nep-neu New Economics Papers
on Neuroeconomics
Issue of 2019‒07‒22
three papers chosen by

  1. Errors in Probabilistic Reasoning and Judgment Biases By Daniel J. Benjamin
  2. Personality Traits, Migration Intentions, and Cultural Distance By Fouarge, Didier; Özer, Merve Nezihe; Seegers, Philipp K.
  3. On the Strategic Benefits of Diversity By Martin Kaae Jensen

  1. By: Daniel J. Benjamin (University of Southern California and NBER)
    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.
    Keywords: Gambler’s fallacy, Law of Small Numbers, hot hand, partition dependence, sample-size neglect, non-belief in the Law of Large Numbers, conservatism bias, Base-rate neglect, Representativeness heuristic, Confirmation bias
  2. By: Fouarge, Didier (ROA, Maastricht University); Özer, Merve Nezihe (Maastricht University); Seegers, Philipp K. (Maastricht University)
    Abstract: This paper investigates the relationship between Big Five personality traits and individuals' intentions to migrate in countries that vary in their culture. Using data collected from university students in Germany, we find that extraversion and openness are positively associated with migration intentions, while agreeableness, conscientiousness, and emotional stability negatively relate to migration intentions. Openness positively and extraversion negatively relate to the willingness to move to culturally distant countries after controlling for geographic distance and economic differences between countries. Using language as a cultural distance indicator provides evidence that extravert and conscientious individuals are less likely to prefer linguistically distant countries while agreeable individuals tend to consider such countries as potential destinations.
    Keywords: migration intentions, destination choice, cultural distance, Big Five personality traits
    JEL: D91 J61 Z1
    Date: 2019–06
  3. By: Martin Kaae Jensen (University of Surrey)
    Abstract: This paper studies the relationship between functional diversity and team performance. The main question is whether diversity may entail strategic benefits that enable diverse teams to outperform homogenous teams even if the homogenous teams are more skilled on average, or diversity entails a direct efficiency loss a la Benabou (1996). Both ability diversity and cognitive diversity (Johnson- Laird (1983), Page (2008)) are studied, and the paper also considers the role of Becker and Murphy (1992)-type coordination costs. In all cases, the main message is that effort adjustments set off by greater diversity may significantly change the outcome in comparison with an assessment based on the more familiar direct effects. For example, a diverse team may outperform a homogenous team even if the elasticity of substitution is positive and less capable individuals therefore “drag down” the more capable individuals productivities; and under the same condition, a “superstar” may outperform a cognitively diverse team even though a positive elasticity of substitution implies decreasing returns to talent in the sense of Rosen (1981). The paper discusses the implications of these findings for the general diversity debate, for optimal team selection, and for market salaries. The main insights, as well as the tools developed to reach those insights, are very general and extend to other contexts where diversity plays a role.
    JEL: C72 D40 D80 M10 Z13
    Date: 2019–07

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