Contributions published at Department of Economics (Florian Scheuer)

Traditionally the posterior parietal cortex was believed to be a sensory structure. More recently, however, its important role in sensory-motor integration has been recognized. One of its functions suggested in this context is the forming of intentions, i.e. high-level cognitive plans for movements. The selection and planning of a specific movement defines motor intention. In this study we used rapid event-related functional magnetic resonance imaging of healthy human subjects to investigate the involvement of posterior parietal cortex in motor intention in response to valid imperative cues. Subjects were provided with either neutral, motor or spatial cues. Neutral cues simply alerted, motor cues indicated which hand to use for response, and spatial cues indicated on which side the target would appear. Importantly, identical targets and responses followed these cues. Therefore any differential neural effects observed are independent from the actual movement performed. Differential blood oxygen level dependent signal changes for motor vs. neutral as well as motor vs. spatial cue trials were found in the left supramarginal gyrus, as hypothesized. The results demonstrate that neural activity in the left supramarginal gyrus underlies motor plans independent from the execution of the movement and thus extend previous neuropsychological and functional imaging data on the role of the left supramarginal gyrus in higher motor cognition.

In fear extinction, an animal learns that a conditioned stimulus (CS) no longer predicts a noxious stimulus [unconditioned stimulus (UCS)] to which it had previously been associated, leading to inhibition of the conditioned response (CR). Extinction creates a new CS-noUCS memory trace, competing with the initial fear (CS-UCS) memory. Recall of extinction memory and, hence, CR inhibition at later CS encounters is facilitated by contextual stimuli present during extinction training. In line with theoretical predictions derived from animal studies, we show that, after extinction, a CS-evoked engagement of human ventromedial prefrontal cortex (VMPFC) and hippocampus is context dependent, being expressed in an extinction, but not a conditioning, context. Likewise, a positive correlation between VMPFC and hippocampal activity is extinction context dependent. Thus, a VMPFC-hippocampal network provides for context-dependent recall of human extinction memory, consistent with a view that hippocampus confers context dependence on VMPFC.

Lesion and functional imaging studies in humans have suggested that the dorsolateral prefrontal cortex (DLPFC), ventrolateral prefrontal cortex (VLPFC), and intraparietal sulcus (IPS) are involved in orienting attention. A functional magnetic resonance imaging study supplemented by a behavioral experiment examined the effects of 5 Hz repetitive transcranial magnetic stimulation (rTMS) conditioning to the right and left DLPFC on reaction times and synaptic activity as indexed by changes in the blood oxygenation level-dependent (BOLD) signal during a cued choice reaction time task. Orienting precues were either correct (valid) or incorrect (invalid) with respect to the subsequent move cue. The effects of real and sham rTMS were compared for each site of stimulation. Invalid trials showed a significant increase in response times and increases in the BOLD signal in right frontal and parietal regions when compared with valid trials. Conditioning left DLPFC with rTMS led to decreased BOLD signal during performance of this reorienting task in areas including left VLPFC and left IPS. Comparing invalid to valid trials after right DLPFC conditioning revealed decreased BOLD signal in right VLPFC. Data from the behavioral study showed that right DLPFC rTMS selectively increases response times in invalid trials. This effect was only present in the first 10 min after rTMS conditioning. No effect was found in either validly or invalidly cued trials with left DLPFC conditioning. These results suggest that 5 Hz rTMS over right DLPFC exerts remote effects on the activity of areas that functionally interact with the DLPFC during attentional processes, particularly when the reorienting of attention is more demanding as in invalid trials.

The neural processes underlying empathy are a subject of intense interest within the social neurosciences. However, very little is known about how brain empathic responses are modulated by the affective link between individuals. We show here that empathic responses are modulated by learned preferences, a result consistent with economic models of social preferences. We engaged male and female volunteers in an economic game, in which two confederates played fairly or unfairly, and then measured brain activity with functional magnetic resonance imaging while these same volunteers observed the confederates receiving pain. Both sexes exhibited empathy-related activation in pain-related brain areas (fronto-insular and anterior cingulate cortices) towards fair players. However, these empathy-related responses were significantly reduced in males when observing an unfair person receiving pain. This effect was accompanied by increased activation in reward-related areas, correlated with an expressed desire for revenge. We conclude that in men (at least) empathic responses are shaped by valuation of other people's social behaviour, such that they empathize with fair opponents while favouring the physical punishment of unfair opponents, a finding that echoes recent evidence for altruistic punishment.

The ability to remember emotional events is crucial for adapting to biologically and socially significant situations. Little is known, however, about the nature of the neural interactions supporting the integration of mnemonic and emotional information. Using fMRI and dynamic models of effective connectivity, we examined regional neural activity and specific interactions between brain regions during a contextual memory retrieval task. We independently manipulated emotional context and relevance of retrieved emotional information to task demands. We show that retrieval of emotionally valenced contextual information is associated with enhanced connectivity from hippocampus to amygdala, structures crucially involved with encoding of emotional events. When retrieval of emotional information is relevant to current behavior, amygdala-hippocampal connectivity increases bidirectionally, under modulatory influences from orbitofrontal cortex, a region implicated in representation of affective value and behavioral guidance. Our findings demonstrate that both memory content and behavioral context impact upon large scale neuronal dynamics underlying emotional retrieval.

Current pathophysiological theories of schizophrenia highlight the role of altered brain connectivity. This dysconnectivity could manifest 1) anatomically, through structural changes of association fibers at the cellular level, and/or 2) functionally, through aberrant control of synaptic plasticity at the synaptic level. In this article, we review the evidence for these theories, focusing on the modulation of synaptic plasticity. In particular, we discuss how dysconnectivity, observed between brain regions in schizophrenic patients, could result from abnormal modulation of N-methyl-D-aspartate (NMDA)-dependent plasticity by other neurotransmitter systems. We focus on the implication of the dysconnection hypothesis for functional imaging at the systems level. In particular, we review recent advances in measuring plasticity in the human brain using functional magnetic resonance imaging (fMRI) and electroencephalography (EEG) that can be used to address dysconnectivity in schizophrenia. Promising experimental paradigms include perceptual and reinforcement learning. We describe how theoretical and causal models of brain responses might contribute to a mechanistic understanding of synaptic plasticity in schizophrenia.

Perceived control attenuates pain and pain-directed anxiety, possibly because it changes the emotional appraisal of pain. We examined whether brain areas associated with voluntary reappraisal of emotional experiences also mediate the analgesic effect of perceived control over pain. Using functional magnetic resonance imaging, we compared self-controlled noxious stimuli with physically identical stimuli that were externally controlled. Self-controlled stimulation was accompanied by less pain and anxiety and higher activation in dorsal anterior cingulate (dACC), right dorsolateral, and bilateral anterolateral prefrontal (alPFC) cortices. Activation in dACC and right alPFC was negatively correlated with pain intensity ratings. For externally controlled pain, activation in right alPFC was inversely correlated with the participants' general belief to have control over their lives. Our results are consistent with a reappraisal view of control and suggest that the analgesic effect of perceived control relies on activation of right alPFC. Failure to activate right alPFC may explain the maladaptive effects of strong general control beliefs during uncontrollable pain.

In the empirical analysis of consumer markets, recent literature has begun to explore the dynamics in both consumer decisions as well as in firms' marketing policies. Other research has begun to explore the strategic aspects of product line design in a competitive environment. In both cases, structural models have given us new insights into consumer and firm behavior. For example, incorporating consumer and firm dynamics may help explain patterns in our data that are not well-captured by static models. Similarly, the strategic aspects of firm entry and product-positioning may be intrinsically linked to firm conduct and the intensity of competition in a market. Structural analysis of these consumer and firm decisions raise a number of substantial computational challenges. We discuss the computational challenges as well as specific empirical applications. The discussions are based on the session “Structural Models of Strategic Choice” from the 2004 Choice Symposium.

We develop a positive theory of the adoption of child labor laws. Workers who compete with children in the labor market support a child labor ban, unless their own working children provide a large fraction of family income. Fertility decisions lock agents into specific political preferences, and multiple steady states can arise. The introduction of child labor laws can be triggered by skill-biased technological change, which induces parents to choose smaller families. The theory can account for the observation that, in Britain, regulations were first introduced after a period of rising wage inequality, and coincided with rapid fertility decline.

It is common in econometric applications that several hypothesis tests are carried out at the same time. The problem then becomes how to decide whichnhypotheses to reject, accounting for the multitude of tests.nThe classical approach is to control the familywise error rate (FWE), that is, thenprobability of one or more false rejections. But when thennumber of hypotheses under consideration is large, control of the FWE can become too demanding. As a result, the number of false hypotheses rejected may be small or even zero. This suggests replacingncontrol of the FWE by a more liberal measure. To this end,nwe review a number of proposals from the statistical literature.nWe briefly discuss how these procedures apply to the general problem of model selection. A simulation study and two empirical applications illustrate the methods.

"Multilevel or mixed effects models are commonly applied to hierarchical data; for example,nsee Goldstein (2003), Raudenbush and Bryk (2002), and Laird and Ware (1982). Although therenexist many outputs from such an analysis, the level-2 residuals, otherwise known as randomneffects, are often of both substantive and diagnostic interest. Substantively, they are frequently used for institutional comparisons or rankings. Diagnostically, they are used to assess the modelnassumptions at the group level. Current inference on the level-2 residuals, however, typicallyndoes not account for data snooping, that is, for the harmful effects of carrying out a multitude of hypothesis tests at the same time. We provide a very general framework that encompasses both of the following inference problems: (1) Inference on the `absolute' level-2 residuals tondetermine which are significantly different from zero, and (2) Inference on any prespecified number of pairwise comparisons. Thus, the user has the choice of testing the comparisons of interest. As our methods are flexible with respect to the estimation method invoked, the user may choose the desired estimation method accordingly. We demonstrate the methods with the London Education Authority data used by Rasbash et al. (2004), the Wafer data used by Pinheiro and Bates (2000), and the NELS data used by Afshartous and de Leeuw (2004)."

In this note we show that no solution to coalition formation games can satisfy a set of axioms that we propose as reasonable. Our result points out that “solutions” to the coalition formation cannot be interpreted as predictions of what would be “resting points” for a game in the way stable coalition structures are usually interpreted.

This paper provides evidence on the relation between the intensity of product-market competition and the probability of exit. We adopt a natural experiment approach to analyze the impact of a tightening of Swiss antitrust legislation on exit probabilities. Based on a sample of more than 68,000 firms from all major sectors of the Swiss economy, we find that the exit probability of non-exporting firms increased significantly, whereas the exit probability of exporting firms remained largely unaffected. Our results support the notion that there is a positive relationship between the intensity of product-market competition and the probability of exit.

"To overcome problems produced by globalization, some people see the solution in a WorldnGovernment while others see it in an autarchic global market without any governmentnintervention. Both solutions are rejected due to their major shortcomings. Two superiornsolutions are proposed: (1) A net of Functional, Overlapping Democratic Jurisdictions (FOCJ)nconfirming to a geography of problems; (2) The free choice of individuals to become citizensnnot only simultaneously in various nations but also in semi-public, non-governmental and private organizations as well as in private firms. The advantages and disadvantages of these proposals are discussed."

Famous cultural monuments are often regarded as unique icons, making them an attractive target for terrorists. Despite huge military and police outlays, terrorist attacks on important monuments can hardly be avoided. We argue that an effective strategy for discouraging terrorist attacks on iconic monuments is for the government to show a firm commitment to swift reconstruction. Using a simple game-theoretic model, we demonstrate how a credible claim to rebuild any cultural monuments destroyed discourages terrorist attacks by altering the terrorists’ expectations and by increasing the government’s reputation costs if they fail to rebuild.

Health insurance is potentially subject to risk selection, i.e. adverse selection on the part of consumers and cream skimming on the part of insurers. Adverse selection models predict that competitive health insurers can eschew high-risk individuals by offering contracts with low deductibles or co-payment rates, while attracting low-risk individuals with higher copayments, resulting in a separating equilibrium. This contribution seeks to determine whether in competitive Swiss social health insurance policies with deductibles in excess of the legal minimum do indeed serve as an instrument of risk selection. In a discrete choice experiment, effected in 2003, some 1,000 individuals were given the hypothetical choice of alternative insurance contracts that differed both in terms of deductibles and copayments and in bene.ts covered. Results suggest that healthy individuals, i.e. those not having consulted medical services during the past six months, were more likely to select a policy with a high deductible. Compensation demanded for voluntarily accepting an increase in the annual deductible also varies with socioeconomic characteristics and increases with the current level of deductible, as predicted by theory and constituting evidence in favor of the risk selection hypothesis. The experiment allows to compute necessary premium reductions and provides guidance for the pricing policy of insurers when offering differentiated products.

Much progress has been made in recent years in developing and applying a direct measure of utility using survey questions on satisfaction with income and with life in general. In this paper we apply this new type of measurement to the study of money illusion. Using data from the German Socio-Economic Panel for the years 1993 to 2003, we cannot reject the hypothesis of no money illusion.

This paper analyzes and compares different ways of assessing how people perceived impending threats of war in the past. Conventional Nordic historiography of World War IInclaims there were few, if any, people in the Nordic countries who perceived a significantlynincreased threat of war between 1938 and early 1940. At the same time, historical methodsnface problems when it comes to capturing the often tacitly held beliefs of a large numbernof people in the past. In this paper, we analyze these assessments by looking at suddennshifts in sovereign debt yields and spreads in the Nordic bond markets at that time. Ournresults suggest that Nordic contemporaries indeed perceived significant war risk increasesnaround the time of major war-related geopolitical events. While these findings questionnsome – but not all – of standard Nordic World War II historiography, they also demonstrate the value of analyzing historical market prices to reassess the often tacitly held views and opinions of large groups of people in the past.

Laut ökonomischer Standardtheorie sollen Arbeitsanreize mittels Geldzahlungen vermittelt werden. Materielle Anreize in nicht-monetärer Form sind demgegenüber weniger effizient, sind aber dennoch weit verbreitet. Auszeichnungen in Form von Titeln, Orden, Medaillen und Ehrungen (Preisen) wurden bisher nicht beachtet. Es handelt sich dabei um extrinsische, nicht-materielle Anreize die ihre Wirkung über den Urtrieb der Individuen nach sozialer Anerkennung und Status entfalten. Wir analysieren wie sich monetäre Anreize und Auszeichnungen unterscheiden: Auszeichnungen sind in der Regel billig, begründen soziale Beziehungen, sind nicht direkt mit der Leistung verknüpft und verfügen über eine Signalwirkung. Darüber hinaus unterstützen Auszeichnungen die intrinsische Motivation, können die Wohlfahrt erhöhen und sind steuerfrei. Auszeichnungen sind ein wichtiges zusätzliches Instrument im Arsenal der Prinzipal-Agenten-Theorie. In vielen Kontexten wirken sie besser als Geld.

We model income redistribution with dynamic distortions as determined by rational voting without commitment among individuals of different types and income realizations. We find that redistribution is too persistent relative to that chosen by a planner with commitment. The difference is larger, the lower is the political influence of young agents, the lower is the altruistic concern for future generations, and the lower is risk-aversion. Furthermore, there tends to be too much redistribution in the political equilibrium. Finally, smooth preference aggregation, as under probabilistic voting, produces less persistence and does not admit multiple equilibria, which occur under majority-voting aggregation.