nep-neu New Economics Papers
on Neuroeconomics
Issue of 2017‒03‒19
two papers chosen by
Daniel Houser
George Mason University

  1. Diversity in Cognitive Ability Enlarges Mispricing in Experimental Asset Markets By Nobuyuki Hanaki; Eizo Akiyama; Yukihiko Funaki; Ryuichiro Ishikawa
  2. Facing Yourself: A Note on Self-Image By Armin Falk

  1. By: Nobuyuki Hanaki (Université Côte d'Azur; GREDEG-CNRS; IUF); Eizo Akiyama (University of Tsukuba, Japan); Yukihiko Funaki (Waseda University, Japan); Ryuichiro Ishikawa (University of Tsukuba, Japan)
    Abstract: Does diversity of cognitive ability among market participants increase mispricing? Does common knowledge of heterogeneity in relation to cognitive ability of market participants further increase mispricing? We investigated these questions by measuring subjects' cognitive ability and categorizing those above median ability as type `H' and those below median ability as type `L'. We then constructed three market types, each containing six traders: 6H, 6L, and 3H3L. Subjects were informed of their own cognitive type and, depending on the treatment, that of the others in their market. We found that heterogeneous markets (3H3L) generated significantly larger mispricing than homogeneous markets (6H or 6L) regardless of whether subjects were informed about the cognitive type of others in their market. Thus, diversity of cognitive ability among market participants increased mispricing. However, common knowledge of heterogeneity or homogeneity in the market did not have a signi cant additional effect.
    Keywords: Cognitive ability, Heterogeneity, Mispricing, Experimental asset markets
    JEL: C90 D84
    Date: 2017–03
  2. By: Armin Falk (Universität Bonn)
    Abstract: Numerous signaling models in economics assume image concerns. These take two forms, as relating either to social image or self-image. While empirical work has identified the behavioral importance of the former, little is known about the role of self-image concerns. We exogenously vary self-image concerns in manipulating self-directed attention and study the impact on moral behavior. The choice context in the experiment is whether subjects inflict a painful electric shock on another subject to receive a monetary payment. Three between-subjects conditions are studied. In the main treatment, subjects see their own face on the decision screen in a real-time video feed. In the two control conditions, subjects see either no video at all or a neutral video. We find that the exogenous increase in self-image concerns significantly reduces the fraction of subjects inflicting pain.
    Keywords: self-image, moral behavior
    JEL: D64 C91
    Date: 2017–03

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