nep-neu New Economics Papers
on Neuroeconomics
Issue of 2016‒04‒09
six papers chosen by

  1. Network Cognition By Roberta Dessi; Edoardo Gallo; Sanjeev Goyal;
  2. Cognitive Ability and the Mortality Gradient by Education: Selection or Mediation? By Bijwaard, Govert; Jones, Andrew M.
  3. Unleashing Animal Spirits - Self-Control and Overpricing in Experimental Asset Markets By Kocher, Martin G.; Lucks, Konstantin E.; Schindler, David
  4. Use It Too Much and Lose It? The Effect of Working Hours on Cognitive Ability By Shinya Kajitani; Colin McKenzie; Kei Sakata
  5. Use It or Lose It: Irish Evidence By Mosca, Irene; Wright, Robert E.
  6. Revealed Indifference: Using Response Times to Infer Preferences By Arkady Konovalov; Ian Krajbich

  1. By: Roberta Dessi; Edoardo Gallo; Sanjeev Goyal;
    Abstract: We study individual ability to memorize and recall information about friendship networks using a combination of experiments and survey-based data. In the experiment subjects are shown a network, in which their location is exogenously assigned, and they are then asked questions about the network after it disappears. We find that subjects exhibit three main cognitive biases: (i) they underestimate the mean degree compared to the actual network; (ii) they overestimate the number of rare degrees; (iii) they underestimate the number of frequent degrees. We then analyse survey data from two `real' friendship networks from a Silicon Valley firm and from a University Research Center. We find, somewhat remarkably, that individuals in these real networks also exhibit these biases. The experiments yield three further: findings: (iv) network cognition is a affected by the subject's location, (v) the accuracy of network cognition varies with the nature of the network, and (vi) network cognition has a significant effect on economic decisions.
    Date: 2014–08–27
  2. By: Bijwaard, Govert (NIDI - Netherlands Interdisciplinary Demographic Institute); Jones, Andrew M. (University of York)
    Abstract: Large differences in mortality rates across those with different levels of education are a well- established fact. This association between mortality and education may partly be explained by confounding factors, including cognitive ability. Cognitive ability may also be affected by education so that it becomes a mediating factor in the causal chain. In this paper we estimate the impact of education on mortality using inverse probability weighted (IPW) estimators, using either cognitive ability as a selection variable or as a mediating variable. We develop an IPW estimator to analyse the mediating effect in the context of survival models. Our estimates are based on administrative data, on men born in 1944-1947 who were examined for military service in the Netherlands between 1961-1965, linked to national death records. For these men we distinguish four education levels and we make pairwise comparisons. From the empirical analyses we conclude that the mortality differences observed by education are only attributable to education effects for highly educated individuals. For less educated individuals the observed mortality gain is mainly attributable to differences in cognitive ability.
    Keywords: education, mortality, inverse probability weighting, mediators, mixed proportional hazard
    JEL: C41 I14 I24
    Date: 2016–03
  3. By: Kocher, Martin G.; Lucks, Konstantin E.; Schindler, David
    Abstract: One possible determinant of overpricing on asset markets is a lack of self-control abilities of traders. Self-control is the individual capacity to override or inhibit undesired behavioral tendencies such as impulses and to refrain from acting on them. We implement the first experiment that is able to address a potential causal relationship between self-control abilities and systematic overpricing on financial markets by introducing an exogenous variation of self-control abilities. Our experimental conditions seek to detect some of the channels through which individual self-control problems could transmit into irrational exuberance on the aggregate level. We observe a strong effect of inhibited self-control abilities on market overpricing. Our findings are furthermore robust to reducing self-control abilities only for a moderate share of traders in a market. Low self-control traders engage in more speculative behavior early on, but because others imitate their trading patterns, they do not end up earning less and are not driven out of the market.
    Keywords: Behavioral finance; trader behavior; self control; experimental asset markets; overpricing
    JEL: G02 G11 G12 D53 D84
    Date: 2016–02–29
  4. By: Shinya Kajitani (Faculty of Economics, Meisei University; and Melbuorne Institute of Applied Economics and Social Research); Colin McKenzie (Faculty of Economics, Keio University); Kei Sakata (Faculty of Economics, Ritsumeikan University)
    Abstract: Using data from Wave 12 of the Household, Income and Labour Dynamics in Australia (HILDA) Survey, we examine the impact of working hours on the cognitive ability of people living in Australia aged 40 years and older. Three measures of cognitive ability are employed: the Backward Digit Span; the Symbol Digits Modalities; and a 25-item version of the National Adult Reading Test. In order to capture the potential non-linear dependence of cognitive ability on working hours, the model for cognitive ability includes working hours and its square. We deal with the potential endogeneity of the decision of how many hours to work by using the instrumental variable estimation technique. Our findings show that there is a non-linearity in the effect of working hours on cognitive functioning. For working hours up to around 25 hours a week, an increase in working hours has a positive impact on cognitive functioning. However, when working hours exceed 25 hours per week, an increase in working hours has a negative impact on cognition. Interestingly, there is no statistical difference in the effects of working hours on cognitive functioning between men and women. Classification-I10, J22, J26
    Keywords: Cognitive ability, endogeneity, retirement, working hours
    Date: 2016–02
  5. By: Mosca, Irene (Trinity College Dublin); Wright, Robert E. (University of Strathclyde)
    Abstract: A small but growing body of research suggests that retirement and cognitive decline are related. In fact, some have argued that retirement causes cognitive decline. The aim of this paper is to add to this literature using data of older women from The Irish Longitudinal Study on Ageing (TILDA). Ordinary least square (OLS) regressions show a significant negative association between retirement and cognitive functioning. These estimates are based on the assumption that retirement is exogenous. As retirement is potentially endogenous with respect to cognition, instrumental variable (IV) methods are also used. The instrument employed is the abolition of the so-called "Marriage Bar". In simple terms, the Marriage Bar was the requirement that women leave paid employment on getting married. It was established in the 1930s and removed in the 1970s. When IV estimations are used, the effect of retirement on cognition is negative but statistically insignificant. Differences between OLS and IV estimates are compared with a standard test. OLS estimates are preferred as the null hypothesis of exogeneity of retirement cannot be rejected at conventional statistical levels.
    Keywords: cognition, ageing, retirement
    JEL: J14 J26
    Date: 2016–03
  6. By: Arkady Konovalov (Department of Economics, Ohio State University); Ian Krajbich (Department of Economics, Ohio State University)
    Abstract: Revealed preference is the dominant approach for inferring preferences, but it relies on discrete, stochastic choices. The choice process also produces response times which are continuous and can often be observed in the absence of choice outcomes. Here, using three common choice tasks, we demonstrate that response times reflect strength-of-preference and can thus be used to recover individual utility functions and predict choices out of sample. Furthermore, we are able to use long response times to predict which choices are likely to later be reversed. These results provide a proof of concept for a novel "method of revealed indifference".
    Keywords: preferences, response times, sequential sampling models, drift diffusion model, experimental methodology, social preference, loss aversion, temporal discounting
    JEL: C91 D01 D03 D87 D81 D90
    Date: 2015–02

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