nep-neu New Economics Papers
on Neuroeconomics
Issue of 2018‒06‒25
four papers chosen by

  1. Locus of Control and Consistent Investment Choices By Pinger, Pia; Schäfer, Sebastian; Schumacher, Heiner
  2. Are rising house prices really good for your brain? House value and cognitive functioning among older Europeans By Isabelle CHORT; Bénédicte APOUEY
  3. Class Setting and Children’s Non-Cognitive Outcomes By Emily McDool
  4. Combining Forces to Combat Elder Financial Victimization How Consumers Can Avoid the Financial Pitfalls of Cognitive Aging and What They Should Be Asking Their Financial Institutions By Rentezelas, Jeanne; Santucci, Larry

  1. By: Pinger, Pia (University of Bonn); Schäfer, Sebastian (Goethe University Frankfurt); Schumacher, Heiner (KU Leuven)
    Abstract: We document that an internal locus of control can be hindering in financial market situations, where short-term outcomes are determined by chance. The reason is that internally controlled individuals may tend to (over-)react to random outcomes. Our evidence is based on an experiment in which subjects repeatedly invest in two identical, uncorrelated, risky assets and observe previous outcome realizations. 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 fallacy. 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: Isabelle CHORT; Bénédicte APOUEY
    Abstract: This study examines how house prices in fluence cognitive functioning for individuals aged 50+ in Europe. Using data from the Survey of Health, Ageing and Retirement (SHARE) between 2004 and 2015, we compute the median house price for each region-year, using individual self-reported house values. Cognitive scores capture either fl uid intelligence (numeracy, memory) or a mix of fl uid and crystallized intelligences (verbal fluency). Compared with the previous literature, we allow housing market fl uctuations to have different effects during episodes of price increases and decreases, and we study owners with a mortgage, owners without a mortgage, and tenants separately. Findings indicate that house price booms do not systematically improve cognitive health outcomes: for outright owners and tenants, a rise in prices correlates with a decrease in fluid intelligence. For outright owners, this result is partly explained by increased alcohol consumption, and is also related to stronger feelings of guilt and irritability, consistent with aversion to advantageous inequality. Findings also show asymmetry in the effects of price booms and busts: indeed, for mortgaged owners, both price increase and decrease episodes have a positive impact on cognitive outcomes. We argue that during the crisis the beneficial impact of price busts may have been driven by the decline in interest rates, which reduced the debt burden of households with a variable rate mortgage.
    Keywords: House prices, Wealth, Cognitive functioning, Health, Older Europeans, Europe, SHARE
    JEL: D12 I1 I3 J14
    Date: 2018–06
  3. By: Emily McDool (Department of Economics, University of Sheffield)
    Abstract: Setting is one form of ability grouping which is widely adopted in English schools; it involves dividing pupils from the same cohort into classes according to ability in a specific subject. The effect of setting has long been debated; while the existing evidence identifies a negative effect on cognitive outcomes, especially for the low ability, little research has been undertaken to understand the impact of setting on non-cognitive outcomes. This paper provides the first evidence of setting on non-cognitive outcomes when adopting a nationally representative sample of primary aged pupils. Using Millennium Cohort Study data, Fixed Effects (FE) and Instrumental Variables (IV) methodologies are adopted to overcome potential unobserved heterogeneity and endogeneity. For boys, setting in maths negatively impacts non-cognitive outcomes, as measured by the Strengths and Difficulties Questionnaire. This effect is driven by a worsening of internalising behaviours. Little evidence is found for a significant impact of lowest set placement on non-cognitive outcomes.
    Keywords: Educational economics, ability grouping, non-cognitive skills, children, primary schooling, teaching practices
    JEL: J13 I21 J00
  4. By: Rentezelas, Jeanne (Federal Reserve Bank of Philadelphia); Santucci, Larry (Federal Reserve Bank of Philadelphia)
    Abstract: Medical research has linked financial vulnerability to accelerated cognitive aging — the process by which cognitive abilities decline with age. Consumers who understand the risks of cognitive aging and what their financial institutions are doing to detect and deter financial crimes are better positioned to safeguard their retirement savings. In this paper, we examine how consumers and financial institutions can prepare for the financial pitfalls of aging. We present seven important steps that consumers aged 50 or older can take to protect themselves. We also provide consumers with a list of six questions to determine how well their financial institutions are prepared to detect signs of diminished financial capacity, elder fraud, and financial abuse, and to prevent financial losses from occurring.
    Keywords: elder fraud; financial exploitation; retirement planning
    JEL: D18 G21 G28 J14 K22
    Date: 2018–06–14

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