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Haze and Decision Making: A Natural Laboratory Experiment

  • Date 2017-08-01 (Tue)
  • Time 02:30 PM
  • Venue Conference Room B110
  • Presider Professor Meng-Yu Liang
  • Speaker Professor Soo Hong Chew
  • Background Professor Chew received his Ph.D. from the University of British Columbia in 1981. He is Provost's Chair Professor of National University of Singapore. His research interests include Decision theory, behavioral and biological economics, experimental economics.
  • Abstract The adverse impact of haze on health and its association with a range of economic outcomes have received increasing attention in the literature. A natural laboratory experiment enables a first attempt at investigating the causal effect of haze proxied by Particulate Matters 2.5 (PM2.5) directly on decision making. This study was conducted in Beijing over five days with highly varying levels of PM2.5 in October 2012, before this measure became commonly known in China the next year. We find a number of effects of an increase in PM2.5. In individual decision making, we find an increase in aversion to risk and to ambiguity over gains and in risk tolerance over losses as well as greater impatience when discounting over a remote comparison. In other-regarding behavior, subjects become less prosocial: more selfish in altruistic giving, less generous in a public goods game, less reciprocal in a sequential prisoner's dilemma, and exhibit greater fairness expectation in the ultimatum game. In strategic thinking, there is greater deviation from dominant-strategy bidding behavior in the second-price sealed bid auction and from equilibrium behavior in the p-beauty game. Taken together, our results provide a preferential foundation to reported findings in several recent papers linking short term variations in air quality to real-world economic variables including performance of stock markets, worker productivity, leisure and entertainment, and criminal activities.