nep-neu New Economics Papers
on Neuroeconomics
Issue of 2018‒12‒10
four papers chosen by

  2. The origins of cognitive skills and personality: the effect of in-utero climate shocks on children?s future life outcomes By Grace Chang; Marta Favara; Rafael Novella
  3. Altruism, Fast and Slow? Evidence from a Meta-Analysis and a New Experiment By Hanna Fromell; Daniele Nosenzo; Trudy Owens
  4. Smog, Cognition and Real-World Decision Making By Chen, Xi

  1. By: TAQADUS BASHIR (BAHRIA UNIVERSITY, ISLAMABAD CAMPUS); Taimoor Hassan (University of Gujrat)
    Abstract: Economics and conventional investment theory assumes that people are rational while markets are efficient, but people often think and act irrationally, and financial markets rarely follow textbook models of efficiency. Whereas behavioral finance uses knowledge from psychological studies in context of decision making in comparison to the so called predictable models popular in standard finance. Most oftenly investor behavior diverges from logics and rationality as investors are victim of numerous behavioral errors that intervene while they form up investment decision. Decison making is complicated due to the intervention of emotional attachments & avoidances, cognitive errors, and personality traits of decision makers. In developing country like Pakistan where the environment is unstable due to factors like security threats, terrorism, inflation, energy crises and are affecting the thinking pattern of people and the ratio of educated entrepreneur is very less, decisions are based on gut feelings, there is a need to study the impact of self-control, self-attribution along with cognitive dissonance and confirmation bias on investment decision and the current aimed to do so. The present study collected primary data through questionnaire from stock and bond investors. Significant positive relationship is found between the study biases and their impact on investment decisions of investors. Almost all the subjects were found to be the victims of confirmation bias, self-control bias, self-attribution & cognitive dissonance bias. Financial advisors are recommended to be first trained and then consulted for the detection & moderation of these biases before making investment decisions.
    Keywords: Behavioral Finance, confirmation bias, self-control bias, self-attribution, cognitive dissonance bias, financial advisors, investment decisions.
    JEL: G02 G11 D23
    Date: 2018–10
  2. By: Grace Chang (Young Lives, University of Oxford); Marta Favara (Young Lives, University of Oxford); Rafael Novella (Inter-American Development Bank)
    Abstract: A large literature stemming from the Fetal Origins Hypothesis (Barker, 1990) discuss the importance on the in-utero period as critical in shaping a person?s future development. More recently, economists have further tested this theory by investigating how fetal experiences are related to a variety of future economic outcomes. This paper investigates the effect of in utero exposure to rainfall shocks in India on future accumulation of human capital. For this analysis, we match the Young Lives data, following a cohort of children born between the years 2000 and 2001 up to age 15, and climate data from the University of Delaware. We estimate the impact of in utero exposure to rainfall shocks on children?s cognitive (mathematics and vocabulary) and non-cognitive skills (core self-evaluation) at age 15 by using a community fixed effects model to control for any unobservable correlates of weather patterns and local levels of human capital formation. Furthermore, we investigate the effects of rainfall deviations that occur during the first, second and/or third trimesters of pregnancy. We argue that timing of the exposure to shocks might be important to cognitive and non-cognitive skills formation considering that the critical window for the fetus? brain development is between the 24th and 42nd week of gestation. Our results show significant and negative effects of exposure to anomalous rainfall deviations from the historical mean on children?s cognitive scores at age 15, particularly when affected by a negative one standard deviation shock. We also find a significant and negative impact on children?s core self-evaluation from a two standard deviation shock. The second trimester appears to be the critical window of exposure on cognitive outcomes, while the first trimester seems to be important to the non-cognitive outcome. Hence, our results point to the persistent effects of exposure to rainfall deviations during pregnancy on future human capital development. This highlights the need for policies to think more about individual life-course and intergenerational mobility, where focusing on mothers can help children?s development outcomes in the future.
    Keywords: human capital development, fetal origins hypothesis, non-cognitive skills, cognitive skills, climate
    Date: 2018–10
  3. By: Hanna Fromell (Department of Economics, Econometrics, and Finance, University of Groningen); Daniele Nosenzo (Luxembourg Institute of Socio-Economic Research (LISER) and School of Economics, University of Nottingham); Trudy Owens (University of Nottingham)
    Abstract: Can we use the lens of dual-system theories to explain altruistic behavior? In recent years this question has attracted the interest of both economists and psychologists. We contribute to this emerging literature, by reporting both the results of a meta-study of the literature and a new experiment. Our meta-study is based on 19 experimental studies conducted with nearly 11,000 subjects. We show that the overall effect of manipulating cognitive resources to promote the “intuitive†system at the expense of the 'deliberative' system is very close to zero. We argue that this null result could be because the interventions used in the existing literature to manipulate cognitive resources are vulnerable to the presence of heterogeneity in the direction of the effect of the intervention. We design a new experiment that is not vulnerable to this potential heterogeneity. We still fail to find support for the notion that altruistic choices are the result of a conflict between the intuitive and deliberative systems. Taken together, the findings of our meta-study and the new experiment offer little support for dual-system theories of altruistic behavior.
    Keywords: altruism; giving; dictator game; dual-system model; intuition; deliberation; selfcontrol; willpower; depletion; Stroop task
    Date: 2018
  4. By: Chen, Xi (Yale University)
    Abstract: Cognitive functioning is critical as in our daily life a host of real-world complex decisions in high-stakes markets have to be made. The decision-making process can be vulnerable to environmental stressors. Summarizing the growing economic and epidemiologic evidence linking air pollution, cognition performance and real-world decision making, we first illustrate key physiological and psychological pathways between air pollution and cognition. We then document the main patterns of air pollution affecting cognitive test performance by type of cognitive tests, gender, window of exposure, age profile, and educational attainment. We further extend to a review of real-world decision making that has been found to be affected by air pollution and the resulting cognitive impairments. Finally, rich implications on environmental health policies are drawn based on existing evaluations of social costs of air pollution.
    Keywords: decision making, air pollution, cognitive performance, intelligence
    JEL: I24 Q53 Q51 G11 J24
    Date: 2018–10

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.