nep-neu New Economics Papers
on Neuroeconomics
Issue of 2018‒05‒28
three papers chosen by

  1. Locus of Control and Consistent Investment Choices By Pia Pinger; Sebastian Schäfer; Heiner Schumacher
  2. Maternal Stress during Pregnancy and Early Childhood Development By Berthelon, Matias; Kruger, Diana; Sánchez, Rafael
  3. Survey Item-Response Behavior as an Imperfect Proxy for Unobserved Ability: Theory and Application By Kassenboehmer, Sonja C.; Schurer, Stefanie

  1. By: Pia Pinger; Sebastian Schäfer; Heiner Schumacher
    Abstract: We document that an internal locus of control can be hindering in financial mar- ket situations, where short-term outcomes are determined by chance. The reason is that internally controlled individuals may tend to (over-)react to random out- comes. Our evidence is based on an experiment in which subjects repeatedly invest in two identical, uncorrelated, risky assets and observe previous outcome realiza- tions. Under mild restrictions, the optimal strategy is to make the same choice in each period. Yet, internals are more likely to make inconsistent risk choices. The effect size of locus of control is comparable with that of cognitive ability. Among inconsistent subjects, average switching behavior is in line with the gambler’s fal- lacy. However, choices of very internally controlled individuals tend to correspond to the hot hand fallacy.
    Keywords: Locus of Control, Risk Preferences, Investment Decisions, Cognitive Ability
    JEL: D03 G02 C91
    Date: 2018–05
  2. By: Berthelon, Matias (Universidad Adolfo Ibañez); Kruger, Diana (Universidad Adolfo Ibañez); Sánchez, Rafael (Universidad Adolfo Ibañez)
    Abstract: There is a consensus in the literature on the relevance of the first 1,000 days since conception in the development of a child's cognitive and non-cognitive skills. However, little is known of the determinants of these skills at that age, as previous literature has focused on the effect of in utero and early childhood shocks on outcomes at birth or at age 7 and beyond. In this paper, we analyze the impact of prenatal stress on cognitive and non-cognitive development of the child by age 2. By exploiting a longitudinal dataset of children and their parents, we find that children who were exposed in-utero to maternal stress do not have different birth-weight relative to those who were not exposed, yet by age 2, exposed children had a lower level of development, cognition skills, and more attention problems relative to children not exposed to in utero stress. We also find that the negative impacts are observed if in-utero stress occurs during the first trimester of pregnancy. The negative impact on cognitive skills and development is concentrated on lower-income children and attention problems occur among high-income children, and boys suffer lower development and worse attention problems, while girls' cognition is negatively affected by in-utero stress.
    Keywords: in-utero, stress, early childhood development, maternal stress, maternal mental health, earthquake, Chile
    JEL: I10 I19 J13
    Date: 2018–04
  3. By: Kassenboehmer, Sonja C. (Monash University); Schurer, Stefanie (University of Sydney)
    Abstract: We develop and test an economic model of the cognitive and non-cognitive foundations of survey item- response behavior. We show that a summary measure of response behaviour – the survey item-response rate (SIRR) – varies with cognitive and less so with non-cognitive abilities, has a strong individual fixed component and is predictive of economic outcomes because of its relationship with ability. We demonstrate the usefulness of SIRR, although an imperfect proxy for cognitive ability, to reduce omitted-variable biases in estimated wage returns. We derive both necessary and sufficient conditions under which the use of an imperfect proxy reduces such biases, providing a general guideline for researchers.
    Keywords: survey item-response behavior, imperfect proxy variables, behavioral proxy, cognitive ability, personality traits, selection on unobservables
    JEL: J24 C18 C83 I20 J30
    Date: 2018–04

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