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on Neuroeconomics |
| By: | Gill, David (Purdue University); Knepper, Zachary (Purdue University); Prowse, Victoria L. (Purdue University); Zhou, Junya (University of Texas at Dallas) |
| Abstract: | We explore the influence of cognitive ability and judgment on strategic behavior in the beauty contest game (where the Nash equilibrium action is zero). Using the level-k model of bounded rationality, cognitive ability and judgment both predict higher level strategic thinking. However, individuals with better judgment choose zero less frequently, and we uncover a novel dynamic mechanism that sheds light on this pattern. Taken together, our results indicate that fluid (i.e., analytical) intelligence is a primary driver of strategic level-k thinking, while facets of judgment that are distinct from fluid intelligence drive the lower inclination of high judgment individuals to choose zero. |
| Keywords: | cognitive ability, judgment, fluid intelligence, matrix reasoning, beauty contest, strategic sophistication, level-k, experiment, game theory |
| JEL: | C92 C72 D91 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17168 |
| By: | Salvatore Nunnari; Eugenio Proto; Aldo Rustichini |
| Abstract: | Rational choice theories assume that voters accurately assess the outcomes of policies. However, many important policies—such as regulating prices and introducing Pigouvian taxation—yield outcomes through indirect or equilibrium effects that may differ from their direct effects. Citizens may underestimate these effects, leading to a demand for bad policy, that is, opposition to reforms that would increase welfare or support for reforms that would decrease it. This appreciation might be linked to cognitive functions, raising important research questions: Do cognitive abilities influence how individuals form preferences regarding policies, especially untried reforms? If so, what is the underlying mechanism? We use a simple theoretical framework and an experiment to show that enhanced cognitive abilities may lead to better policy choices. Moreover, we emphasize the crucial role of beliefs about other citizens’ cognitive abilities. These findings have important policy implications as they suggest that educational programs developing cognitive skills or interventions increasing trust in others’ understanding could improve the quality of democratic decision-making in our societies. |
| Keywords: | voting, policy reform, political failure, cognition, experiment |
| JEL: | C90 D72 D91 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11206 |
| By: | Jones, Melanie K. (Cardiff University); Kaya, Ezgi (Cardiff University); Nan, Jiarui (University of Sheffield) |
| Abstract: | Exploiting rich nationally representative longitudinal data from the China Family Panel Studies this paper explores the relationship between overeducation, earnings and job satisfaction among graduates in China. We find consistent evidence, across multiple measures of overeducation, of wage and job satisfaction penalties that are not explained by personal and work-related characteristics. Despite attention within the literature, we find a modest role for differences in academic subject and, cognitive and non-cognitive skills as drivers of these penalties. In contrast, controlling for time-invariant unobserved heterogeneity reduces the size and, in many cases, removes the statistical significance of overeducation penalties, aligned to the importance of other unobserved individual heterogeneity. |
| Keywords: | overeducation, China, earnings, job satisfaction, cognitive and non-cognitive skills, unobserved heterogeneity |
| JEL: | J24 J28 J31 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17161 |
| By: | Blouin, Arthur (University of Toronto); Mani, Anandi (University of Oxford); Mukand, Sharun W. (University of Warwick Author-Sgroi, Daniel; University of Warwick & IZA) |
| Abstract: | Can inequality in rewards result in an erosion in broad-based support for meritocratic norms? We hypothesize that unequal rewards between the successful and the rest, drives a cognitive gap in their meritocratic beliefs, and hence their social preferences for redistribution. Two separate experiments (one in the UK and the other in the USA) show that the elite develop and maintain “meritocratic bias” in the redistributive taxes they propose, even when not applied to their own income: lower taxes on the rich and fewer transfers to the poor, including those who failed despite high effort. These social preferences at least partially reflect a selfserving meritocratic illusion that their own high income was deserved. A Wason Card task confirms that individuals maintain their illusion of being meritocratic, by not expending cognitive effort to process information that may undermine their self-image even when incentivized to do otherwise. |
| Keywords: | Inequality ; Meritocracy ; Redistribution ; Populism ; Motivated Reasoning ; Social Preferences |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1509 |