nep-neu New Economics Papers
on Neuroeconomics
Issue of 2018‒07‒16
four papers chosen by
Daniel Houser
George Mason University

  1. Early Life Determinants of Cognitive Ability: A Comparative Study on Madagascar and Senegal By Kaila, Heidi; Sahn, David E.; Sunder, Naveen
  2. Are rising house prices really good for your brain? House value and cognitive functioning among older Europeans By Bénédicte H. Apouey; Isabelle Chort
  3. The Formation of Prosociality: Causal Evidence on the Role of Social Environment By Fabian Kosse; Thomas Deckers; Pia Pinger; Hannah Schildberg-Hörisch; Armin Falk
  4. Mind, Body, Bubble! Psychological and Biophysical Dimensions of Behavior in Experimental Asset Markets By Butler, David; Cheung, Stephen L.

  1. By: Kaila, Heidi (World Bank); Sahn, David E. (Cornell University); Sunder, Naveen (Cornell University)
    Abstract: We study the determinants of educational and cognitive outcomes of young adults in Madagascar and Senegal employing a production function approach. Using unique and comparable long-term panel data sets from both countries, we find that cognitive skills measured using test scores in second grade are strong predictors of school attainment and cognitive skills of a cohort of individuals surveyed in their early twenties. The inclusion of early life household wealth, parental education and other household characteristics in the model does not diminish the impact of early cognitive ability on educational and cognitive outcomes in young adult life. Additionally, we find that both early life cognitive ability and health seem to have independent effects on educational attainment and adult cognition. In Senegal, both math and French scores are strong predictors of adult cognitive skills, whereas in Madagascar math plays a relatively stronger role. We find suggestive evidence that the association between early life cognitive ability and later life outcomes is stronger among girls as compared to boys. We also show significant differences in the relationship between early ability and later life test scores for those cohort members according to their height, which we consider a proxy for health status – shorter individuals show a stronger relationship between second grade performance and later life outcomes. These findings highlight the importance of how falling behind in early life may be critical in determining longterm outcomes, particularly for vulnerable groups, that is girls and shorter individuals.
    Keywords: education, cognitive ability, human capital, test scores, health, Africa
    JEL: I21 O12
    Date: 2018–05
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp11550&r=neu
  2. By: Bénédicte H. Apouey (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Isabelle Chort (UPPA - Université de Pau et des Pays de l'Adour)
    Abstract: This study examines how house prices influence 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 fluid intelligence (numeracy, memory) or a mix of fluid and crystallized intelligences (verbal fluency). Compared with the previous literature, we allow housing market fluctuations 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: Wealth,Cognitive functioning,Health,House prices,Older Europeans,SHARE,Europe
    Date: 2018–06
    URL: http://d.repec.org/n?u=RePEc:hal:psewpa:hal-01815692&r=neu
  3. By: Fabian Kosse; Thomas Deckers; Pia Pinger; Hannah Schildberg-Hörisch; Armin Falk
    Abstract: This study presents descriptive and causal evidence on the role of social environment for the formation of prosociality. In a first step, we show that socioeconomic status (SES) as well as the intensity of mother-child interaction and mothers’ prosocial attitudes are systematically related to elementary school children's prosociality. In a second step, we present evidence on a randomly-assigned variation of the social environment, providing children with a mentor for the duration of one year. Our data include a two-year follow-up and reveal a significant and persistent increase in prosociality in the treatment relative to the control group. Moreover, enriching the social environment bears the potential to close the observed gap in prosociality between low and high SES children. A mediation analysis of the observed treatment effect suggests that prosociality develops in response to stimuli in the form of prosocial role models and intense social interactions.
    Keywords: formation of preferences, prosociality, social preferences, trust, social inequality
    JEL: D64 C90
    Date: 2018
    URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_7068&r=neu
  4. By: Butler, David (Griffith University); Cheung, Stephen L. (University of Sydney)
    Abstract: Asset market bubbles and crashes are a major source of economic instability and inefficiency. Sometimes ascribed to animal spirits or irrational exuberance, their source remains imperfectly understood. Experimental methods can isolate systematic deviations from an asset's fundamental value in a manner not possible on the trading floor. In this chapter, we review evidence from dozens of laboratory experiments that investigate the measurement and manipulation of an array of psychological and biophysical attributes. Measures of emotion self‐regulation and interoceptive ability are informative, as is cognitive ability and the level and fluctuation of hormones. Rules that promote deliberative decision making can improve market efficiency, while incidental emotions can impair it. Signals in specific brain areas can be a trigger precipitating a bubble's collapse. We conclude that trading decisions are profoundly biophysical in a manner not captured by efficient markets models, and close with speculations on implications for algorithmic trading.
    Keywords: efficient markets hypothesis, emotions, experimental asset markets, price bubbles and crashes, somatic marker hypothesis
    JEL: C92 D91 G12
    Date: 2018–05
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp11563&r=neu

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