nep-neu New Economics Papers
on Neuroeconomics
Issue of 2010‒12‒18
five papers chosen by
Daniel Houser
George Mason University

  1. The Effect of Breastfeeding on Children's Cognitive Development By Iacovou M; Sevilla sanz A
  2. Decision Utility Theory: Back to von Neumann, Morgenstern, and Markowitz By Kontek, Krzysztof
  3. Genes, Economics, and Happiness By Jan-Emmanuel De Neve; Nicholas A. Christakis; James H. Fowler; Bruno S. Frey
  4. As-if behavioral economics: Neoclassical economics in disguise? By Berg, Nathan; Gigerenzer, Gerd
  5. Behavioral Economics By Berg, Nathan

  1. By: Iacovou M (Institute for Social and Economic Research); Sevilla sanz A (Department of Economics, University of Oxford)
    Abstract: This paper uses Propensity Score Matching to investigate the causal effect of breastfeeding on childrenÂ’s cognitive development. There is a strong association between breastfeeding and cognitive outcomes; however, it is notoriously difficult to establish whether this is causal, or whether it arises because mothers who breastfeed tend to be those whose children would do better anyway. Using PSM, we find that breastfeeding for four weeks has a positive and significant effect on test scores, in the order of one tenth of a standard deviation. Thus, interventions which increase breastfeeding rates may improve not only childrenÂ’s health, but also their cognitive skills.
    Date: 2010–12–10
  2. By: Kontek, Krzysztof
    Abstract: Prospect Theory (1979) and its Cumulative version (1992) argue for probability weighting to explain lottery choices. Decision Utility Theory presents an alternative solution, which makes no use of this concept. The new theory distinguishes decision and perception utility, postulates a double S-shaped decision utility curve similar to one hypothesized by Markowitz (1952), and applies the expected decision utility value similarly to the theory by von Neumann and Morgenstern (1944). Decision Utility Theory proposes straightforward risk measures, presents a simple explanation of risk attitudes by using the aspiration level concept, and predicts that people might not consider probabilities and outcomes jointly, on the contrary to the expected utility paradigm.
    Keywords: Expected Utility Theory; Markowitz Hypothesis; Prospect Theory; Decision Utility; Allais Paradox; Common Ratio Effect; Risk Attitude Measures; Aspiration Level.
    JEL: D81 C91
    Date: 2010–12–01
  3. By: Jan-Emmanuel De Neve; Nicholas A. Christakis; James H. Fowler; Bruno S. Frey
    Abstract: Research on happiness has produced valuable insights into the sources of subjective well-being that are of importance to economics. A major nding from this literature is that people exhibit a "baseline" level of happiness that shows persistent strength over time. Here we explore the extent to which baseline happiness is in uenced by genetic variation. Using data from Add Health, we employ a twin study design to show that ge- netic variation explains about 33% of the variation in happiness, and that the in uence of genes varies by gender (women 26%, men 39%) and tends to rise with age. We also present evidence that variation in a specific gene predicts happiness. Individuals with a transcriptionally more eficient version of the serotonin transporter gene (SLC6A4) are significantly more likely to report higher levels of life satisfaction|having one or two alleles of the more eficient type raises the average likelihood of being very satised with one's life by 8.5% and 17.3%, respectively. Finally, using data from an indepen- dent source (the Framingham Heart Study) we show that a linked single nucleotide polymorphism (rs2020933) in the SLC6A4 gene also predicts life satisfaction. These results are the rst to identify a specific gene that may be associated with baseline levels of happiness.
    Keywords: academia; Happiness; Subjective Well-Being; Genetics
    JEL: A12 Z00
    Date: 2010–12
  4. By: Berg, Nathan; Gigerenzer, Gerd
    Abstract: For a research program that counts improved empirical realism among its primary goals, it is surprising that behavioral economics appears indistinguishable from neoclassical economics in its reliance on “as-if” arguments. “As-if” arguments are frequently put forward in behavioral economics to justify “psychological” models that add new parameters to fit decision outcome data rather than specifying more realistic or empirically supported psychological processes that genuinely explain these data. Another striking similarity is that both behavioral and neoclassical research programs refer to a common set of axiomatic norms without subjecting them to empirical investigation. Notably missing is investigation of whether people who deviate from axiomatic rationality face economically significant losses. Despite producing prolific documentation of deviations from neoclassical norms, behavioral economics has produced almost no evidence that deviations are correlated with lower earnings, lower happiness, impaired health, inaccurate beliefs, or shorter lives. We argue for an alternative non-axiomatic approach to normative analysis focused on veridical descriptions of decision process and a matching principle – between behavioral strategies and the environments in which they are used – referred to as ecological rationality. To make behavioral economics, or psychology and economics, a more rigorously empirical science will require less effort spent extending “as-if” utility theory to account for biases and deviations, and substantially more careful observation of successful decision makers in their respective domains.
    Keywords: bounded rationality; ecological rationality; as-if; fit; prediction; decision; process
    JEL: B1 B4
    Date: 2010
  5. By: Berg, Nathan
    Abstract: This article describes the emerging subfield known as behavioral economics, which borrows from psychology, empirically tests assumptions used elsewhere in economics, and provides theories that aim to be more realistic and closely tied to experimental and field data. Highlights from the experimental findings of behavioral economics are discussed. The article remarks critically on the role of empirical realism and continued use of as-if methodology in behavioral economics. Problems in normative behavioral economics are given special attention as debates arise concerning how to interpret empirical findings that contradict standard definitions of axiomatic rationality. Ecological rationality, methodological pluralism, and Simon's notion of bounded rationality are considered.
    Keywords: bounded rationality; ecological rationality; Herbert Simon; as-if; survey
    Date: 2010

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