of empathy, i.e. âwalking-in-the-shoesâ of others: Emotions (reflected in empathy) play a much larger role in truly rational choice than traditional economic thinking acknowledges. Solving environmental quality problems depends on better understanding the human dimension of conservation decisions. Cain, Z., and S. Lovejoy. âHistory and Outlook for Farm Bill Conservation Programs.â Choices (2004): 37-42.
    Keywords: Behavioral economics, Empathy. Dual motives, Dual Interests, Shared Other-interest, Self-interest, Institutional and Behavioral Economics, Resource /Energy Economics and Policy,
    Date: 2009–04–29
  2. By: Glaser, Markus (Sonderforschungsbereich 504); Langer, Thomas (Westfälischen Wilhelms-Universität Münster Lehrstuhl für BWL, insbesondere Finanzierung); Reynders, Jens; Weber, Martin (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)
    Abstract: In this study, we analyze whether volatility forecasts (judgmental confidence intervals) are influenced by the specific elicitation mode (i.e. whether forecasters have to state future price levels or directly future returns as upper and lower bounds). We present questionnaire responses of about 250 students from two German universities. Participants were asked to state median forecasts as well as confidence intervals for seven stock market time series. Using a between subject design, one half of the subjects was asked to state future price levels, the other group was directly asked for returns. Consistent with prior research we find that subjects underestimate the volatility of stock returns, indicating overconfidence. As a new insight, we find that the strength of the overconfidence effect in stock market forecasts is highly significantly affected by the fact whether subjects provide price or return forecasts. Volatility estimates are lower (and the overconfidence bias is thus stronger) when subjects are asked for returns compared to price forecasts.
    Date: 2008–12–03
  3. By: F. Barigozzi; R. Levaggi
    Date: 2009–02
  4. By: Ozkan Eren (Department of Economics, University of Nevada, Las Vegas); Ozan Sula (Department of Economics, Western Washington University)
    Abstract: Using the National Educational Longitudinal Study data, we examine the role of pre-market abilities, as well as other determinants, on young men’s self-employment decision. Our results indicate that cognitive and noncognitive abilities are two important, in opposing directions, predictors of self-employment. We also find that cognitive and noncognitive abilities differ in their malleability with the latter being more malleable during adolescence. In addition, having a self-employed father, being black and family size exert large influences on self-employment probability.
    Keywords: Cognitive Ability, Endogeneity, Intergenerational Correlation, Malleability, Noncognitive Ability.
    JEL: C25 J0 J24
    Date: 2009–04
  5. By: Andreas Knabe (Faculty of Economics and Management, Freie University Berlin); Steffen Rätzel (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Ronnie Schöb (Faculty of Economics and Management, Freie University Berlin); Steffen Rätzel (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Joachim Weimann (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: We apply the Day Reconstruction Method to compare unemployed and employed people with respect to their subjective assessment of emotional affects, differences in the composition and duration of activities during the course of a day, and their self-reported life satisfaction. Employed persons are more satisfied with their life than the unemployed and report more positive feelings when engaged in similar activities. Weighting these activities with their duration shows, however, that average experienced utility does not differ between the two groups. Although the unemployed feel sadder when engaged in similar activities, they can compensate this by using the time the employed are at work in more enjoyable ways. Our finding that unemployment affects life satisfaction and experienced utility differently may be explained by the fact that people do not adjust their aspirations when becoming unemployed but face hedonic adaptation to changing life circumstances, triggered by the opportunity to use the time in a way that yields higher levels of satisfaction than working.
    Keywords: unemployment, happiness, life satisfaction, Day Reconstruction Method, experienced utility
    JEL: I31 J60 J22
    Date: 2009–03
  6. By: Gubanova, Tatiana; Adamowicz, W.L.; McMillan, Melville
    Abstract: Hypothetical bias arises when values which people say they place on a good or service differ systematically from the values people reveal for the same good or service through actual, binding economic transactions. Studies of hypothetical bias with respect to public goods often use charitable contributions or other relatively unique goods and these studies employ a variety of mechanisms to elicit the stated and revealed values. This study proposes the inclusion of a free-rider barring random dictatorship mechanism in the standard public contribution game to investigate the issue of bias when a public good involves immediate monetary returns to subjects. Steps are taken to make the game have the look and feel of a real-world tradeoff between private investment and public good provision. Data for the experiment were collected using a sample of students from the University of Alberta. A statistically significant negative hypothetical bias is found for the first hypothetical and the first real rounds of the game. The bias decays in subsequent round pairs, oscillating around zero.
    Keywords: Resource /Energy Economics and Policy,
    Date: 2009
  7. By: Audrey Beck (Princeton University); Carlos González-Sancho (Juan March Institute and Nuffield College)
    Abstract: One of the concerns behind parental educational sorting is its potential to widen disparities in the ability of families to invest in their children’s development. Using data from the Fragile Families and Children Wellbeing Study, this paper investigates the association between parental educational homogamy and children’s school readiness at age 5. Our analyses reveal a positive impact of homogamy across child outcomes, most notably on socio-emotional indicators of development. Enhanced levels of parental agreement about the organization of family life and symmetry in the allocation of time to child care emerge as the intervening mechanisms behind this association. Our findings lend support to theoretical claims about the relevance of within-family social capital in the creation of human capital.
    Date: 2009–03
  8. By: Roel van Elk; Marc van der Steeg; Dinand Webbink
    Abstract: This paper examines the impact of early tracking on enrollment in and completion of higher education. We compare pupils that are directly tracked in lower general secondary education (‘mavo’) to pupils that postpone their choice of education level by entering secondary education in a combined first-grade class. Potential self-selection problems are addressed in two ways. First of all, using micro data allows us to control for a large set of individual background characteristics including tests of cognitive ability. Second, we exploit differences in regional supply of particular school types. The estimates show that early tracking has a detrimental effect on enrollment in and completion of higher education for pupils who leave primary education with a mavo advice. In addition, we find no evidence that pupils who leave primary education with a higher general secondary education (‘havo’) advice would be negatively affected by being in a comprehensive class together with the mavo advice pupils. Enrollment in and completion of higher education can be increased by stimulating participation in combined first-grade classes that keep pupils with a mavo or havo advice together for an additional one or two years.
    Keywords: early tracking
    JEL: I21
    Date: 2009–03
  9. By: Chen, Qihui
    Abstract: This paper investigates the determinants of academic achievement in basic education (grade 1-9) for a sample of children (aged 9-12 in 2000) from rural China. A set of instrumental variable generated by the Great Famine in China, 1958-1961, is used to instrument an error-ridden measure of child innate ability, the cognitive ability score of each sampled child. Empirical results indicate strong effects of family background variables such as household income and parental education. Fatherâs education has significantly positive effect on academic achievements for both boys and girls, while motherâs education only matters for girls. Consistent with the common findings in the literature, most of school quality variables do not have significantly positive effects on child academic achievements.
    Keywords: student achievement, school quality, ability, Famine in China 1958-1961, Consumer/Household Economics, Labor and Human Capital, Public Economics, J24, I21, D13,
    Date: 2009
  10. By: Yamamura, Eiji
    Abstract: Using individual data from Japan, this paper investigates how a neighbor’s immobility is associated with individual investment in social capital. It is found that local homeownership has a positive effect on individual investment and that this effect for individual homeowners is about 2.5 times larger than for renters.
    Keywords: Social Capital; homeownership; length of residence.
    JEL: D71 Z13 R11 R23
    Date: 2009–05–09

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