nep-neu New Economics Papers
on Neuroeconomics
Issue of 2011‒01‒03
five papers chosen by
Daniel Houser
George Mason University

  1. Individual-level loss aversion in riskless and risky choices By Simon Gaechter; Eric J. Johnson; Andreas Herrmann
  2. Linking Decision and Time Utilities By Kontek, Krzysztof
  3. Who Responds to Voluntary Cognitive Tests in Household Surveys? The Role of Labour Market Status, Respondent Confidence, Motivation and a Culture of Learning in South Africa By Hendrik van Broekhuizen; Dieter von Fintel
  4. Rich and slim, but relatively short Explaining the halt in the secular trend in Japan By Jean-Pascal Bassino; Kato, Noriko
  5. Economic Behavior - Evolutionary vs. Behavioral Perspectives By Ulrich Witt

  1. By: Simon Gaechter (University of Nottingham); Eric J. Johnson (Columbia University); Andreas Herrmann (University of St Gallen)
    Abstract: Loss aversion can occur in riskless and risky choices. Yet, there is no evidence whether people who are loss averse in riskless choices are also loss averse in risky choices. We measure individual-level loss aversion in riskless choices in an endowment effect experiment by eliciting both WTA and WTP from each of our 360 subjects (randomly selected customers of a car manufacturer). All subjects also participate in a simple lottery choice task which arguably measures loss aversion in risky choices. We find substantial heterogeneity in both measures of loss aversion. Loss aversion in the riskless choice task and loss aversion in the risky choice task are highly significantly and strongly positively correlated. We find that in both choice tasks loss aversion increases in age, income, and wealth, and decreases in education.
    Keywords: Loss aversion, endowment effect, field experiments
    JEL: C91 C93 D81
    Date: 2010–11
  2. By: Kontek, Krzysztof
    Abstract: This paper presents the functional relationship between two areas of interest in contemporary behavioral economics: one concerning choices under conditions of risk, the other concerning choices in time. The paper first presents the general formula of the relationship between decision utility, the survival function, and the discounting function, where decision utility is an alternative to Cumulative Prospect Theory in describing choices under risk (Kontek, 2010). The stretched exponential function appears to be a simple functional form of the resulting discounting function. Solutions obtained using more complex forms of decision utility and survival functions are also considered. These likewise lead to the stretched exponential discounting function. The paper shows that the relationship may also have other forms, including the hyperbolic functions typically used to describe the intertemporal experimental results. This solution has however several descriptive disadvantages, which restricts its common use in the description of lottery and intertemporal choices, and in financial asset valuations.
    Keywords: Discounted Utility; Hyperbolic Discounting; Decision Utility; Prospect Theory; Asset Valuation
    JEL: E43 G12 D81 D90 C91
    Date: 2010–12–18
  3. By: Hendrik van Broekhuizen (Department of Economic, University of Stellenbosch); Dieter von Fintel (Department of Economic, University of Stellenbosch)
    Abstract: Both South Africa’s labour market and education system were directly influenced by the separate development policies of the apartheid regime. To this day, great inequalities persist in both domains. South Africa’s performance in standardized international test scores (such as TIMMS) is poor even relative to most developing countries. Furthermore, the better quality of outcomes in former white schools still leaves learners from former black schools at a disadvantage that feeds through to severe labour market inequalities. This study is the first in a series of papers that attempts to understand the role of school quality on labour market outcomes. Here we scrutinize the measurement of numeracy test scores in the National Income Dynamics Survey (NIDS) of 2008, particularly in light of potential sample selection issues. While this survey measures standard welfare and labour market indicators, it is one of the first in South Africa to also ask respondents to complete a concurrent numeracy test. Response rates on this module were particularly low, given that the test was taken on a voluntary basis. We develop a basic empirical model to understand who is likely to take the test. We postulate that discouraged workers’ low propensity to take the test is correlated with their reduced motivation to undertake job search, that the searching unemployed are highly motivated to take the test (as they wish to gauge their ability or practice assessments while embarking on the job search process), the poorest among the self-employed face severe time opportunity costs (as their low incomes are less secure than those of salaried workers) and the richest amongst the employed exhibit an income effect (in that the time opportunity costs of their high incomes reduce their willingness to respond to the numeracy test). Furthermore, locational effects suggest that those residing in geographical “points of entry” into the labour market are also more likely to take the test. The young (who are still in education) and the most educated (in the whole population) also tend to answer the test more readily. The latter observations indicate that some form of confidence in respondents’ own abilities drives their response patterns. To explain these observed features, we construct composite indices of motivation/emotional well-being and individuals’ confidence in their writing abilities using multiple correspondence analysis. While each of these psychological and behavioural factors is a strong predictor of test response, they do not entirely eliminate the independent contributions of each of the observed influences mentioned above. Coefficient magnitudes of each of the sociodemographic variables are, however, reduced, indicating that the particular behavioural influences introduced in later models tell some of the story. Additional uncaptured behavioural and motivational factors are therefore investigated. Firstly, we investigate the role of survey fatigue (by controlling for the time it took to complete the survey before the test was administered), which plays an important role in the black and coloured subpopulations. It furthermore explains why the wealthiest amongst the formally employed are less likely to complete the numeracy test. However, surprisingly, “pseudoaltruistic” effects appear amongst the (wealthier) white population, in that the longer the duration of the preceding questions, the more likely they are to care about answering the test. However, this result cannot be generalized to the whole white population, as response rates were very low among this group. Secondly, (household) peer effects are strong throughout the population, suggesting that a culture of learning is pivotal in understanding response patterns. The results of this paper suggest that broad sociodemographic and labour market features remain important determinants of test response, even after controlling for behavioural features. This suggests that subsequent labour market work must take these drivers into account to avoid the risk of sample selection bias.
    Keywords: education, behavioural economics, survey design, voluntary assessment, numeracy, survey non-response, sample selection bias, respondent confidence, motivation, culture of learning, South Africa
    JEL: C81 I21
    Date: 2010
  4. By: Jean-Pascal Bassino; Kato, Noriko
    Abstract: An almost complete halt in the secular trend in stature at a relatively low level is observed in Japan since the late 1980s with average height of around 171 cm for males and 158 cm for females at age 18. Unidentified characteristics in the Japanese genetic pool or in the nutritional intake do not provide a convincing explanation. Japan is unique among OECD countries in combining contrasted health outcomes: a stagnation of height suggests a decline in biological well-being, but this picture is not consistent with high life expectancy and extremely low prevalence of infant mortality, overweight/obesity, and other pathologies. Individual data that could allow investigating the influence of socio-economic and other environmental conditions are unavailable. As a second best, we take advantage of the regional variance in average height and other indicators across the 47 Japanese prefectures and use data covering the period 1950-2005. A positive and significant influence of income and housing conditions on height is identified but the effect is fading. Caloric restraint of pregnant women, and the decrease in sleeping time observed since the 1980s appear as possible explanatory variables of the halt in the secular trend and a symptom of a decline in well-being. Public health policy implications are considered.
    Keywords: height, income, housing, sleep, sexual dimorphism, Japan
    JEL: I10 R0 Z13
    Date: 2010–11
  5. By: Ulrich Witt
    Abstract: An evolutionary perspective on economic behavior has to account for the influences that the human genetic endowment has on the choices the agents make. Likely to have been fixed in times of fierce selection pressure, this endowment is presumably adapted to the living conditions of early humans. If at all, behavioral economics accounts for its influences on economic decision making in a way similar to the approach taken by evolutionary psychology, i.e. by focusing on decision heuristics and their tensions with modern rationality standards. In an evolutionary perspective, that focus needs to be extended so as to also embrace the motivational underpinnings of economic behavior. In the language of economics this means to inquire into the agents' preferences and to explain how they relate to the human genetic endowment and how they change over time. The paper discusses several implications of such an extension.
    Keywords: behavioral economics, evolutionary economics, Darwinism, decision heuristics, preferences, development, growth, welfare Length 21 pages
    JEL: A12 B25 B52 D01 D63 O10
    Date: 2010–12

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