nep-neu New Economics Papers
on Neuroeconomics
Issue of 2017‒03‒26
three papers chosen by
Daniel Houser
George Mason University

  1. Myopia and Discounting By Xavier Gabaix; David Laibson
  2. Smog in Our Brains: Gender Differences in the Impact of Exposure to Air Pollution on Cognitive Performance By Chen, Xi; Zhang, Xiaobo; Zhang, Xin
  3. Preference Discovery By Jason Delaney; Sarah Jacobson; Thorsten Moenig

  1. By: Xavier Gabaix; David Laibson
    Abstract: We assume that perfectly patient agents estimate the value of future events by generating noisy, unbiased simulations and combining those signals with priors to form posteriors. These posterior expectations exhibit as-if discounting: agents make choices as if they were maximizing a stream of known utils weighted by a discount function, D(t). This as-if discount function reflects the fact that estimated utils are a combination of signals and priors, so average expectations are optimally shaded toward the mean of the prior distribution, generating behavior that partially mimics the properties of classical time preferences. When the simulation noise has variance that is linear in the event's horizon, the as-if discount function is hyperbolic, D(t)=1/(1+a t). Our agents exhibit systematic preference reversals, but have no taste for commitment because they suffer from imperfect foresight, which is not a self-control problem. In our framework, agents that are more skilled at forecasting (e.g., those with more intelligence) exhibit less discounting. Agents with more domain-relevant experience exhibit less discounting. Older agents exhibit less discounting (except those with cognitive decline). Agents who are encouraged to spend more time thinking about an intertemporal tradeoff exhibit less discounting. Agents who are unable to think carefully about an intertemporal tradeoff – e.g., due to cognitive load – exhibit more discounting. In our framework, patience is highly unstable, fluctuating with the accuracy of forecasting.
    JEL: D03 D14 E03 E23
    Date: 2017–03
  2. By: Chen, Xi; Zhang, Xiaobo; Zhang, Xin
    Abstract: While there is a large body of literature on the negative health effects of air pollution, there is much less written about its effects on cognitive performance for the whole population. This paper studies the effects of contemporaneous and cumulative exposure to air pollution on cognitive performance based on a nationally representative survey in China. Bymerging a longitudinal sample at the individual level with local air-quality data according to the exact dates and counties of interviews, we find that contemporaneous and cumulative exposure to air pollution impedes both verbal and math scores of survey subjects. Interestingly, the negative effect is stronger for men than for women. Specifically, the gender difference is more salient among the old and less educated in both verbal and math tests.
    Keywords: cognitive performance,air pollution,gender difference
    JEL: I24 Q53 Q51 J16
    Date: 2017
  3. By: Jason Delaney (Georgia Gwinnett College); Sarah Jacobson (Williams College); Thorsten Moenig (Temple University)
    Abstract: We develop an axiomatic theory that integrates the discovered preference hypothesis into neoclassical microeconomic choice theory, making predictions amenable to empirical tests. Several regularities in economic literatures could be explained by a theory in which preferences must be discovered through experience. These include: choice reversals as seen in various contexts, instability as seen in risky choice, and errors that decline with repetition as seen in contingent valuation. With reasonable assumptions, we show that choices may appear unstable while preferences are being learned, and that unlearned preferences are associated with welfare loss. We also show that even after choices appear to stabilize, agents face the potential for continued welfare loss due to persistent mis-ranking because of selection bias in the feedback and learning process. The transitory welfare loss that occurs during the learning process decreases over time, with more common goods, and with more income. For large discrete items purchased a small number of times (like houses), this transitory welfare loss may continue the agent’s whole life. The long-run welfare loss caused by persistent mis-ranking is primarily determined by initial misperceptions of goods. In extensions, we demonstrate that imperfect memory of learned tastes and stochasticity in the consumption experiences may make preference learning harder, and that learning spillovers across goods and sophisticated agents who know they need to learn their preferences may or may not alleviate welfare loss.
    Keywords: discovered preferences, preference stability, learning, risk preferences
    JEL: D81 D83 D01 D03
    Date: 2017–03

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