nep-neu New Economics Papers
on Neuroeconomics
Issue of 2017‒04‒02
six papers chosen by

  1. Myopia and Discounting By Gabaix, Xavier; Laibson, David
  2. Humans’ (incorrect) distrust of reflective decisions By Antonio Cabrales; Antonio M. Espín; Praveen Kujal; Stephen Rassenti
  3. Does early child care attendance influence children's cognitive and non-cognitive skill development? By Kuehnle, Daniel; Oberfichtner, Michael
  4. Ego-utility and Endogenous Information Acquisition; An Experimental Study By Tomas Miklanek
  5. Teacher Quality, Test Scores and Non-Cognitive Skills: Evidence from Primary School Teachers in the UK By Sarah Flèche
  6. Understanding the Determinants of Financial Outcomes and Choices: The Role of Noncognitive Abilities By Parise, Gianpaolo; Peijnenburg, Kim

  1. By: Gabaix, Xavier; Laibson, David
    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+at). 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.
    Keywords: Behavioral economics; discounting; myopia
    JEL: D03 D14 E03 E23
    Date: 2017–03
  2. By: Antonio Cabrales (Department of Economics, University College London); Antonio M. Espín (Department of Economics, Middlesex University Business School); Praveen Kujal (Department of Economics, Middlesex University and Economic Science Institute, Chapman University); Stephen Rassenti (Economic Science Institute, Chapman University)
    Abstract: Recent experiments suggest that social behavior may be shaped by the time available for decision making. It is known that fast decision making relies more on intuition whereas slow decision making is affected by reflective processes. Little is known, however, about whether people correctly anticipate the effect of intuition vs. reflection on others’ decision making. This is important in everyday situations where anticipating others’ behavior is often essential. A good example of this is the extensively studied Trust Game where the trustor, by sending an amount of money to the trustee, runs the risk of being exploited by the trustee’s subsequent action. We use this game to study how trustors’ choices are affected by whether trustees are externally forced to respond quickly or slowly. We also examine whether trustors’ own tendency to stop and reflect on their intuitions (as measured by the Cognitive Reflection Test) moderates how they anticipate the effect of reflection on the behavior of trustees. We find that the least reflective trustors send less money when trustees are forced to respond “reflectively” rather than “intuitively”, but we also argue that this is a wrong choice. In general, no group, including the ones with the largest number of reflective individuals, is good at anticipating the (positive) effect of forced delay on others’ trustworthiness
    Keywords: trust, trustworthiness, beliefs, reflection, dual-process, intuition
    Date: 2017
  3. By: Kuehnle, Daniel; Oberfichtner, Michael
    Abstract: While recent studies mostly find that attending child care earlier improves the skills of children from low socio-economic and non-native backgrounds in the short-run, it remains unclear whether such positive effects persist. We identify the short- and medium-run effects of early child care attendance in Germany using a fuzzy discontinuity in child care starting age between December and January. This discontinuity arises as children typically start formal child care in the summer of the calendar year in which they turn three. Combining rich survey and administrative data, we follow one cohort from age five to 15 and examine standardised cognitive test scores, non-cognitive skill measures, and school track choice. We find no evidence that starting child care earlier affects children's outcomes in the shortor medium-run. Our precise estimates rule out large effects for children whose parents have a strong preference for sending them to early child care.
    Keywords: child care,child development,skill formation,cognitive skills,non-cognitive skills,fuzzy regression discontinuity
    JEL: J13 I21 I38
    Date: 2017
  4. By: Tomas Miklanek
    Abstract: This paper examines endogenous decisions to acquire useful information. My experimental design tries to test predictions of ego-utility theories and other relevant theories about the decision-making process of agents in the environment with costless signals. Only slightly more than half of the subjects acquired an optimal number of the signals for payoff maximization. The results suggest that for the subjects making sub-optimal decisions, aversion to cognitive dissonance is the prevalent channel. Contrary to this, I find much less support for the ego-utility theory and theory of information ignorance in my setting. The availability of information alone does not automatically lead to an improvement in decisions.
    Keywords: information acquisition; experiment; overconfidence;
    JEL: C91 D03
    Date: 2017–03
  5. By: Sarah Flèche
    Abstract: Schooling can produce both cognitive and non-cognitive skills, both of which are important determinants of adult outcomes. Using very rich data from a UK birth cohort study, I estimate teacher value added (VA) models for both pupils' test scores and non-cognitive skills. I show that teachers are equally important in the determination of pupils' test scores and non-cognitive skills. This finding extends the economics literature on teacher effects, which has primarily focused on pupils' test scores and may fail to capture teachers' overall effects. In addition, the large estimates reveal an interesting trade-off: teacher VA on pupils' test scores are weak predictors of teacher VA on non-cognitive skills, which suggests that teachers recourse to different techniques to improve pupils' cognitive and non-cognitive skills. Finally, I find that teachers' effects on pupils' non-cognitive skills have long-run impacts on adult outcomes such as higher education attendance, employment and earnings, conditional on their effects on test scores. This result indicates that long-run outcomes are improved by a combination of teachers increasing pupils' test scores and non-cognitive skills and has large policy implications.
    Keywords: teacher quality, test scores, non-cognitive skills, long-run impacts, teaching practices, ALSPAC
    JEL: I21 J00
    Date: 2017–03
  6. By: Parise, Gianpaolo; Peijnenburg, Kim
    Abstract: We explore how financial distress and choices are affected by noncognitive abilities. Our measures stem from research in psychology and economics. In a representative panel of households, we find that people in the bottom decile of noncognitive abilities are five times more likely to experience financial distress compared to those in the top decile. Relatedly, individuals with lower noncognitive abilities make financial choices that increase their likelihood of distress: They are less likely to plan for retirement and save, and more likely to buy impulsively and to have unsecured debt. Causality is shown using childhood trauma as an instrument.
    Keywords: behavioral finance; financial choices; financial distress; Noncognitive abilities; psychology and economics; Saving; unsecured debt
    JEL: D10 D14 G02
    Date: 2017–03

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