Do negative economic shocks affect cognitive function, adherence to social norms and loss aversion?

Abstract

Households are frequently subject to income and asset shocks. We performed a lab experiment, inducing losses on a real effort task, after which we measured cognitive performance, loss aversion and cheating behavior. We found that asset losses, but not income losses, act as a cognitive load, by decreasing accuracy and increasing response times. We did not detect any change in dishonesty or loss aversion.

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Acknowledgements

We acknowledge financial support from Internal Grant Convocatoria Jesus Antonio Bejarano 2017. We thank the Managing Editor, Maria Bigoni, Dirk Engelmann and two anonymous referees for their careful reading and suggestions. We thank Alexis Dinno for clarifications on the routine for equivalence tests. We appreciate comments from all participants at the BEBES seminar in Bogotá, the Bogotá Experimental Economics Conference 2019 and the ESA World Congress 2019. We thank Silvia López, César Mantilla, Lina Moros who commented on Felipe’s Master thesis which was part of this work. We are also thankful to Marco Palma, Patrick Ring, Gianluca Grimalda, Camilo Gómez, and Nicolás Rodriguez for their comments and suggestions. Thanks also to Natalí Barrera and Laura Jiménez who helped with the experiments.

Funding

This article was funded by Universidad Nacional de Colombia (Grant No. JAB 2017-38783).

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Correspondence to Francesco Bogliacino.

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Bogliacino, F., Montealegre, F. Do negative economic shocks affect cognitive function, adherence to social norms and loss aversion?. J Econ Sci Assoc 6, 57–67 (2020). https://doi.org/10.1007/s40881-020-00091-4

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Keywords

  • Cognitive function
  • Cheating
  • Social norm
  • Loss aversion
  • Negative shock
  • Income
  • Asset

JEL classification

  • C91
  • D91
  • D81