nep-neu New Economics Papers
on Neuroeconomics
Issue of 2020‒03‒02
three papers chosen by

  1. Cognitive abilities and risk taking: the role of preferences By Michalis Drouvelis; Johannes Lohse
  2. Cognitive droughts By Guilherme Lichand; Anandi Mani
  3. The Economic Consequences of Increasing Sleep Among the Urban Poor By Pedro Bessone; Gautam Rao; Frank Schilbach; Heather Schofield; Mattie Toma

  1. By: Michalis Drouvelis (University of Birmingham); Johannes Lohse (University of Birmingham)
    Abstract: A growing literature in economics suggests that cognitive abilities and risk preferences could be related. However, since neither risk preferences nor cognitive abilities can be observed directly, it is unclear whether measured associations point towards a true relationship or instead result from systematic measurement errors. Previous studies, which have raised this concern, only test this proposition indirectly. In this paper, we complement their approach by providing a direct test that sheds light on the existence and direction of a link between risk preferences and cognitive abilities once systematic measurement errors are taken into account. Using a lab experiment that employs a repeated choice design, we give participants the opportunity to revise an initial choice made in a simple lottery task. We measure cognitive abilities via the cognitive reflection task and affect individuals' access to cognitive resources by exogenously varying their cognitive load across treatments. Our results provide evidence that cognitive abilities remain strongly correlated with risk preferences after errors are controlled for.
    Keywords: cognitive abilities, risk preferences, repeated choice design, experiment
    JEL: C90 D81 D91
    Date: 2020–02
  2. By: Guilherme Lichand; Anandi Mani
    Abstract: Poverty involves both low income levels and high income uncertainty. Do both these dimensions of being poor capture attention in ways that distort decision-making and trap people in poverty? We examine these issues using real-life shocks faced by farmers in Brazil: random payday variation affecting income levels, and rainfall shocks that affect income uncertainty. We find that it is income uncertainty that systematically has adverse cognitive effects; low income levels affect only the poorest households. The net adverse impacts on cognitive function prevail even though both dimensions of poverty reallocate attention to scarce-resource tasks. These results broaden our understanding of the impacts of uncertainty by exploring a psychological channel distinct from risk aversion, and help reconcile apparently contradictory evidence on the cognitive impact of poverty in previous studies.
    Keywords: Uncertainty, attention, psychology of poverty, scarcity
    JEL: D81 D91 I32
    Date: 2020–02
  3. By: Pedro Bessone; Gautam Rao; Frank Schilbach; Heather Schofield; Mattie Toma
    Abstract: This paper measures sleep among the urban poor in India and estimates the economic returns to increased sleep. Adults in Chennai have strikingly low quantity and quality of sleep relative to typical guidelines: despite spending 8 hours in bed, they achieve only 5.6 hours per night of sleep, with 32 awakenings per night. A three-week treatment providing information, encouragement, and sleep-related items increased sleep quantity by 27 minutes per night without improving sleep quality. Increased night sleep had no detectable effects on cognition, productivity, decision-making, or psychological and physical well-being, and led to small decreases in labor supply and thus earnings. In contrast, offering high-quality naps at the workplace increased productivity, cognition, psychological well-being, and patience. Taken together, the returns to increased night sleep are low, at least at the low-quality levels typically available in home environments in Chennai. We find suggestive evidence that higher-quality sleep improves important economic and psychological outcomes.
    JEL: C93 D9 I1 I12 I15 O1 O12 O18
    Date: 2020–02

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.