nep-neu New Economics Papers
on Neuroeconomics
Issue of 2019‒03‒11
three papers chosen by

  1. Cognitive reflection and economic order quantity inventory management: An experimental investigation By Shachat, Jason; Pan, Jinrui; Wei, Sijia
  2. Strategically delusional By Alice Solda; Changxia Ke; Lionel Page; William Von Hippel
  3. Risk aversion, patience and intelligence: Evidence based on macro data By Niklas Potrafke

  1. By: Shachat, Jason; Pan, Jinrui; Wei, Sijia
    Abstract: We use laboratory experiments to evaluate the effects of individuals' cognitive abilities on their behavior in a finite horizon Economic Order Quantity model. Participants' abilities to balance intuitive judgement with cognitive deliberations are measured by the Cognitive Reflection Test (CRT). Participants then complete a sequence of five “annual” inventory management tasks with monthly ordering decisions. Our results show that participants with higher CRT scores on average earn greater profit and choose more effective inventory management policies. However these gaps are transitory as participants with lower CRT scores exhibit faster learning. We also find a significant gender effect on CRT scores. This suggests hiring practices incorporating CRT type of instruments can lead to an unjustified bias.
    Keywords: inventory management; economic order quantity; cognitive reflection; Markov learning
    JEL: C91 D92 M11
    Date: 2019–03–06
  2. By: Alice Solda (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique, QUT - Queensland University of Technology [Brisbane]); Changxia Ke (QUT - Queensland University of Technology [Brisbane]); Lionel Page (UTS - University of Technology Sydney); William Von Hippel (University of Queensland [Brisbane])
    Abstract: We aim to test the hypothesis that overconfidence arises as a strategy to influence others in social interactions. We design an experiment in which participants are incentivised either to form accurate beliefs about their performance at a test, or to convince a group of other participants that they performed well. We also vary participants' ability to gather information about their performance. Our results provide the different empirical links of von Hippel and Trivers' (2011) theory of strategic overconfidence. First, we find that participants are more likely to overestimate their performance when they anticipate that they will try to persuade others. Second, when offered the possibility to gather information about their performance, they bias their information search in a manner conducive to receiving more positive feedback. Third, the increase in confidence generated by this motivated reasoning has a positive effect on their persuasiveness.
    Keywords: Overconfidence,motivated cognition,self-deception,persuasion,information sampling,experiment
    Date: 2019–02–27
  3. By: Niklas Potrafke
    Abstract: Using the new macro data on risk aversion and patience by Falk et al. (2018), I show that risk aversion and patience are related to intelligence: high-IQ populations are more patient and more risk averse than low-IQ populations. The correlation between patience and intelligence corroborates previous results based on micro data. Intelligent people tend to be patient because they have long time horizons. The correlation between risk aversion and intelligence supports new micro data studies based on dynamically optimized sequential experimentation (Chapman et al. 2018).
    Keywords: Risk aversion, patience, intelligence
    JEL: D00 D81 D90
    Date: 2019

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.