nep-neu New Economics Papers
on Neuroeconomics
Issue of 2020‒07‒27
five papers chosen by
Daniel Houser
George Mason University

  1. Intelligence, Errors and Strategic Choices in the Repeated Prisoners' Dilemma By Proto, Eugenio; Rustichini, Aldo; Sofianos, Andis
  2. Actors in the Child Development Process By Del Boca, Daniela; Flinn, Christopher J; Verriest, Ewout; Wiswall, Matthew
  3. Cognitive load in economic decisions By Anja Achtziger; Carlos Alós-Ferrer; Alexander Ritschel
  4. Forecasting Skills in Experimental Markets: Illusion or Reality? By Brice Corgnet; Cary Deck; Mark DeSantis; David Porter
  5. On the Causes and Consequences of Deviations from Rational Behavior By Dainis Zegners; Uwe Sunde; Anthony Strittmatter

  1. By: Proto, Eugenio; Rustichini, Aldo; Sofianos, Andis
    Abstract: A large literature in behavioral economics has emphasized in the last decades the role of individual differences in social preferences (such as trust and altruism) and in influencing behavior in strategic environments. Here we emphasize the role of attention and working memory, and show that social interactions among heterogeneous groups are likely to be mediated by differences in cognitive skills. Our design uses a Repeated Prisoner's Dilemma, and we compare rates of cooperation in groups of subjects grouped according to their IQ, with those in combined groups. While in combined groups we observe higher cooperation rates and profits than in separated groups (with consistent gains among lower IQ subjects and relatively smaller losses for higher IQ subjects), higher IQ subjects become less lenient when they are matched with lower IQ subjects than when they play separately. We argue that this is an instance of a general phenomenon, which we demonstrate in an evolutionary game theory model, where higher IQ among subjects determines -- through better working memory -- a lower frequency of errors in strategy implementation. In our data, we show that players indeed choose less lenient strategies in environments where subjects have higher error rates. The estimations of errors and strategies from the experimental data are consistent with the hypothesis and the predictions of the model.
    Keywords: Cooperation; Error in Transition; Intelligence; IQ; Repeated Prisoner's Dilemma; Strategy
    Date: 2020–01
  2. By: Del Boca, Daniela; Flinn, Christopher J; Verriest, Ewout; Wiswall, Matthew
    Abstract: We construct and estimate a model of child development in which both the parents and children make investments in the child's skill development. In each period of the development process, partially altruistic parents act as the Stackelberg leader and the child the follower when setting her own study time. We then extend this non-cooperative form of interaction by allowing parents to offer incentives to the child to increase her study time, at some monitoring cost. We show that this incentive scheme, a kind of internal conditional cash transfer,produces efficient outcomes and, in general, increases the child's cognitive ability. In addition to heterogeneity in resources (wage offers and non-labor income),the model allows for heterogeneity in preferences both for parents and children,and in monitoring costs. Like their parents, children are forward-looking, but we allow children and parents to have different preferences and for children to have age-varying discount rates, becoming more "patient" as they age. Using detailed time diary information on the allocation of parent and child time linked to measures of child cognitive ability, we estimate several versions of the model. Using model estimates, we explore the impact of various government income transfer policies on child development. As in Del Boca et al. (2016), we find that the most effective set of policies are (external) conditional cash transfers, in which the household receives an income transfer given that the child's cognitive ability exceeds a prespecified threshold. We find that the possibility of households using internal conditional cash transfers greatly increases the cost effectiveness of external conditional cash transfer policies.
    Keywords: child development; Household Labor Supply; Time allocation
    JEL: D1 J13
    Date: 2019–12
  3. By: Anja Achtziger; Carlos Alós-Ferrer; Alexander Ritschel
    Abstract: Intuitive decision making has a large and often negative impact in economic decisions, but its measurement and quantification remains challenging. Following research from psychology, behavioral economists have often attempted to causally manipulate the balance of intuition and deliberation by relying on experimental manipulations as cognitive load. However, these attempts have resulted in mixed success, with many null results and no clear general pattern. We explain the possible reasons behind these developments and offer avenues for improvement. First, we show that a very simple formal model of decision processes offers a straightforward test to determine whether cognitive load has been successfully induced, hence disentangling failed inductions and true null results. Specifically, cognitive load in economically-relevant tasks must result in shorter response times. Second, we show that the intuitive arguments on the behavioral implications of cognitive load do not hold on closer, formal examination, unless strong assumptions are made that may or may not hold in typical economic experiments. We then report on seven economic experiments (joint N = 628) using different cognitive load manipulations and confirm the implications of the model. While the effect on response times is strong and pervasive, behavioral effects are weak and elusive. Our research serves as a warning on the differences between economic tasks and psychological experiments and the difficulties associated with importing methods uncritically.
    Keywords: Cognitive load, intuition, response times, economics and psychology
    JEL: C90 D03 D87
    Date: 2020–07
  4. By: Brice Corgnet (Univ Lyon, emlyon business school, GATE UMR 5824, F-69130 Ecully, France); Cary Deck (University of Alabama); Mark DeSantis (Chapman University); David Porter (Chapman University)
    Abstract: Using experimental asset markets, we study the situation of a financial analyst who is trying to infer the fundamental value of an asset by observing the market’s history. We find that such capacity requires both standard cognitive skills (IQ) as well as social and emotional skills. However, forecasters with high emotional skills tend to perform worse when market mispricing is high as they tend to give too much emphasis to the noisy signals from market data. By contrast, forecasters with high social skills perform especially well in markets with high levels of mispricing in which their skills could help them detect possible manipulation attempts. Finally, males outperform females in the forecasting task after controlling for a large number of relevant individual characteristics such as risk attitudes, cognitive skills, emotional intelligence, and personality traits.
    Keywords: Forecasting, experimental asset markets, theory of mind, personality traits, cognitive skills
    JEL: C92 G17 D91
    Date: 2020
  5. By: Dainis Zegners; Uwe Sunde; Anthony Strittmatter
    Abstract: This paper presents novel evidence for the prevalence of deviations from rational behavior in human decision making – and for the corresponding causes and consequences. The analysis is based on move-by-move data from chess tournaments and an identification strategy that compares behavior of professional chess players to a rational behavioral benchmark that is constructed using modern chess engines. The evidence documents the existence of several distinct dimensions in which human players deviate from a rational benchmark. In particular, the results show deviations related to loss aversion, time pressure, fatigue, and cognitive limitations. The results also demonstrate that deviations do not necessarily lead to worse performance. Consistent with an important influence of intuition and experience, faster decisions are associated with more frequent deviations from the rational benchmark, yet they are also associated with better performance.
    Keywords: rational strategies, artificial intelligence, behavioural bias
    JEL: D01 D90 C70 C80
    Date: 2020

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