nep-neu New Economics Papers
on Neuroeconomics
Issue of 2014‒11‒28
four papers chosen by

  1. Locus of Control and Its Intergenerational Implications for Early Childhood Skill Formation By Lekfuangfu, Warn N.; Cornaglia, Francesca; Powdthavee, Nattavudh; Warrinnier, Nele
  2. Control thyself: Self-control failure and household wealth By Biljanovska, Nina; Palligkinis, Spyros
  3. Experimental Evidence on Distributional Effects of Head Start By Marianne P. Bitler; Hilary W. Hoynes; Thurston Domina
  4. Visceral emotions, within-community communication, and (ill-judged) endorsement of financial propositions By Kim Kaivanto

  1. By: Lekfuangfu, Warn N. (University College London); Cornaglia, Francesca (Queen Mary, University of London); Powdthavee, Nattavudh (London School of Economics); Warrinnier, Nele (CEP, London School of Economics)
    Abstract: We propose a model in which parents have a subjective belief about the impact of their investment on the early skill formation of their children. This subjective belief is determined in part by locus of control (LOC), i.e., the extent to which individuals believe that their actions can influence future outcomes. Consistent with the theory, we show that maternal LOC measured at the 12th week of gestation strongly predicts early and late child cognitive and noncognitive outcomes. We also utilize the variation in maternal LOC to help improve the specification typically used in the estimation of skill production function parameters.
    Keywords: locus of control, parental investment, human capital accumulation, early skill formation, ALSPAC
    JEL: J01 I31
    Date: 2014–09
  2. By: Biljanovska, Nina; Palligkinis, Spyros
    Abstract: We examine the relationship between household wealth and self-control. Although self-control has been linked to consumption and financial behavior, its measurement remains an open issue. We employ a definition of self-control failure that follows literature in psychology, suggesting that three factors can render self-control defective: lack of planning, lack of monitoring, and lack of commitment to pre-set plans. Our measure combines those three ingredients and can be computed using a standard representative survey. We find that self-control failure is strongly associated with different household net wealth measures and with self-assessed financial distress.
    Keywords: Self-Control,Household Wealth,Household Finance
    JEL: D01 D12 D14
    Date: 2014
  3. By: Marianne P. Bitler; Hilary W. Hoynes; Thurston Domina
    Abstract: This study provides the first comprehensive analysis of the distributional effects of Head Start, using the first national randomized experiment of the Head Start program (the Head Start Impact Study). We examine program effects on cognitive and non-cognitive outcomes and explore the heterogeneous effects of the program through 1st grade by estimating quantile treatment effects under endogeneity (IV-QTE) as well as various types of subgroup mean treatment effects and two-stage least squares treatment effects. We find that (the experimentally manipulated) Head Start attendance leads to large and statistically significant gains in cognitive achievement during the pre-school period and that the gains are largest at the bottom of the distribution. Once the children enter elementary school, the cognitive gains fade out for the full population, but importantly, cognitive gains persist through 1st grade for some Spanish speakers. These results provide strong evidence in favor of a compensatory model of the educational process. Additionally, our findings of large effects at the bottom are consistent with an interpretation that the relatively large gains in the well-studied Perry Preschool Program are in part due to the low baseline skills in the Perry study population. We find no evidence that the counterfactual care setting plays a large role in explaining the differences between the HSIS and Perry findings.
    JEL: H52 I20 I38
    Date: 2014–08
  4. By: Kim Kaivanto
    Abstract: The 2007-08 financial crisis exposed poignant examples of ill-judged risk accretion in both tails of the Lorenz curve: concentrations of inappropriate mortgages within low-income neighborhoods, and concentrations of Bernard Madoff’s victims within wealthy, predominantly Jewish country-club communities. These examples share three key elements. First, individual behavioural decision makers take decisions privately but contribute to the build-up of risk within the community. Second, sales agents employ psychological persuasion techniques (bypassing logical processes), and trigger visceral emotions (overriding rational deliberation). Third, community membership immerses individuals within information flows that trigger invidious visceral emotions, and leads to biased inferences due to sample-size illusion and persuasion bias. We develop a closed-form model based on Signal-Detection Theory (SDT) that incorporates all three abovementioned elements: it is behavioral in employing a Prospect Theory (PT) objective function; peripheral-route persuasion and visceral emotions are incorporated through their impacts on discriminability d′; and sample-size illusion and persuasion bias are incorporated through their effects on the score θ. This PT-SDT model predicts that visceral-emotion-charged hot states can short-circuit the capacity to practice caveat emptor, carrying implications for regulation and for our understanding of US household-borrowing growth 2001–2006.
    Keywords: within-community risk accretion, signal detection theory, prospect theory, psychology of deception, peripheral-route persuasion, visceral emotions, persuasion bias, mortgage mis-selling, predatory lending, Madoff ponzi scheme, caveat emptor, accredited investor status
    JEL: G11 D81
    Date: 2014

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