nep-neu New Economics Papers
on Neuroeconomics
Issue of 2020‒04‒13
two papers chosen by

  1. Cognition, Optimism and the Formation of Age-Dependent Survival Beliefs By Nils Grevenbrock; Max Groneck; Alexander Ludwig; Alexander Zimper
  2. An economist and a psychologist form a line: What can imperfect perception of length tell us about stochastic choice? By Duffy, Sean; Smith, John

  1. By: Nils Grevenbrock (European University Institute); Max Groneck (University of Groningen); Alexander Ludwig (SAFE, University of Mannheim); Alexander Zimper (University of Pretoria)
    Abstract: 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 increase and relative optimism decrease with age. We document that direct measures of cognitive weakness and optimism share these trends. Our regression analyses conrm that these factors play strong quantitative roles in the formation of subjective survival beliefs. Our main finding is that cognitive weakness rather than optimism is an increasingly important contributor to the well-documented overestimation of survival chances in old age.
    Keywords: subjective survival beliefs, probability weighting function, confirmatory bias, cognition, optimism, pessimism
    JEL: D83 D91 I10
    Date: 2020–03
  2. By: Duffy, Sean; Smith, John
    Abstract: Standard choice experiments are hampered by the fact that utility is either unknown or imperfectly measured by experimenters. As a consequence, the inferences available to researchers are limited. By contrast, we design a choice experiment where the objects are valued according to only a single attribute with a continuous measure and we can observe the true preferences of subjects. Subjects have an imperfect perception of the choice objects but can improve the precision of their perception with cognitive effort. Subjects are given a choice set involving several lines of various lengths and are told to select one of them. They strive to select the longest line because they are paid an amount that increases with the length of their choice. Our design allows us to observe the search history, the response times, and make unambiguous conclusions about the optimality of choices. We find a negative relationship between the demanding nature of the choice problems and the likelihood that subjects select the optimal lines. We also find a positive relationship between the demanding nature of the choice problems and the response times. However, we find evidence that suboptimal choices are associated with longer response times than are optimal choices. This result appears to be consistent with Fudenberg, Strack, and Strzalecki (2018). Additionally, our experimental design permits a multinomial discrete choice analysis. Our results suggest that the errors in our data are better described as having a Gumbel distribution rather than a normal distribution. We also observe effects consistent with memory decay and attention. Finally, we find evidence that choices in our experiment exhibit the independence from irrelevant alternatives (IIA) property.
    Keywords: judgment, memory, response times, independence from irrelevant alternatives
    JEL: C91 D03
    Date: 2020–04–02

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