nep-neu New Economics Papers
on Neuroeconomics
Issue of 2012‒08‒23
five papers chosen by
Daniel Houser
George Mason University

  1. Emotion and Consumer Confidence: A preliminary study (Japanese) By SEKIZAWA Yoichi; KUWAHARA Susumu
  2. Honesty and Management Control System Design: An Experimental Study By Maria J. Sanchez-Exposito; David Naranjo-Gil
  3. Bounded rationality: psychology, economics and the financial crisis By Schilirò, Daniele
  4. Toward the Integration of Personality Theory and Decision Theory in the Explanation of Economic and Health Behavior By Rustichini, Aldo; DeYoung, Colin G.; Anderson, Jon; Burks, Stephen V.
  5. Level-k Reasoning and Incentives By Larbi Alaoui; Antonio Penta

  1. By: SEKIZAWA Yoichi; KUWAHARA Susumu
    Abstract: Research in psychology and neuroscience has shown that negative emotions such as depression and anxiety affect decision making in such a way that these emotions lead to pessimistic risk estimates. To see if this is applicable to consumer confidence, we conducted preliminary experiments. In the first experiment, college students filled out the Japanese version of the Center for Epidemiologic Studies Depression Scale (CES-D) and the questions from which the Japanese version of the consumer confidence index (CCI) is calculated. In the second experiment, college students filled out the Japanese version of the State-Trait Anxiety Inventory (STAI) and the aforementioned CCI questions. The experiments showed no significant correlation between the CES-D and the CCI, but a significant correlation between the positive affect subscale of the CES-D and the CCI (r=−0.224, p<0.01), between trait anxiety and the CCI (r=−0.340, p<0.01), and between state anxiety and the CCI (r=−0.157, p<0.05).
    Date: 2012–08
    URL: http://d.repec.org/n?u=RePEc:eti:rdpsjp:12027&r=neu
  2. By: Maria J. Sanchez-Exposito (Department of Financial Economics and Accounting, Pablo de Olavide University, Seville, Spain); David Naranjo-Gil (Department of Financial Economics and Accounting, Pablo de Olavide University, Seville, Spain)
    Abstract: The manipulation of performance measures is a central theme in management accounting research. Individuals have private information that can be used for their own benefit; and thus they can falsify their performance reporting. Psychology literature asserts that the attitude of individuals to maximize their own interests or common benefits depends on their cognitive orientation. Accounting literature argues that management control systems can motivate individuals to act for the organization benefit. This paper analyzes how management control systems (beliefs system vs. boundary system) and cognitive orientation of individuals affect honesty in performance reporting. Hypotheses were tested using an experiment among post-graduate students. Results showed that a boundary design of management control systems moderates the negative relationship between the individualist cognitive orientation and the honesty in performance reporting.
    Keywords: Honesty, management control system design and cognitive orientation
    Date: 2012–07
    URL: http://d.repec.org/n?u=RePEc:pab:fiecac:12.05&r=neu
  3. By: Schilirò, Daniele
    Abstract: Classical mathematical algorithms often fail to identify in time when the international financial crises occur although, as the classical theory of choice would suggest, the economic agents are rational and the markets are or should be efficient and behave also rationally. This contribution does not pretend to give a complete answer to these questions, but it will highlight some well-known limits of the classical theory of rational choice. In particular, the present paper will focus on the concept of bounded rationality. The work also makes some references to behavioral economics and to the literature of behavioral finance which has given important contributions in explaining the behavior and the anomalies of financial markets. Finally, following the approch of Simon, the paper proposes an analytical model to describe the behaviour of agents which are rationally bounded, risk averse and loss averse, emphasizing the relationship between psychology and economics which helps to explain the crisis in financial markets.
    Keywords: Bounded rationality; rational choice; cognitive economics; behavioral finance; risk aversion
    JEL: D81 B52 D83 C60
    Date: 2012–07
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:40280&r=neu
  4. By: Rustichini, Aldo (University of Minnesota); DeYoung, Colin G. (University of Minnesota); Anderson, Jon (University of Minnesota, Morris); Burks, Stephen V. (University of Minnesota, Morris)
    Abstract: Trait-based personality psychology and economics have taken different approaches to understanding individual differences, with the former emphasizing variables derived from the factor analysis of trait assessments, and the latter emphasizing variables derived from formal decision theory. In a data set on trainee truckers in a large US company, we provide a systematic initial assessment of the empirical pattern of relationships between the elements from these two approaches by comparing the predictive power of measurements derived from personality theory and decision theory for several individual characteristics and outcomes, and relating the two sets of measurements to each other. We show that personality traits have a comparable or stronger predictive power than do economic preferences for several dependent variables, including credit score, job persistence, and heavy truck accidents. They also have strong predictive power for Body Mass Index (BMI) and smoking status. Further, decision theory and personality variables are meaningfully related. For example, we confirm that cognitive ability explains a substantial part of time preferences, and find that Neuroticism and cognitive ability together explain attitudes toward risk. In addition, Agreeableness and cognitive ability explain aspects of other-regarding behavior in a strategic setting.
    Keywords: personality theory, decision theory, strategic behavior, credit score, smoking, obesity, prisoners' dilemma, job performance, heavy truck accident, truckload, turnover, trucker
    JEL: D83 C72 C93
    Date: 2012–07
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp6750&r=neu
  5. By: Larbi Alaoui; Antonio Penta
    Abstract: Level-k theories are agnostic over whether individuals stop the iterated reasoning because of their own cognitive constraints, or because of their beliefs over the cognitive constraints of their opponents. In practice, individual level of play may be a function both of their own constraints and their beliefs over their opponents' reasoning process. Moreover, the rounds of introspection that players perform may depend on their incentives to think more deeply. We develop a theory which explicitly models players' reasoning procedure. The rounds of introspection that individuals perform and their actual level of play both follow endogenously. This model delivers testable implications as payoff s and opponents change, and it allows for comparisons across games. It also disentangles the cognitive bound of players for a given game from their beliefs about the play of their opponents. In conjunction with the framework, we present an experiment designed to test its predictions. We modify the Arad and Rubinstein (2012) '11-20' game to serve this precise purpose, and administer different treatments which vary beliefs over payoff s and opponents. The results of this experiment are consistent with the model, and appear to lend support to our theory. This experiment also confirms the central premise that individuals change their level of play as incentives to think more and beliefs over opponents vary.
    Keywords: beliefs, bounded rationality, cognitive cost, higher order beliefs, incentives, level-k reasoning, value of reasoning
    JEL: C72 C92 D80 D83
    Date: 2012–07
    URL: http://d.repec.org/n?u=RePEc:bge:wpaper:653&r=neu

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