nep-neu New Economics Papers
on Neuroeconomics
Issue of 2015‒02‒05
eight papers chosen by

  1. Locus of control and its intergenerational implications for early childhood skill formation By Warn N. Lekfuangfu; Francesca Cornaglia; Nattavudh Powdthavee; Nele Warrinnier
  2. Cognitive bubbles By Ciril Bosch-Rosa; Thomas Meissner; Antoni Bosch-Domènech
  3. Leaving school in an economic downturn and self-esteem across early and middle adulthood By Johanna Catherine Maclean; Terrence D. Hill
  4. The importance of cognitive skills in macroeconomic models of growth and development By Eddie Gerba; Emmanuel V. Pikoulakis
  5. The Impact of Short Term Exposure to Ambient Air Pollution on Cognitive Performance and Human Capital Formation By Ebenstein, Avraham; Lavy, Victor; Roth, Sefi
  6. Regulators as agents: modelling personality and power as evidence is brokered to support decisions on environmental risk By G.J. Davies; G. Kendall; E. Soane; J. Li; S.A. Rocks; S.R. Jude; S.J.T. Pollard
  7. Insurance Decision-Making For Rare Events: The Role Of Emotions By Howard Kunreuther; Mark Pauly
  8. Why people drink shampoo? Food imitating products are fooling brains and endangering consumers for marketing purposes By Frédéric Basso; Philippe Robert-Demontrond; Maryvonne Hayek; Jean-Luc Anton; Bruno Nazarian; Muriel Roth; Olivier Oullier

  1. By: Warn N. Lekfuangfu; Francesca Cornaglia; Nattavudh Powdthavee; Nele Warrinnier
    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. Using a unique British cohort survey, we show that maternal LOC measured during the 1st trimester strongly predicts early and late child cognitive and noncognitive outcomes. Further, we utilize the variation in maternal LOC to improve the specification typically used in the estimation of parental investment effects on child development.
    Keywords: Locus of control; parental investment; human capital accumulation; early skill formation; ALSPAC
    JEL: I31 J01
    Date: 2014–08
  2. By: Ciril Bosch-Rosa; Thomas Meissner; Antoni Bosch-Domènech
    Abstract: Smith et al. (1988) reported large bubbles and crashes in experimental asset markets, a result that has been replicated by a large literature. Here we test whether the occurrence of bubbles depends on the experimental subjects' cognitive sophistication. In a two-part experiment, we first run a battery of tests to assess the subjects' cognitive sophistication and classify them into low or high levels of cognitive sophistication. We then invite them separately to two asset market experiments populated only by subjects with either low or high cognitive sophistication. We observe classic bubble- crash patterns in the sessions populated by subjects with low levels of cognitive sophistication. Yet, no bubbles or crashes are observed with our sophisticated subjects. This result lends strong support to the view that the usual bubbles and crashes in experimental asset markets are caused by subjects' confusion and, therefore, raises some doubts about the external validity of this type of experiments.
    Keywords: Asset Market Experiment, Bubbles, Cognitive Sophistication.
    JEL: C91 D12 D84 G11
    Date: 2015–01
  3. By: Johanna Catherine Maclean (Department of Economics, Temple University); Terrence D. Hill (Department of Sociology, The University of Utah)
    Abstract: In this study we test whether leaving school in an economic downturn impacts self-esteem. Self-esteem is an important dimension of non-cognitive skill that economists have recently begun to examine. Previous work documents that leaving school in a downturn persistently depresses career outcomes, and career success is an important determinant of self-esteem. We model responses to the Rosenberg Self-esteem Scale as a function of the state unemployment rate at school-leaving. We address the potential endogeneity of time and location of school- leaving with instrumental variables. Our results suggest that leaving school in an economic downturn lowers self-esteem men but effects do not emerge until middle adulthood, and are particularly strong for white and high skill men.
    Keywords: self-esteem, non-cognitive skills, school-leaving, macroeconomic fluctuations
    JEL: I1 I12 J2
    Date: 2015–01
  4. By: Eddie Gerba; Emmanuel V. Pikoulakis
    Abstract: In a highly influential and thought provoking study, Hanushek, E.A., and Woessmann, L., (NBER Working Paper No.14633, 2009) provide evidence in favor of a strong causal effect of cognitive skills on growth. To quote: “… the simple premise that improving the schools can produce benefits in national growth rates is strongly supported”. Whilst we concur with this premise, we are rather sceptical whether the Mincerian approach followed by Hanushek and Woessmann (op.cit.) can sufficiently account for the contribution of cognitive skills on national growth rates. To further explore the importance of cognitive skills on growth and development we revisit macroeconomic models where cognitive skills are the key determinant of the path of human capital and its rate of accumulation. Our empirical results strongly support the workings of a “learning-by-doing” hypothesis where cognitive skills together with physical capital determine the paths of human capital, of output per worker, and growth.
    JEL: O15 O41 O47
    Date: 2014–06–04
  5. By: Ebenstein, Avraham; Lavy, Victor; Roth, Sefi
    Abstract: Cognitive performance is critical to productivity in many occupations and potentially linked to pollution exposure. We evaluate this potentially important relationship by estimating the effect of pollution exposure on standardized test scores among Israeli high school high-stakes tests (2000-2002). Since students take multiple exams on multiple days in the same location after each grade, we can adopt a fixed effects strategy estimating models with city, school, and student fixed effects. We focus on fine particulate matter (PM2.5) and carbon monoxide (CO), which are considered to be two of the most dangerous forms of air pollution. We find that while PM2.5 and CO levels are only weakly correlated with each other, both exhibit a robust negative relationship with test scores. We also find that PM2.5, which is thought to be particularly damaging for asthmatics, has a larger negative impact on groups with higher rates of asthma. For CO, which affects neurological functioning, the effect is more homogenous across demographic groups. Furthermore, we find that exposure to either pollutant is associated with a significant decline in the probability of not receiving a Bagrut certificate, which is required for college entrance in Israel. The results suggest that the gain from improving air quality may be underestimated by a narrow focus on health impacts. Insofar as air pollution may lead to reduced cognitive performance, the consequences of pollution may be relevant for a variety of everyday activities that require mental acuity. Moreover, by temporarily lowering the productivity of human capital, high pollution levels lead to allocative inefficiency as students with lower human capital are assigned a higher rank than their more qualified peers. This may lead to inefficient allocation of workers across occupations, and possibly a less productive workforce.
    Date: 2014–12
  6. By: G.J. Davies; G. Kendall; E. Soane; J. Li; S.A. Rocks; S.R. Jude; S.J.T. Pollard
    Abstract: Complex regulatory decisions about risk rely on the brokering of evidence between providers and recipients, and involve personality and power relationships that influence the confidence that recipients may place in the sufficiency of evidence and, therefore, the decision outcome. We explore these relationships in an agent-based model; drawing on concepts from environmental risk science, decision psychology and computer simulation. A two-agent model that accounts for the sufficiency of evidence is applied to decisions about salt intake, animal carcass disposal and radioactive waste. A dynamic version of the model assigned personality traits to agents, to explore their receptivity to evidence. Agents with ‘aggressor’ personality sets were most able to imbue fellow agents with enhanced receptivity (with ‘avoider’ personality sets less so) and clear confidence in the sufficiency of evidence. In a dynamic version of the model, when both recipient and provider were assigned the ‘aggressor’ personality set, this resulted in 10 successful evidence submissions in 71 days, compared with 96 days when both agents were assigned the ‘avoider’ personality set. These insights suggest implications for improving the efficiency and quality of regulatory decision making by understanding the role of personality and power.
    Keywords: risk; agent; regulation; power; personality; model
    JEL: G32
    Date: 2014–01
  7. By: Howard Kunreuther; Mark Pauly
    Abstract: This paper describes the results of a web-based multi-period insurance purchasing experiment focusing on how individuals make insurance choices for low-probability, high-consequence events. Participants were told the probability and resulting losses of a hurricane occurring and were informed that these were stable from period to period. We contrast the model of informed expected utility [E(U)] maximization with alternative behavioral models of choice as explanations for what we observe. The majority of individuals (63 percent) behaved in ways that were consistent with expected utility theory, although we do not know whether these individuals were utilizing other decision rules. A sizeable number of uninsured individuals decided to purchase insurance after learning that they had suffered a loss and revealing that they were unhappy about having been uninsured. In this sense, the study shows that a loss coupled with emotions is likely to play an important role in convincing an uninsured person to buy coverage. In contrast, insured individuals who did not suffer a loss rarely dropped coverage. The paper concludes by raising questions regarding the welfare implications of this behavior.
    JEL: C90 D12 D60 D81 G22
    Date: 2015–01
  8. By: Frédéric Basso; Philippe Robert-Demontrond; Maryvonne Hayek; Jean-Luc Anton; Bruno Nazarian; Muriel Roth; Olivier Oullier
    Abstract: A Food Imitating Product (FIP) is a household cleaner or a personal care product that exhibits food attributes in order to enrich consumption experience. As revealed by many cases worldwide, such a marketing strategy led to unintentional self-poisonings and deaths. FIPs therefore constitute a very serious health and public policy issue. To understand why FIPs are a threat, we first conducted a qualitative analysis on real-life cases of household cleaners and personal care products-related phone calls at a poison control center followed by a behavioral experiment. Unintentional self-poisoning in the home following the accidental ingestion of a hygiene product by a healthy adult is very likely to result from these products being packaged like foodstuffs. Our hypothesis is that FIPs are non-verbal food metaphors that could fool the brain of consumers. We therefore conducted a subsequent functional neuroimaging (fMRI) experiment that revealed how visual processing of FIPs leads to cortical taste inferences. Considered in the grounded cognition perspective, the results of our studies reveal that healthy adults can unintentionally categorize a personal care product as something edible when a food-like package is employed to market nonedible and/or dangerous products. Our methodology combining field (qualitative) and laboratory (behavioral and functional neuroimaging) findings could be of particular relevance for policy makers, as it can help screening products prior to their market release – e.g. the way they are packaged and how they can potentially confuse the mind of consumers – and therefore save lives.
    JEL: J1
    Date: 2014–09–10

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