nep-neu New Economics Papers
on Neuroeconomics
Issue of 2022‒10‒17
six papers chosen by

  1. Decisions and Performance Under Bounded Rationality: A Computational Benchmarking Approach By Zegners, Dainis; Sunde, Uwe; Strittmatter, Anthony
  2. Late-childhood foundational cognitive skills predict educational outcomes through adolescence and into young adulthood: evidence from Ethiopia and Peru By Jennifer Lopez; Jere Behrman; Santiago Cueto; Marta Favara; Alan Sánchez
  3. Cognitive Imprecision and Stake-Dependent Risk Attitudes By Mel Win Khaw; Ziang Li; Michael Woodford
  4. The Effect of Self-Control on Borrowing: Experimental Evidence By Grohmann, Antonia; Hamdan, Jana S.
  5. Unleashing Inventive Power - Solving cognitive, social and geographic distance issues with cultural proximity. By Cathrin Söllner; Dirk Fornahl
  6. Zero-Ending Prices, Cognitive Convenience, and Price Rigidity By Avichai Snir; Haipeng (Allan) Chen; Daniel Levy

  1. By: Zegners, Dainis (Erasmus University Rotterdam); Sunde, Uwe (LMU Munich); Strittmatter, Anthony (CREST-ENSAE)
    Abstract: This paper presents a novel approach to analyze human decision-making that involves comparing the behavior of professional chess players relative to a computational benchmark of cognitively bounded rationality. This benchmark is constructed using algorithms of modern chess engines and allows investigating behavior at the level of individual move-by-move observations, thus representing a natural benchmark for computationally bounded optimization. The analysis delivers novel insights by isolating deviations from this benchmark of bounded rationality as well as their causes and consequences for performance. The findings document the existence of several distinct dimensions of behavioral deviations, which are related to asymmetric positional evaluation in terms of losses and gains, time pressure, fatigue, and complexity. The results also document that deviations from the benchmark do not necessarily entail worse performance. Faster decisions are associated with more frequent deviations from the benchmark, yet they are also associated with better performance. The findings are consistent with an important influence of intuition and experience, thereby shedding new light on the recent debate about computational rationality in cognitive processes.
    Keywords: cognitively bounded rationality; benchmark computing; artificial intelligence; decision quality; decision time;
    JEL: D01
    Date: 2020–12–22
  2. By: Jennifer Lopez (Grupo de Análisis para el Desarrollo (GRADE)); Jere Behrman (University of Pennsylvania); Santiago Cueto (Grupo de Análisis para el Desarrollo (GRADE) and Pontificia Universidad Catolica del Peru); Marta Favara (University of Oxford); Alan Sánchez (Grupo de Análisis para el Desarrollo (GRADE))
    Abstract: We estimate the associations between a set of foundational cognitive skills (inhibitory control, working memory, long-term memory, and implicit learning) measured at age 12 and educational outcomes measured at ages 15 and 19-20 in Ethiopia and Peru (the Young Lives study). The estimates adjust for a rich set of lagged controls and include measurements of children’s general abilities. For a subset of the outcomes, we exploit within-household variation. Working memory and long-term memory are consistently and positively associated with subsequent domain-specific cognitive achievement tests in both countries, university enrolment in Peru (working memory) and lower secondary-school completion in Ethiopia (long-term memory). Inhibitory control predicts subsequent math-test scores in both countries, and grade attainment in Ethiopia. These results provide additional evidence to justify the importance of promoting investments in cognitive skills throughout childhood and adolescence, and these results potentially elucidate how investments in children impact their educational achievements.
    Keywords: human capital, cognitive skills; education; executive function; Ethiopia; Peru
    JEL: I25 I24 I23
    Date: 2022–09–23
  3. By: Mel Win Khaw; Ziang Li; Michael Woodford
    Abstract: In an experiment that elicits subjects’ willingness to pay (WTP) for the outcome of a lottery, we confirm the fourfold pattern of risk attitudes described by Kahneman and Tversky. In addition, we document a systematic effect of stake sizes on the magnitude and sign of the relative risk premium, holding fixed both the probability that a lottery pays off and the sign of its payoff (gain vs. loss). We further show that in our data, there is a log-linear relationship between the monetary payoff of the lottery and WTP, conditional on the probability of the payoff and its sign. We account quantitatively for this relationship, and the way in which it varies with both the probability and sign of the lottery payoff, in a model in which all departures from risk-neutral bidding are attributed to an optimal adaptation of bidding behaviour to the presence of cognitive noise. Moreover, the cognitive noise required by our hypothesis is consistent with patterns of bias and variability in judgments about numerical magnitudes and probabilities that have been observed in other contexts.
    Keywords: prospect theory, fourfold pattern, endogenous precision, cognitive noise
    JEL: C91 D03 D81 D87
    Date: 2022
  4. By: Grohmann, Antonia (Aarhus University and DIW Berlin); Hamdan, Jana S. (HU Berlin and DIW Berlin)
    Abstract: This paper examines the effect of reduced self-control on debt-taking in a laboratory experiment. We manipulate self-control using an ego depletion task and show that it is effective. Following the ego depletion task, participants can anonymously buy hot drinks on credit. We find no significant average effects, but find that treated individuals that have low financial literacy are more likely to buy drinks. We complement our experimental analysis with survey evidence that suggests that people with low self-control have more problems with the repayment of consumption debt, but this relationship is, in line with the experimental results, weaker for individuals with high financial literacy.
    Keywords: debt; consumption; borrowing; self-control; ego depletion;
    JEL: D14 G51 C91
    Date: 2020–12–22
  5. By: Cathrin Söllner; Dirk Fornahl
    Abstract: Cognitive, social and geographic distances between collaborators impact the likelihood to succeed together. This paper argues that cultural proximity moderates this impact. While taking Boschma's (2005) proximity concept as a point of departure, the informal part of institutional distance - cultural distance - is emphasized. Culture is defined following the concept of Hofstede et al. (2010), applying it one of the first times to the regional level. Results reveal that cultural proximity has different layers, all moderating the impact of cognitive, social and geographic distances. Out of the six investigated cultural distance layers, five moderate the impact of geographic distance, another five the one of social distance and four moderate the impact of cognitive distance.
    Keywords: Research collaboration, cultural distance, proximity interactions, collaboration performance
    JEL: D91 R11 R12
    Date: 2021–05
  6. By: Avichai Snir (Department of Economics, Bar-Ilan University, Israel); Haipeng (Allan) Chen (Gatton College of Business and Economics, University of Kentucky, USA); Daniel Levy (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; International School of Economics, Tbilisi State University, Georgia; International Centre for Economic Analysis; Rimini Centre for Economic Analysis)
    Abstract: We assess the role of cognitive convenience in the popularity and rigidity of 0-ending prices in convenience settings. Studies show that 0-ending prices are common at convenience stores because of the transaction convenience that 0-ending prices offer. Using a large store-level retail CPI data, we find that 0-ending prices are popular and rigid at convenience stores even when they offer little transaction convenience. We corroborate these findings with two large retail scanner price datasets from Dominick’s and Nielsen. In the Dominick’s data, we find that there are more 0-endings in the prices of the items in the front-end candies category than in any other category, even though these prices have no effect on the convenience of the consumers’ check-out transaction. In addition, in both Dominick’s and Nielsen’s datasets, we find that 0-ending prices have a positive effect on demand. Ruling out consumer antagonism and retailers’ use of heuristics in pricing, we conclude that 0-ending prices are popular and rigid, and that they increase demand at convenience settings, not only for their transaction convenience, but also for the cognitive convenience they offer.
    Keywords: Cognitive Convenience, Transaction Convenience, Price Rigidity, Price Stickiness, Sticky Prices, Rigid Prices, 0-Ending Prices, Round Prices, Convenient Prices, 9-Ending Prices, Just Below Prices, Psychological Prices, Price Points
    JEL: E31 L16 D90 E70 M30
    Date: 2022–10

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