nep-neu New Economics Papers
on Neuroeconomics
Issue of 2018‒11‒19
five papers chosen by

  1. Time will tell - Recovering Preferences when Choices are Noisy By Carlos Alos-Ferrer; Ernst Fehr; Nick Netzer
  2. Rational Inattention, Competitive Supply, and Psychometrics By Andrew Caplin; Dániel Csaba; John Leahy; Oded Nov
  3. Personality Traits and Household Consumption Choices By Mangiavacchi, Lucia; Piccoli, Luca; Rapallini, Chiara
  4. Cognition, Optimism and the Formation of Age-Dependent Survival Beliefs By Grevenbrock, Nils; Groneck, Max; Ludwig, Alexander; Zimper, Alexander
  5. Errors in Probabilistic Reasoning and Judgment Biases By Daniel J. Benjamin

  1. By: Carlos Alos-Ferrer; Ernst Fehr; Nick Netzer
    Abstract: The ability to uncover preferences from choices is fundamental for both positive economics and welfare analysis. Overwhelming evidence shows that choice is stochastic, which has given rise to random utility models as the dominant paradigm in applied microeconomics. However, as is well known, it is not possible to infer the structure of preferences in the absence of assumptions on the structure of noise. This makes it impossible to empirically test the structure of noise independently from the structure of preferences. Here, we show that the difficulty can be bypassed if data sets are enlarged to include response times. A simple condition on response time distributions (a weaker version of first order stochastic dominance) ensures that choices reveal preferences without assumptions on the structure of utility noise. Sharper results are obtained if the analysis is restricted to specific classes of models. Under symmetric noise, response times allow to uncover preferences for choice pairs outside the data set, and if noise is Fechnerian, even choice probabilities can be forecast out of sample. We conclude by showing that standard random utility models from economics and standard drift-diffusion models from psychology necessarily generate data sets fulfilling our sufficient condition on response time distributions.
    Date: 2018–11
  2. By: Andrew Caplin; Dániel Csaba; John Leahy; Oded Nov
    Abstract: Costs of attention, while central to choice behavior, have proven hard to measure. We introduce a simple method of recovering them from choice data. Our recovery method rests on the observation that costs of attention play precisely the same role in consumer choice as do a competitive firm's costs of production in its supply decision. This analogy extends to welfare analysis: consumer welfare net of attention costs is measured in precisely the same way as the profits of a competitive firm. We implement our recovery method in a purpose-built experiment. We quantitatively assess the trade-off between reward level and task complexity. Estimated attention costs are highly correlated with decision time, an important common input in process-based models of attention.
    JEL: C14 C91 D01 D04 D11 D6 D8
    Date: 2018–11
  3. By: Mangiavacchi, Lucia (University of the Balearic Islands); Piccoli, Luca (University of the Balearic Islands); Rapallini, Chiara (University of Florence)
    Abstract: In this paper, we test whether consumption choices are affected by personality traits and whether this impact is different for singles and individuals living in couples. To fulfill this aim, we test the impact of personality on preferences for different commodities using the German Socio-Economic Panel (SOEP) and estimating a system of Engel curves that includes personality traits as demographic shifters. The analysis is conducted on four different samples: single men, single women, childless couples and couples with children. The inclusion of personality traits among demographic shifters helps to reduce unobserved heterogeneity and improves the goodness of fit of the Engel curves specification by an average of 15.7%. In comparing the results for singles and couples, we find evidence of a consumption-based marital surplus for Mental Openness and Conscientiousness. These traits are characterized by positive assortative mating, and they have a significant and consistent impact on the expenditure for several commodities for both singles and couples. For instance, similarly open-minded partners are likely to spend household resources on culture, and their joint consumption of such goods may be a potential reason for their marital surplus.
    Keywords: consumption choices, preferences, Big Five personality traits, martial surplus, assortative mating
    JEL: D12 J16 I31
    Date: 2018–10
  4. By: Grevenbrock, Nils; Groneck, Max; Ludwig, Alexander; Zimper, Alexander (Munich Center for the Economics of Aging (MEA))
    Abstract: [English] This paper investigates the roles psychological biases play in deviations between subjective survival beliefs (SSBs) and objective survival probabilities (OSPs). We model deviations between SSBs and OSPs through age-dependent inverse S-shaped probability weighting functions. Our estimates suggest that implied measures for cognitive weakness and relative pessimism increase with age. We document that direct measures of cognitive weakness and motivational attitudes share these trends. Our regression analyses confirm that these factors play strong quantitative roles in the formation of subjective survival beliefs: cognitive weakness rather than optimism is an increasingly important contributor to overestimation of survival chances in old age. [German] Diese Arbeit ist motiviert durch die klassische ökonomische Frage, wie Entscheidungen über den Lebenszyklus von zeitlichen Präferenzen und dem Zeithorizont der Individuen beeinflusst werden. Insbesondere fokussieren wir darauf, wie Individuen ihre Überlebenserwartungen bilden. Zufolge zahlreicher empirischer Studien unterschätzen junge Menschen ihre Überlebenschancen, wohingegen ältere Menschen diese durchschnittlich überschätzen. Was ist die treibende Kraft hinter diesem altersabhängigen Muster der Fehleinschätzungen der ferneren Lebenserwartungen? Gibt es womöglich Effekte, die über einen Lern- und Erfahrungsprozess über Gesundheitsrisiken und -historien hinaus die Einschätzung von Individuen hinsichtlich dieses Risikos beeinflussen? Dieses Paper erörtert, dass psychologische Faktoren von entscheidender Bedeutung zur Beantwortung dieser Frage sind. Wir vergleichen subjektive Überlebenserwartungen aus einer Haushaltsbefragung mit den dazu korrespondierenden objektiven Überlebenswahrscheinlichkeiten, die wir basierend auf individuellen Charakteristika schätzen (z.B. Alter, Geschlecht, Gesundheitshistorie). Wir dokumentieren, dass typische Verzerrungen auftreten: Bis zu einem Alter von 70 Jahren unterschätzen Individuen ihre objektiven Überlebenschancen, ab diesem Alter überschätzen sie diese. Um zu zeigen, dass psychologische Einstellungen wichtige Determinanten dieser Abweichungen zwischen subjektiven Überlebenserwartungen und objektiven Überlebenswahrscheinlichkeiten sind, schätzen wir implizite psychologische Faktoren aus den beobachteten Differenzen. Wir zeigen, dass das implizite Maß sowohl an gemessenem Pessimismus, als auch an Insensitivität zur objektiven Wahrscheinlichkeit, mit dem Alter steigt. Diese Ergebnisse legen also nahe, dass Individuen im Durchschnitt im Alter pessimistischer werden und dass die Fähigkeit, objektive Wahrscheinlichkeiten richtig einzuschätzen, abnimmt. Daraufhin zeigen wir, dass direkte Messungen dieser psychologischen Faktoren diese Trends teilen: Daten Indices zu Pessimismus steigen, zu Optimismus sinken mit dem Alter und ein Index über kognitive Schwäche steigt ebenfalls mit dem Alter. Schlussendlich zeigen wir, dass diese direkten psychologischen Maße tatsächlich wichtige quantitative Rollen in der Bildung subjektiver Überlebenserwartungen spielen. Pessimismus führt zu einer signifikanten Unterschätzung, Optimismus zu einer Überschätzung von Überlebenschancen und eine fehlende Kognition spielt eine zunehmend wichtige Rolle für die beobachtete Überschätzung der Überlebenschancen, wenn Individuen älter werden. Dieser Effekt dominiert, weshalb ältere Menschen ihre Überlebenserwartungen mehr und mehr überschätzen. Wir schließen unsere Analyse mit einem Ausblick, der argumentiert, dass die treibenden Kräfte für Verzerrungen in Wahrscheinlichkeitseinschätzungen auf ökonomische Entscheidungen im Allgemeinen nur mithilfe struktureller Lebenszyklusmodells studiert werden können, welches Wissenschaftlern ermöglicht, simultan multiple Risiken und die Beeinflussung der Erwartungsbildung über diese Risiken durch psychologische Faktoren zu berücksichtigen.
    JEL: D83 D91 I10
    Date: 2018–02–06
  5. By: Daniel J. Benjamin
    Abstract: Errors in probabilistic reasoning have been the focus of much psychology research and are among the original topics of modern behavioral economics. This chapter reviews theory and evidence on this topic, with the goal of facilitating more systematic study of belief biases and their integration into economics. The chapter discusses biases in beliefs about random processes, biases in belief updating, the representativeness heuristic as a possible unifying theory, and interactions between biased belief updating and other features of the updating situation. Throughout, I aim to convey how much evidence there is for (and against) each putative bias, and I highlight when and how different biases may be related to each other. The chapter ends by drawing general lessons for when people update too much or too little, reflecting on modeling challenges, pointing to areas of economics to which the biases are relevant, and highlighting some possible directions for future work.
    JEL: D03 D90
    Date: 2018–10

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