nep-neu New Economics Papers
on Neuroeconomics
Issue of 2015‒05‒09
seven papers chosen by
Daniel Houser
George Mason University

  1. Cognitive Bubbles By Ciril Bosch-Rosa; Thomas Meissner; Antoni Bosch-Domènech
  2. Locus of Control and Its Intergenerational Implications for Early Childhood Skill Formation By Warn N. Lekfuangfu; Francesca Cornaglia; Nattavudh Powdthavee; Nele Warrinnier
  3. The Gender Wage Gap in France: the Role of Non-Cognitive Characteristics By Bensidoun, Isabelle; Trancart, Danièle
  4. Overconfident people are more exposed to “black swan” events: A case study of avalanche risk By Nicolao Bonini; Stefania Pighin; Enrico Rettore; Lucia Savadori; Federico Schena; Sara Tonini; Paolo Tosi
  5. The Effects of Emotions on Preferences and Choices for Public Goods By Christopher Boyce; Mikolaj Czajkowski; Nick Hanley; Charles Noussair; Michael Townsend; Steve Tucker
  6. Genetic Distance and Cognitive Human Capital: A Cross-National Investigation By Oasis Kodila-Tedika; Simplice Asongu
  7. Slack Time and Innovation By Ajay Agrawal; Christian Catalini; Avi Goldfarb

  1. By: Ciril Bosch-Rosa (Technische Universitaet Berlin); Thomas Meissner (Technische Universitaet Berlin); Antoni Bosch-Domènech (Universitat Pompeu Fabra)
    Abstract: Smith et al. (1988) reported large bubbles and crashes in experimental asset markets, a result that has been replicated many times. 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 relevance of this type of experiments. Creation Date: 2015-03-16
    Keywords: Asset Market Experiment, Bubbles, Cognitive Sophistication
    JEL: C91 D12 D84 G11
  2. 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. 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
  3. By: Bensidoun, Isabelle; Trancart, Danièle
    Abstract: Differences between men and women in non-cognitive skills could be the reason why the gender gap closing didn’t improve since the middle of the nineties. To investigate this issue in the case of France we used the "Génération 1998 à 10 ans" database conducted by the Céreq. This survey provides information on gender preferences differences in terms of career versus family, risk attitudes or the vision individuals have of their professional futures. As these non-cognitive factors are likely to influence wages but also occupational choices, the decomposition of wage differentials proposed by Brown, Moon and Zoloth (1980) is implemented. This makes it possible to consider this indirect mechanism by which non-cognitive variables can determine wages, but also the potentially discriminatory nature of occupational segregation. We find that differences in non-cognitive skills matter, 6.3% of the total gender wage gap, that is almost twice as experience, but a large part, 60% of the gap, remains unexplained by the characteristics considered in this work.
    Keywords: Gender wage gap; Brown-Moon and Zoloth wage decomposition; noncognitive factors; occupational segregation; écarts de salaires hommes femmes; décomposition salariale Brown-Moon et Zoloth; facteurs non-cognitifs; ségrégation professionnelle;
    JEL: J16 J24 J31 J38 J71
    Date: 2015
  4. By: Nicolao Bonini; Stefania Pighin; Enrico Rettore; Lucia Savadori; Federico Schena; Sara Tonini; Paolo Tosi
    Abstract: Overconfidence is a well-established bias in which someone's subjective confidence in their own judgments is systematically greater than their objective accuracy. There is abundant anecdotal evidence that overconfident people increase their exposure to risk. In this paper, we test whether overconfident people underestimate the probability of incurring an avalanche accident. An avalanche accident is a typical "black swan" event because it has a low probability of occurring but has potential dramatic consequences. To test whether the overconfidence bias affects the decision of backcountry skiers to go on a ski trip under different levels of avalanche risk, we measured individual cognitive traits and then used a random effect logit model to measure their effects on the probability to take the tour, by controlling for other observable characteristics of the respondent. We show that 1) overconfidence is widespread even in our sample and 2) practitioners who are more prone to overestimate their knowledge are also more likely to take the risk associated with a ski trip exposed to avalanche danger. This suggests that overconfident people are more exposed to black swan events.
    Keywords: Cognitive bias, Risky decision, Backcountry skiing, Measurement errors, Logit model
    JEL: D83 D84 C2
    Date: 2015–04
  5. By: Christopher Boyce (University of Stirling); Mikolaj Czajkowski (University of Warsaw); Nick Hanley (University of St Andrews); Charles Noussair (Tilburg University); Michael Townsend (NZ National Institute for Water and Atmosphere); Steve Tucker (University of Waikato)
    Abstract: This paper tests whether changes in 'incidental emotions' lead to changes in economic choices. Incidental emotions are experienced at the time of an economic decision but are not part of the payoff from a particular choice. As such, the standard economic model predicts that incidental emotions should not affect behavior, yet many papers in the behavioral science and psychology literatures find evidence of such effects. In this paper, we used a standard procedure to induce different incidental emotional states in respondents, and then carried out a choice experiment on changes to an environmental good (beach quality). We estimated preferences for this environmental good and willingness to pay for changes in this good, and tested whether these were dependent on the particular emotional state induced. We also tested whether choices became more or less random when emotional states were induced, based on the notion of randomness in a standard random utility model. Contrary to our a-priori hypothesis we found no significant evidence of treatment effects, implying that economists need not worry about the effects of variations in incidental emotions on preferences and the randomness of choice, even when there is measured (induced) variation in these emotions.
    Keywords: choice experiments; behavioral economics; ecosystem services; emotions; rationality
    JEL: Q51 Q57 D03 D87
    Date: 2015–03–31
  6. By: Oasis Kodila-Tedika (Université de Kinshasa Département d’Eco); Simplice Asongu (Yaoundé/Cameroun)
    Abstract: This paper explores the determinants of intelligence by focusing on the role played by barriers to the diffusion of competence and human capital. The results based on cross-sectional data from 167 countries consisting of 1996-2009 averages suggest that, genetic distance to global frontiers has a negative relationship with human capital. Countries that are genetically far from leading nations tend to have lower levels of human capital with the negative correlation from the USA frontier higher relative to the UK frontier. The sign is consistent with the relationship of genetic diversity and robust to the control of macroeconomic, geographical, institutional and influential variables. Policy implications are discussed.
    Keywords: Intelligence, Human Capital, Genetic distance
    JEL: G15 O50 O16 F15 N7
    Date: 2015–04
  7. By: Ajay Agrawal; Christian Catalini; Avi Goldfarb
    Abstract: The extant literature linking slack time to innovation focuses on how slack time facilitates creative activities such as ideation, experimentation, and prototype development. We turn attention to how slack time may enable activities that are less creative but still important for innovation, namely mundane, execution-oriented tasks. First, we document the main effect: a sharp rise in innovative projects posted on a major crowdfunding platform when colleges are on break. Next, we report timing and project type evidence consistent with the causal interpretation that slack time drives innovation. Finally, we present a series of results consistent with the mundane task mechanism but not with the traditional creativity-related explanations. We do not rule out the possibility that creativity benefits from slack time. Instead, we introduce the idea that mundane, execution-oriented tasks, such as those associated with launching a crowdfunding campaign (e.g., administration, planning, promotion), are an important input to innovation that may benefit significantly from slack time.
    JEL: J22 L26 O31
    Date: 2015–04

This nep-neu issue is ©2015 by Daniel Houser. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.