This paper examines the concavity of time discount function. The experiment with 37 subjects provides the evidence in favor of an inverse S-shaped time discount function rather than a hyperbolic (and convex) time discount function. If time discount function is concave around t, then the decision-maker exhibits future bias.
  Future bias has seldom been reported in the literature, since it is not easily identified. Experiments on time preference commonly let subjects compare two (delayed) payment options and adjust the reward level of one option to make the subject be indifferent between the two options. To detect future bias, in this study, I adjust the timing of the payment instead of the reward amount. This new elicitation method is also independent of the confounding factors that are common in the existing experiments. Specifically, the method does not put any assumption on the form of utility function and does not assume that time and reward are separable either. This advantage enables us to estimate time preference more precisely.

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  Intertemporal and probabilistic choices have been attracting attention in behavioral neuroeconomics. Although recent advances in neuroeconomics demonstrated neural processes underlying intertemporal and probabilistic choices, the roles of psychophysical effects on the choices have largely been understudied. In this paper, we review the roles of psychophysical effects in time and risk attitudes. It is shown that Loewenstein-Prelec’s generalized hyperbolic temporal discount function (Loewenstein and Prelec (1992)) and Prelec’s probability weighting function (Prelec (1998)) are naturally derived from psychophysical laws of time-perception.

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  This paper pursues two aims by conducting economic experiments in Shanghai. One aim of this paper is to investigate the following three anomalies on time discounting: the delay, interval, and magnitude effects. We confirmed all the three anomalies. Particularly, by separating the delay effect from the interval effect, the delay effect is found when the delay is relatively short, which has seldom been reported in former studies. Another feature of our experiment is that it is immune to the criticism that the subjects recruited for the experiment did not have sufficient incentives to report their true preferences because the highest reward that was offered to the subjects was approximately equivalent to their monthly household incomes. The second aim of this paper is its explanation of the subjects’ procrastinating behaviors by their time discount rates and the degrees of the delay effect. Our analysis suggested that higher time discounting always promotes procrastination; however, the delay effect is negatively associated with procrastination. An interpretation of the latter result can be that our subjects, i.e., the students of Fudan University, are sophisticates rather than naïfs.

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This paper aims to elucidate the characteristics of risk aversion by an economic experiment in which subjects sell and buy lotteries. Our experiment is unique in using the elderlies and the employed as subjects instead of students. Main conclusions are summarized as follows: First, subjects who face higher win probabilities display more risk averse behavior. Second, there is no stable relationship between attributes of the subjects such as holding assets and income and their degree of risk aversion. Third, winning prizes of the lotteries significantly lowers risk aversion. Specifically, if the obtained amount becomes double, the absolute risk aversion decreased to the half of the former level. Fourth, risk aversion obtained in the experiment correlates with various types of measures of risk aversion elicited by a questionnaire survey conducted immediately after the experiment. Fifth, there exists stable relationship that those who show higher risk aversion exhibit lower time discount rate.

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When deciding the means of confronting a competitor, it is necessary to take the long-term influence into consideration. If the long-term influence of confrontation is negative even though market share is maintained in the short-term, holding and expanding market share are difficult. This research focuses on price competition, and its influence on perceived quality and on internal reference price for a brand from the viewpoints of the speed and means of reaction. In the existing literature on price reduction, a negative effect is supposed between price reduction and brand evaluation on the basis of attribution theory. This research points out that a competitive price reduction is likely to cause negative attribution and that the shorter the time lag for a reaction, the more likely is the reaction to cause negative attribution. Moreover, it shows that past competitive reactions and that the similarity in the means of price reduction by the first mover and second mover affect brand evaluation.

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This paper examines the effect of regret aversion on trading strategy in a dealer market where investors face a trade-off between expected utility of return and expected disutility of regret. Regret aversion is found to have a profound impact on investors' trading strategies; as a result, although asset price adjusts to new information swiftly, informed traders herd to buy when the price is extremely high, while they herd to sell when the price is extremely low. This model illustrates that regret aversion can help to explain herding behavior during bubbles and crashes. It overcomes the so-called “price critique” to herding theory in a standard sequential trading model.

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This study is designed to analyze the national pension premiums for contributors subscribing to the national pension program. It has been found that the non-payment rate is high in people who do not know much about the full pensions they may be entitled to receive. In a Web-based questionnaire survey, the respondents were divided into two groups. One group received a notice as to their pension benefits, and the other group did not. The purpose of this experiment is to investigate the difference in payments between the two groups, and the highest possible amount of payments allowable for national pension premiums were also examined in both groups. The results indicate that (1) the notice of pension benefits decreased the potential limit of pension payment for those who expected higher pension benefits, and (2) the notice had a positive effect on raising the potential limit of pension premiums.

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Research in psychology and neuroscience has shown that negative emotions such as depression and anxiety affect decision making in such a way that these emotions lead to pessimistic risk estimates. To see if this is applicable to consumer confidence, we conducted preliminary questionnaire surveys. In the first survey, college students filled out the Japanese version of the Center for Epidemiologic Studies Depression Scale (CES-D) and the questions from which the Japanese version of the consumer confidence index (CCI) is calculated. In the second survey, college students filled out the Japanese version of the State-Trait Anxiety Inventory (STAI) and the aforementioned CCI questions. The surveys showed no significant correlation between the CES-D and the CCI, but a significant correlation between the positive affect subscale of the CES-D and the CCI (r=-0.224, p<0.01), between trait anxiety and the CCI (r=-0.340, p<0.01), and between state anxiety and the CCI (r=-0.157, p<0.05).

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Do people believe that social success is determined by one's efforts or by luck? This study investigates factors that affect the Japanese values on social success. In particular, we focus on the impact of the economic situation at the time of graduation on the formation of worldview. Based on the data obtained from a survey entitled “Preference and Life Satisfaction Survey (conducted by Osaka University)”, we used answers to unique questions regarding individual behavioral characteristics. Controlling for individual heterogeneity in various factors and eliminating the individual response bias and measurement error possibly caused by the same individual's responses to subjective questions, the estimated results suggest that individuals who experienced an unanticipated economic depression at the time of graduation are more likely to believe that “social success is determined by luck rather than one's efforts”. In addition we found large significant differences in the formation of worldview between males and females.

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[in Japanese]

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The financial crisis starting in the autumn of 2008 clearly highlighted the importance of improving consumers' financial literacy. In response, a number of countries have developed or significantly renewed national strategies for financial education. At the same time, considerable efforts have been exerted to increase the effectiveness of financial education programs, in terms of increasing reach to consumers in need for help and promoting positive behavioral change, both of which are expected to improve their financial well-being. To this end, rapidly growing field of behavioral economics offers a new perspective on understanding of consumers' financial decision-making, contributing significantly to identify mechanisms and incentives to encourage appropriate financial decision-making. Against this background, this paper offers a brief overview of the increasing need for integrating insights from behavioral economics to financial education, pursuing a new approach to improve the effectiveness of financial education.

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[in Japanese]

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In a standard model under uncertainty, an information structure is given as primitives. However, a decision maker may have some subjective information, which is not directly observable for the analyst. Dillenberger, Lleras, Sadowski, and Takeoka (2012) address such a problem of subjective learning, and derive a subjective information structure from observable behavior. The purpose of this paper is to introduce their basic idea and summarize their result.

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[in Japanese]

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[in Japanese]

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This paper investigates the effect of social capital between irrigation canal head-enders and tail-enders on their water allocation problem. In irrigation management, the water allocation problem between head-enders and tail-enders is one of the serious problems. Using unique natural and artefactual field experiment data as well as general household survey data collected by JICA, this study finds that social capital, especially trust toward their tail-enders, has a significantly positive effect on satisfaction with water usage among head-enders. Considering the fact that the incentive structure of irrigation water allocation for head-enders closely resembles that in the dictator and trust games, this finding also supports the validity of experimentally measured social capital. In addition, this study deals with the simultaneity bias between satisfaction level and experimentally measured social capital, and finds that OLS estimators are downward biased, which is consistent with the hypothesis that scarcity of resources enhances social capital.

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This study investigates whether non-cognitive skills as measured by Big 5 personality traits and behavioral characteristics as indicated by risk aversion rate, time discount rate, and (over) confidence explain the variation in schooling and labor market outcomes using the Japanese and US survey data. The obtained results indicate that non-cognitive skills influence the schooling, wages, and career promotion, even when controlling for a variety of behavioral characteristics in addition to economic variables. Interestingly, educational attainment and occupational success depend on different facets of Big 5 personality traits and the role of personality trait varies between countries and genders.

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In this paper, we use panel data to test whether Federal Open Market Committee (FOMC) board members' forecasts are rational. Rationality is rejected in the sense that forecasts by members are heavily dependent on previous own forecasts and last consensus made in FOMC. Furthermore, we reveal the strategic behavior of FOMC board members. Forecasts by governors, who always have voting rights, agree much with the previous consensus of FOMC members' forecasts. In contrast, non-governors, who rotate voting rights, exaggerate their forecasts: they aggressively deviate their forecasts from previous consensus. The former is herding behavior and the latter is anti-herding behavior. Our results imply that individual members behave strategically; governors want to present policy-consistent forecasts to the Congress and non-governors utilize their forecasts to influence decision making in FOMC.

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In contrast to the common finding that life satisfaction is U-shaped with age, recent studies for Japan found an L-shaped pattern of life satisfaction, with initial decline between young and middle ages, but no recovery in the old age. We studied the source of this unusual finding by two versions of age-cohort-period model, and found that the addition of cohort effects basically explains away the L-shaped pattern in the life cycle of happiness. The result remained robust to adding fixed effects across individuals, with several significant asymmetries between men and women in determinants of life satisfaction.

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Three major ethics theories are utilitarianism, deontology, and moral virtue ethics. There is a commonly accepted basis for policy evaluation in traditional economics under broadly-defined utilitarianism with no interpersonal comparisons of utilities: Pareto efficiency. With exogenous-stable preferences, Pareto efficiency gives a solid basis. In contrast, there is no such commonly accepted basis for policy evaluation in behavioral economics. This is because, in behavioral economics, preferences are often assumed to be unstable and endogenous. This paper proposes to use moral virtue ethics as the basis for evaluating policies in behavioral economics. Extending the tough love altruism framework of Bhatt and Ogaki (2012), this paper compares government policies that are based on utilitarianism and those based on moral virtue ethics.

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This paper describes recent trends in CEO compensation of US and Japanese firms, a brief summary of continuous-time agency models, and some results obtained from Hori and Osano (2012) that incorporates manager’s loss aversion. Recently, CEO compensation in US still includes a base salary while the largest component of it is stock based ones such as restricted stock grants. Based on DeMarzo and Sannikov (2006) that is a seminal study on continuous-time agency models, we introduce incentive compatible constraints and how the optimal contract is derived. Hori and Osano (2012) shows that the optimal CEO compensation includes a salary that is less sensitive to the firm performance.

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[in Japanese]

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[in Japanese]

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In explaining the poor informational value of analysts' long-term earnings growth forecasts, studies have focused on the excessively aggressive forecasts induced by analysts' incentives and/or cognitive biases. This study reveals that the forecasts' poor informational value is driven by analysts' reluctance to issue conservative forecasts, which may also be induced by their incentives and/or biases. We predict that this reluctance allows each firm's conservative forecast to be heavily influenced by the firm's past performance and to be the noisy predictors to distinguish high-growth firms from low-growth ones. Consistent with our prediction, we find that each firm's most conservative forecasts are those most strongly influenced by past performance and have the least predictive power.

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Using large panel data which consist of responses from over 4000 households in all over Japan, we analyze changes in people's worldviews and subjective well-being (happiness) before and after the Great East Japan Earthquake. As a result we find that 1) there were more people—more than six times as many—who replied that their happiness improved after the earthquake than those who said it worsened, and also that 2) many more Japanese people have become more altruistic since the earthquake, even in the most affected areas. One possible interpretation of these results is that many Japanese became more altruistic as a result of the Great East Japan Earthquake, made donation, and donating improved people's happiness. Our regression analysis that allows for reverse causality yields results that are consistent with this interpretation.

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This paper investigates the individual outcomes of irrational thinking, including paranormality and non-scientific thinking. These modes of thinking were identified by factor analysis from a 2008 survey. Income and happiness are used as measures of performance. Empirical results reveal that non-scientific thinking lowers income, whereas paranormality does not affect it. While non-scientific thinking lowers happiness, paranormality raises it. Extending the model, we find that higher ability and self-control result in higher income and happiness. Selfishness raises income, but diminishes happiness. These results suggest that generally achieves higher individual performance except that belief in paranormality raises happiness.

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This study explores the role of the biological value of survival on human behavioral studies. For this purpose, I derive the biological value of survival employing a biological model, discuss its implications on human life history, behavior, and preferences, and compare it with its economic counterpart, i.e., the value of life. I argue that these two values need to be reconciled for consistency in the study of human behavior.

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[in Japanese]

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