Is the way that people make risky choices, or tradeoffs over time, related to cognitive ability? This paper investigates whether there is a link between cognitive ability, risk aversion, and impatience, using a representative sample of the population and incentive compatible measures. We conduct choice experiments measuring risk aversion, and impatience over an annual time horizon, for a randomly drawn sample of roughly 1,000 German adults. Subjects also take part in two different tests of cognitive ability, which correspond to sub-modules of one of the most widely used IQ tests. Interviews are conducted in subjects' own homes. We find that lower cognitive ability is associated with greater risk aversion, and more pronounced impatience. These relationships are significant, and robust to controlling for personal characteristics, educational attainment, income, and measures of credit constraints. We perform a series of additional robustness checks, which help rule out other possible confounds.

/pdf/are-risk-aversion-and-impatience-related-to-cognitive-3n71ze8tmw.pdf

Are risk aversion and impatience related to cognitive ability

This paper exploits the division of Germany after the Second World War and the reunification of East and West Germany in 1990 as a natural experiment to provide evidence for the importance of market access for economic development. In line with a standard new economic geography model, we find that following division cities in West Germany close to the East-West German border experienced a substantial decline in population growth relative to other West German cities. We show that the model can account for the quantitative magnitude of our findings and provide additional evidence against alternative possible explanations. (JEL F15, N94, O18)

/pdf/the-costs-of-remoteness-evidence-from-german-division-and-1oia0dkh91.pdf

The Costs of Remoteness: Evidence from German Division and Reunification

We investigate the empirical determinants of China’s outward direct investment (ODI). It is found that China’s investments in developed and developing countries are driven by different sets of factors. Subject to the differences between developed and developing countries, there is evidence that a) both market seeking and resources seeking motives drive China’s ODI, b) the Chinese exports to developing countries induce China’s ODI, c) China’s international reserves promote its ODI, and d) the Chinese capital tends to agglomerate among developed economies but diversify among developing economies. Similar results are obtained using alternative ODI data. We do not find substantial evidence that China invests in African and oil-producing countries mainly for their natural resources.

/pdf/the-empirics-of-china-s-outward-direct-investment-3mesofedlw.pdf

The Empirics of China's Outward Direct Investment

We apply the Day Reconstruction Method to compare unemployed and employed people with respect to their subjective assessment of emotional affects, differences in the composition and duration of activities during the course of a day, and their self-reported life satisfaction. Employed persons are more satisfied with their life than the unemployed and report more positive feelings when engaged in similar activities. Weighting these activities with their duration shows, however, that average experienced utility does not differ between the two groups. Although the unemployed feel sadder when engaged in similar activities, they can compensate this by using the time the employed are at work in more enjoyable ways. Our finding that unemployment affects life satisfaction and experienced utility differently may be explained by the fact that people do not adjust their aspirations when becoming unemployed but face hedonic adaptation to changing life circumstances, triggered by the opportunity to use the time in a way that yields higher levels of satisfaction than working.

https://www.econstor.eu/bitstream/10419/26649/1/597827885.PDF

Dissatisfied with life, but having a good day: time-use and well-being of the unemployed

This article presents the results of an experiment that completely measures the utility function and probability weighting function for different positive and negative monetary outcomes, using a representative sample of N = 1,935 from the general public. The results confirm earlier findings in the lab, suggesting that utility is less pronounced than what is found in classical measurements where expected utility is assumed. Utility for losses is found to be convex, consistent with diminishing sensitivity, and the obtained loss-aversion coefficient of 1.6 is moderate but in agreement with contemporary evidence. The estimated probability weighting functions have an inverse-S shape and they imply pessimism in both domains. These results show that probability weighting is also an important phenomenon in the general population. Women and lower educated individuals are found to be more risk averse, in agreement with common findings. In contrast to previous studies that ascribed gender differences in risk attitudes solely to differences in the degree utility curvature, however, our results show that this finding is primarily driven by loss aversion and, for women, also by a more pessimistic psychological response toward the probability of obtaining the best possible outcome.

/pdf/a-parametric-analysis-of-prospect-theory-s-functionals-for-44uq66j2y5.pdf

A parametric analysis of prospect theory’s functionals for the general population

This paper tests the hypothesis that a nations hosting of a mega-sporting event is an experience good for its residents. Applying data from an ex-ante and ex-post query based on contingent valuation methods, we use the Soccer World Cup 2006 as a natural experiment. The significant ex-post increase in valuation is shown to be due to adventitious citizens requiring an involving experience, rather than to an updating of a-prior assessment.

/pdf/mega-sporting-events-as-experience-goods-4rq3pxiz8q.pdf

Mega-Sporting Events as Experience Goods

This paper tests the hypothesis that a nation’s hosting of a mega-sporting event is an experience good for its residents. Applying data from an ex-ante and ex-post query based on contingent valuation methods, we use the Soccer World Cup 2006 as a natural experiment. The significant ex-post increase in valuation is shown to be due to adventitious citizens requiring an involving experience, rather than to an updating of a-prior assessment.

Neue Perspektiven ökonomischer Sportforschung

This paper analyzes and quantifies the intangible benefits for the German population resultant from Germany’s hosting of the FIFA Soccer World Cup 2006. We compare this legacy of Franz Beckenbauer with welfare effects generated by athletic success of the German national squad, labelled “Maradona-Effect” by Ratzel and Weimann (2006) and summarized in Brenke and Wagner (2006). Our analysis relies on data from two contingent valuation surveys before and after the tournament.

Hidden Value: Wohlfahrtsökonomische Effekte internationaler Sportgroßveranstaltungen. Eine Betrachtung vom anderen Ende des Contingent-Valuation-Spektrums: Maradona- vs. Beckenbauer-Effekt

Economic Impact of National Sporting Success: The German Case

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Mega-Sporting Events as Experience Goods

Mega-Sporting Events as Experience Goods

Neue Perspektiven ökonomischer Sportforschung

Hidden Value: Wohlfahrtsökonomische Effekte internationaler Sportgroßveranstaltungen. Eine Betrachtung vom anderen Ende des Contingent-Valuation-Spektrums: Maradona- vs. Beckenbauer-Effekt

Economic Impact of National Sporting Success: The German Case