nep-neu New Economics Papers
on Neuroeconomics
Issue of 2009‒11‒14
two papers chosen by
Daniel Houser
George Mason University

  1. Mental Retirement By Susann Rohwedder
  2. Understanding the Two Components of Risk Attitudes: An Experimental Analysis By Jianying Qiu; Eva-Maria Steiger

  1. By: Susann Rohwedder
    Abstract: Some studies suggest that people can maintain their cognitive abilities through "mental exercise." This has not been unequivocally proven. Retirement is associated with a large change in a person's daily routine and environment. In this paper, the authors propose two mechanisms how retirement may lead to cognitive decline. For many people retirement leads to a less stimulating daily environment. In addition, the prospect of retirement reduces the incentive to engage in mentally stimulating activities on the job. They investigate the effect of retirement on cognition empirically using cross-nationally comparable surveys of older persons in the United States, England, and 11 European countries in 2004. They find that early retirement has a significant negative impact on the cognitive ability of people in their early 60s that is both quantitatively important and causal. Identification is achieved using national pension policies as instruments for endogenous retirement.
    Keywords: cognition, retirement, human capital, international comparison, HRS, SHARE, ELSA
    JEL: I12 J24 J26
    Date: 2009–10
  2. By: Jianying Qiu (Department of Economics, University of Innsbruck); Eva-Maria Steiger (Stratigic Interaction Group, Max Planck Institute of Economics, Jena)
    Abstract: Economics and management science share the tradition of ordering risk aversion by ï¬tting the best expected utility (EU) model with a certain utility function to individual data, and then using the utility curvature for each individual as the sole index of risk attitude. (Cumulative) Prospect theory (CPT) has demonstrated various empirical deï¬ciencies of EU and introduced the weighting of probabilities as an additional component to capture risk attitude. However, if utility curvature and probability weighting were strongly correlated, the utility curvature in EU alone, while not properly describing risky behavior in general, would still capture most of the variance regarding degrees of risk aversion. This study shows, however, that such a strong correlation does not exist. Though, most individuals exhibit concave utility and convex probability weighting, the two components show no correlation. Thus neglecting one component entails a loss.
    Keywords: risk attitudes, cumulative prospect theory, experimental study
    JEL: C91 D81
    Date: 2009–11–02

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