nep-neu New Economics Papers
on Neuroeconomics
Issue of 2014‒11‒22
five papers chosen by

  1. Predictable and Predictive Emotions: Explaining Cheap Signals and Trust Re-Extension By Schniter, Eric; Sheremeta, Roman
  2. Cognitive load and strategic sophistication By Allred, Sarah; Duffy, Sean; Smith, John
  3. Cognitive constraints increase estimation biases: Cognitive load and delay in judgments By Allred, Sarah; Crawford, L. Elizabeth; Duffy, Sean; Smith, John
  4. Zukunftsangst! Fear of (and hope for) the future and its impact on life satisfaction. By Piper, Alan T.
  5. Emotions-at-Risk: An Experimental Investigation into Emotions, Option Prices and Risk Perception By Roman Kräussl; Ronald Bosman; Thomas van Galen

  1. By: Schniter, Eric; Sheremeta, Roman
    Abstract: Despite normative predictions from economics and biology, unrelated strangers will often develop the trust necessary to reap gains from one-shot economic exchange opportunities. This appears to be especially true when declared intentions and emotions can be cheaply communicated. Perhaps even more puzzling to economists and biologists is the observation that anonymous and unrelated individuals, known to have breached trust, often make effective use of cheap signals, such as promises and apologies, to encourage trust re-extension. We used a pair of trust games with one-way communication and an emotion survey to investigate the role of emotions in regulating the propensity to message, apologize, re-extend trust, and demonstrate trustworthiness. This design allowed us to observe the endogenous emergence and natural distribution of trust-relevant behaviors, remedial strategies used by promise-breakers, their effects on behavior, and subsequent outcomes. We found that emotions triggered by interaction outcomes are predictable and also predict subsequent apology and trust re-extension. The role of emotions in behavioral regulation helps explain why messages are produced, when they can be trusted, and when trust will be re-extended.
    Keywords: emotion, cheap signal, promise, apology, trust game, reciprocity, experiment
    JEL: C9 C91 C92
    Date: 2014–10–15
  2. By: Allred, Sarah; Duffy, Sean; Smith, John
    Abstract: We study the relationship between the cognitive load manipulation and strategic sophistication. The cognitive load manipulation is designed to reduce the subject's cognitive resources that are available for deliberation on a choice. In our experiment, subjects are placed under a high cognitive load (given a difficult number to remember) or a low cognitive load (given a number that is not difficult to remember). Subsequently, the subjects play a one-shot game then they are asked to recall the number. This procedure is repeated for various games. We find a nuanced and nonmonotonic relationship between cognitive load and strategic sophistication. This relationship is consistent with two effects. First, subjects under a high cognitive load tend to exhibit behavior consistent with the reduced ability to compute the optimal decision. Second, the cognitive load tends to affect the subject's perception of their relative standing in the distribution of the available cognitive resources. The net result of these two opposing effects depends on the strategic setting. Our experiment provides evidence on the literature that examines the relationship between measures of cognitive ability and strategic sophistication.
    Keywords: bounded rationality, experimental economics, working memory load, cognition, strategic sophistication, rational inattention
    JEL: C72 C91
    Date: 2014–10–22
  3. By: Allred, Sarah; Crawford, L. Elizabeth; Duffy, Sean; Smith, John
    Abstract: Previous work has demonstrated that memory for simple stimuli can be biased by information about the category of which the stimulus is a member. These biases have been interpreted as optimally integrating noisy sensory information with category information. A separate literature has demonstrated that cognitive load can lead to biases in social cognition. Here we link the two, asking whether delay (Experiment 1) and cognitive load (Experiment 2) affect the extent to which observers' memories for simple line stimuli are affected by category information. We found that delay and cognitive load have similar effects: both manipulations increase the weight of category information on memory for stimuli. We discuss the broad implications of such findings on fields such as eyewitness testimony.
    Keywords: cognitive load; delay; judgment; estimation biases; memory; category effects
    JEL: C91
    Date: 2014–08–30
  4. By: Piper, Alan T.
    Abstract: The thoughts that an individual has about the future contribute substantially to their life satisfaction in a positive or negative direction. This is a result found via five different methods, some of which control for personality and disposition and the potential endogeneity of thoughts and life satisfaction. The reduction in life satisfaction experienced by individuals who report being pessimistic is greater than that for well-known objective statuses like unemployment. Including individuals’ thoughts about the future substantially increases the explanatory power of standard life satisfaction models. Life satisfaction is made up of objective and subjective factors and methods exist to account for their potential endogeneity to enhance our understanding of well-being. This investigation is an example of such an analysis combining a subjective factor, thoughts about the future (treated as endogenous), with more standard objective factors to aid understanding regarding well-being.
    Keywords: Life Satisfaction, Subjective Well-Being, GMM, Dynamics, Endogeneity, SOEP, ESS.
    JEL: C23 D84 I31
    Date: 2014–10
  5. By: Roman Kräussl; Ronald Bosman; Thomas van Galen (LSF)
    Abstract: This paper experimentally investigates how emotions are associated with option prices and risk perception. Using a binary lottery, we find evidence that the emotion ‘surprise’ plays a significant role in the negative correlation between lottery returns and estimates of the price of a put option. Our findings shed new light on various existing theories on emotions and affect. We find gratitude, admiration, and joy to be positively associated with risk perception, although the affect heuristic predicts a negative association. In contrast with the predictions of the appraisal tendency framework (ATF), we document a negative correlation between option price and surprise for lottery winners. Finally, the results show that the option price is not associated with risk perception as commonly used in psychology.
    Keywords: Risk perception, emotions, affect heuristic, option prices, experiment
    JEL: D81 D03 G17
    Date: 2014

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