New Economics Papers
on Neuroeconomics
Issue of 2010‒03‒20
four papers chosen by

  1. A Dynamic Model of Decision-making Under Cognitive Dissonance and Modularity of Mind By Karagözoğlu Emin
  2. The role of regret in the persistence of anomalies in financial markets (In French) By Emmanuel PETIT (GREThA UMR CNRS 5113)
  3. The Effects of Daughters on Health Choices and Risk Behaviour By N Powdthavee; S Wu; A Oswald
  4. Vendettas By Friedel Bolle; Jonathan H.W. Tan; Daniel John Zizzo

  1. By: Karagözoğlu Emin (METEOR)
    Abstract: This paper attempts to explain how and why seemingly contradictory beliefs co-exist in an optimizing individual''s mind in the long run. We set up a dynamic model of decision-making inwhich the individual.s mind is composed of a coordinating principal and two conflicting agents. We take into account the cognitive dissonance experienced due to the conflict between the agents. Each agent (or self ) is specialized in perceiving a particular type of signal, which describes the world. Cognitive dissonance levels in our model are not constant. Instead, the individual''s split-selves are open to habituation, which can lead to a reduction in cognitive dissonance. We prove the existence of an optimal strategy with a threshold structure. Our results show that the co-existence of conflicting beliefs might be an equilibrium phenomenon even in an optimizing mind. Suggestions that may avoid the tension that occurs due to cognitive dissonance are made.
    Keywords: microeconomics ;
    Date: 2010
  2. By: Emmanuel PETIT (GREThA UMR CNRS 5113)
    Abstract: In this article, we provide a unified framework which can take into account numerous behavioural anomalies observed in financial markets (disposition effect, under- and overreaction phenomena and so on). Our general theoretical framework uses both cognitive and perceptual theories of emotion. Defining the emotion as a revision process of beliefs and preferences (Livet (2002)), we explain the role of regret in the occurrence and the persistence of many psychological biases recently identified in financial markets (rationalization, conservatism, hindsight and confirmatory biases, etcetera). Specifically, the tendency to sell superior-performing stocks too early (Shefrin and Statman (1985)) is a direct consequence of the investor incapacity of revising a strong false (however protected) belief which appears to sustain crucially his self-confidence. This cognitive resistance towards the emotional process highlights the importance of the individual and social control of the emotions.
    Keywords: Regret, theory of emotions, disposition effect, behavioural finance
    JEL: G10 A12
    Date: 2010
  3. By: N Powdthavee; S Wu; A Oswald
    Abstract: Little is known about why some human beings make risky life-choices. This paper provides evidence that people's health decisions and addictive actions are influenced by the gender of their children. Having a daughter leads individuals -- in micro data from Great Britain and the United States -- to reduce their smoking, drinking, and drug-taking. The paper's results are consistent with the hypothesis that human beings 'self-medicate' when under stress.
    Keywords: Addictive behaviour; gender; daughters; smoking; drinking; attitudes.
    JEL: D1 I1
    Date: 2010–02
  4. By: Friedel Bolle (European University Viadrina); Jonathan H.W. Tan (University of Nottingham); Daniel John Zizzo (University of East Anglia)
    Abstract: Vendettas occur in many real world settings where rivals compete for a prize, e.g., winning an election or a competitive promotion, by engaging in retaliatory aggressive behavior. We present a benchmark experiment where two players have an initial probability of winning a prize. Retaliatory vendettas occur and lead agents to the worst possible outcomes in 60% to 80% of cases, counter to self interest predictions, and regardless of whether initial winning probabilities are equal or unequal. Negative emotions are important and interact with economic settings to produce large social inefficiencies. Venting emotions predicts aggression but also reduces it.
    Keywords: trust, income inequality, market, social capital
    JEL: C91 C72 H41 D64
    Date: 2010–02

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