New Economics Papers
on Neuroeconomics
Issue of 2010‒04‒11
four papers chosen by

  1. Affective Decision-Making: A Theory of Optimism-Bias By Anat Bracha; Donald J. Brown
  2. Recent Advances in the Economics of Individual Subjective Well-Being By Stutzer, Alois; Frey, Bruno S.
  3. Thoughtful Days and Valenced Nights: How Much Will You Think About the Problem? By Todd McElroy; David L. Dickinson
  4. Where People Live and Die Makes a Difference: Individual and Geographic Disparities in Well-Being Progression at the End of Life By Denis Gerstorf; Nilam Ram; Jan Goebel; Jürgen Schupp; Ulman Lindenberger; Gert G. Wagner

  1. By: Anat Bracha (Federal Reserve Bank of Boston); Donald J. Brown (Department of Economics, Yale University)
    Abstract: Optimism-bias is inconsistent with the independence of decision weights and payoffs found in models of choice under risk, such as expected utility theory and prospect theory. Hence, to explain the evidence suggesting that agents are optimistically biased, we propose an alternative model of risky choice, affective decision-making, where decision weights -- which we label affective or perceived risk -- are endogenized. Affective decision making (ADM) is a strategic model of choice under risk, where we posit two cognitive processes: the "rational" and the "emotional" processes. The two processes interact in a simultaneous-move intrapersonal potential game, and observed choice is the result of a pure strategy Nash equilibrium in this potential game. We show that regular ADM potential games have an odd number of locally unique pure strategy Nash equilibria, and demonstrate this finding for affective decision making in insurance markets. We prove that ADM potential games are refutable, by axiomatizing the ADM potential maximizers.
    Keywords: Affective decision-making, Optimism-bias, ADM potential games, Demand for insurance
    JEL: D01 D81 G22
    Date: 2010–03
  2. By: Stutzer, Alois (University of Basel); Frey, Bruno S. (University of Zurich)
    Abstract: Over the last decades, empirical research on subjective well-being in the social sciences has provided a major new stimulus to the discourse on individual happiness. Recently this research has also been linked to economics where reported subjective wellbeing is often taken as a proxy measure for individual welfare. In our review, we intend to provide an evaluation of where the economic research on happiness stands and of three directions it might develop. First, it offers new ways for testing the basic assumptions of the economic approach and for going about a new understanding of utility. Second, it provides a new possibility for the complementary testing of theories across fields in economics. Third, we inquire how the insights gained from the study of individual happiness in economics affect public policy.
    Keywords: economics, happiness, life satisfaction, survey data, income, public goods, unemployment
    JEL: A10 D60 H41 I31
    Date: 2010–03
  3. By: Todd McElroy; David L. Dickinson
    Abstract: Research investigating risk preference has pointed towards motivation and ability as important factors for determining the strength and likelihood of the framing effect. In the current study we explored the influence of individual differences in motivation and ability through circadian rhythm. We predicted that during circadian off-times participants would exhibit stronger framing effects whereas framing effects would be relatively weaker during on-times. Six-hundred and eighty five individuals took part in the study; the findings supported our hypothesis, revealing a diurnal pattern of risk responding that varies across the 24-hour circadian cycle. Key Words:
    Date: 2010
  4. By: Denis Gerstorf; Nilam Ram; Jan Goebel; Jürgen Schupp; Ulman Lindenberger; Gert G. Wagner
    Abstract: Lifespan psychological research has long been interested in the contextual embeddedness of individual development. To examine if and how regional factors relate to between-person disparities in the progression of late-life well-being, we applied three-level growth curve models to 24-year longitudinal data from deceased participants of the German Socio-Economic Panel Study (N = 3,427; age at death: 18 to 101 years). Results indicate steep declines in well-being with impending death, with some 8% of the between-person differences in both level and decline of well-being reflecting between-county differences. Exploratory analyses revealed that individuals living and dying in less affluent counties reported lower late-life well-being, controlling for key individual predictors including age at death, gender, education, and household income. The regional factors examined did not directly relate to well-being change, but were found to moderate (e.g., amplify) the disparities in change attributed to individual factors. Our results suggest that resource-poor counties provide relatively less fertile grounds for successful aging until the end of life and may serve to exacerbate disparities. We conclude that examinations of how individual and residential characteristics interact can further our understanding of individual psychological outcomes and suggest routes for future inquiry.
    Keywords: Neighborhoods; Selective mortality; successful aging; differential aging; psychosocial factors; well-being; longitudinal methods
    JEL: I12 J14 R23
    Date: 2010

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