nep-neu New Economics Papers
on Neuroeconomics
Issue of 2012‒05‒15
three papers chosen by
Daniel Houser
George Mason University

  1. Herding in Financial Behaviour: A Behavioural and Neuroeconomic Analysis of Individual Differences By Baddeley, M.; Burke, C.; Schultz, W.; Tobler, P.
  2. The Causal Effect of Cognitive Abilities on Economic Behavior: Evidence from a Forecasting Task with Varying Cognitive Load By Ondrej Rydval
  3. Education, cognitive skills and earnings of males and females By Büchner Charlotte; Smits Wendy; Velden Rolf van der

  1. By: Baddeley, M.; Burke, C.; Schultz, W.; Tobler, P.
    Abstract: Experimental analyses have identified significant tendencies for individuals to follow herd decisions, a finding which has been explained using Bayesian principles. This paper outlines the results from a herding task designed to extend these analyses using evidence from a functional magnetic resonance imaging (fMRI) study. Empirically, we estimate logistic functions using panel estimation techniques to quantify the impact of herd decisions on individuals' financial decisions. We confirm that there are statistically significant propensities to herd and that social information about others' decisions has an impact on individuals' decisions. We extend these findings by identifying associations between herding propensities and individual characteristics including gender, age and various personality traits. In addition fMRI evidence shows that individual differences correlate strongly with activations in the amygdala – an area of the brain commonly associated with social decision-making. Individual differences also correlate strongly with amygdala activations during herding decisions. These findings are used to construct a two stage least squares model of financial herding which confirms that individual differences and neural responses play a role in modulating the propensity to herd.
    Keywords: herding; social influence, individual differences, neuroeconomics, fMRI, amygdala
    JEL: D03 D53 D70 D83 D87 G11
    Date: 2012–05–09
    URL: http://d.repec.org/n?u=RePEc:cam:camdae:1225&r=neu
  2. By: Ondrej Rydval
    Abstract: We identify the causal effect of cognitive abilities on economic behavior in an experimental setting. Using a forecasting task with varying cognitive load, we identify the causal effect of working memory on subjects' forecasting performance, while also accounting for the effect of other cognitive, personality and demographic characteristics. Addressing the causality is important for understanding the nature of various decision-making errors, as well as for providing reliable policy implications in contexts such as student placement, personnel assignment, and public policy programs designed to augment abilities of the disadvantaged. We further argue that establishing the causality of cognitive abilities is a prerequisite for studying their interaction with financial incentives, with implications for the design of efficient incentive schemes.
    Keywords: cognitive ability; causality; experiment; financial incentives; performance; working memory;
    JEL: C81 C91 D80 D83 J24
    Date: 2012–04
    URL: http://d.repec.org/n?u=RePEc:cer:papers:wp457&r=neu
  3. By: Büchner Charlotte; Smits Wendy; Velden Rolf van der (ROA rm)
    Abstract: This paper analyzes the relationship between cognitive skills, measured at age 12, andearnings of males and females at the age of 35, conditional on their attained educationallevel. Employing a large data set that combines a longitudinal school cohort survey withincome data from Dutch national tax files, our findings show that cognitive skills andspecifically math skills are rewarded on the labor market, but more for females thanfor males. The main factor driving this result is that cognitive skills appear to be betterpredictors of schooling outcomes for males than for females. Once males have achievedthe higher levels of education, they more often choose programs with high earningperspectives like economics and engineering, even if their level of math skills is relativelylow.
    Keywords: labour market entry and occupational careers;
    Date: 2012
    URL: http://d.repec.org/n?u=RePEc:dgr:umaror:2012002&r=neu

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