nep-neu New Economics Papers
on Neuroeconomics
Issue of 2017‒09‒17
five papers chosen by

  1. Economic rationality under cognitive load By Andreas Drichoutis; Rodolfo M. Nayga, Jr.
  2. What situation is this? Coarse cognition and behavior over a space of games. By Robert Gibbons; Marco LiCalzi; Massimo Warglien
  3. Bayesian versus Heuristic-based choice under sleep restriction and suboptimal times of day By David L. Dickinson; Todd McElroy
  4. Trading while sleepy? Circadian mismatch and excess volatility in a global experimental asset market By David L. Dickinson; Ananish Chaudhuri; Ryan Greenaway-McGrevy
  5. The impact of non-cognitive skills and risk preferences on rural-to-urban migration: Evidence from Ukraine By S. H. Ayhan; K. Gatskova; H. Lehmann

  1. By: Andreas Drichoutis (Agricultural University of Athens); Rodolfo M. Nayga, Jr. (Department of Agricultural Economics & Agribusiness, University of Arkansas,)
    Abstract: Economic analysis assumes that consumer behavior can be rationalized by a utility function. Previous research has shown that some decision-making quality can be captured by permanent cognitive ability but has not examined how a temporary load in subjects' working memory can a ect economic rationality. In a controlled laboratory experiment, we exogenously vary cognitive load by asking subjects to memorize a number while they undertake an induced budget allocation task (Choi et al., 2007a,b). Using a number of manipulation checks, we verify that cognitive load has adverse a ects on subjects' performance in reasoning tasks. However, we nd no e ect in any of the goodness-of- t measures that measure consistency of subjects' choices with the Generalized Axiom of Revealed Preferences (GARP), despite having a sample size large enough to detect even small di erences between treatments with 80% power. Our nding suggests that researchers need not worry about economic rationality breaking down when subjects are placed under temporary working memory load.
    Keywords: Cognitive load, rationality, revealed preferences, working memory, response times, laboratory experiment
    JEL: C91 D03 D11 D12 G11
    Date: 2017
  2. By: Robert Gibbons (Massachusetts Institute of Technology); Marco LiCalzi (Dept. of Management, Università Ca' Foscari Venice); Massimo Warglien (Dept. of Management, Università Ca' Foscari Venice)
    Abstract: We study strategic interaction between agents who distill the complex world around them into simpler situations. Assuming agents share the same cognitive frame, we show how the frame affects equilibrium outcomes. In one-shot and repeated interactions, the frame causes agents to be either better or worse off than if they could perceive the environment in full detail: it creates a fog of cooperation or a fog of conflict. In repeated interaction, the frame is as important as agentsÕ patience in determining the set of equilibria: for a fixed discount factor, when all agents coordinate on what they perceive as the best equilibrium, there remain significant performance differences across dyads with different frames. Finally, we analyze some tensions between incremental versus radical changes in the cognitive frame.
    Keywords: categorization, frame, mental model, small world, culture, leadership.
    JEL: C79 D01 D23 L14 M14
    Date: 2017–09
  3. By: David L. Dickinson; Todd McElroy
    Abstract: This paper examines the impact of a commonly experienced adverse cognitive state on decision making under uncertainty. Specifically, we administer an at-home sleep restriction protocol combined with random assignment to the time-of-day for decision making. Thus, we induce sleepiness in our subjects via sleep restriction as well as suboptimal time-of-day prior to administration of a Bayesian choice task. The specific task used discriminates between Bayesian choices that coincide with more simple reinforcement heuristic choices (in “Easy” trials) versus those that do not (in “Hard” trials), which is ideal given our underlying hypothesis that sleepy subjects are more likely to use simple heuristics. We first show that both circadian mismatch and sleep restriction significantly increase subjective sleepiness—this documents protocol validity. Our key behavioral results are that sleepy subjects are more likely to make a Bayesian inaccurate decision and more likely to make decisions consistent with a simple reinforcement heuristic, particularly in more cognitively difficult “Hard” trials. Secondary results show that stimulation of subject affect increased used of the simple decision heuristic but, when combined with sleep restriction, increased affect may increase task motivation and improve choice accuracy. These results offer new insights into the likely impact of sleepiness on decision making under uncertainty and highlight the potential negative impact on such cognitive states may have on accurate formation of probability assessments. Key Words:
    Date: 2017
  4. By: David L. Dickinson; Ananish Chaudhuri; Ryan Greenaway-McGrevy
    Abstract: Traders in global markets operate at different local times-of-day. Suboptimal times-of-day may produce sleepiness due to daily variations in sleep/wake patterns and possibly also increased accumulation of hours awake. Global asset markets imply significantly increased heterogeneity in circadian timing, and likely sleepiness, of trader decisions compared to localized markets. We examine these factors by administering single-location and global sessions of an online asset market experiment that regularly produces valuation bubble and crash events. Global sessions involved real time trades between subjects in two locations 16 time zones apart (i.e., “global” markets) and at varied local times of day across sessions. We find asset market bubbles occur in all sessions, but global markets had significantly more extreme and longer duration valuation bubbles. Additionally, subjects at the most suboptimal times-of-day held significantly more asset shares in their portfolios in late trading rounds compared to other subjects—a risky strategy with overvalued shares. Overall, our results highlight a unique but underappreciated factor present across traders in global market environments. They also point to the importance of a relatively common cognitive state (i.e., suboptimal time-of-day) in attempting to understand trader behavior and, ultimately, market outcomes. Key Words: Asset Markets, Experiments, Bubbles, Sleep, Circadian rhythm
    JEL: C92 G12 G15 D84
    Date: 2017
  5. By: S. H. Ayhan; K. Gatskova; H. Lehmann
    Abstract: This paper provides evidence on the impacts of non-cognitive skills and attitudes towards risk on the decision to migrate from rural to urban areas. Our analysis is based on a unique four-wave panel of Ukrainian Longitudinal Monitoring Survey for the period between 2003 and 2012. Adopting the Five Factor Model of personality structure, and using it in the evaluation of non-cognitive skills, our results suggest that such personality traits as openness to new experience and the willingness to take risks increase the probability of migration. On the other hand, the non-cognitive skills conscientiousness and extraversion are found to be negatively associated with the propensity to migrate. The effects are statistically and quantitatively significant, and mainly driven by movements from rural areas into cities. Our results are robust to several sensitivity checks, including tests for reverse causality.
    JEL: J61 D03 D81 R23
    Date: 2017–09

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