May 10, 2006

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China facts of the day

The folks at Marginal Revolution have turned in not just one but two different but interesting posts.

Firstly they point to an LA Times article on the village of Renhe, where villagers took advantage of a loophole in a government regulation by getting divorced to qualify for better housing as compensation for their land, only for the government to change the rules. It'd be funny if it weren't so sad that many elderly villages have been screwed thanks to a government cock-up.

Even more interesting is the pointer to a research paper looking at how cultural differences matter for behavioral biases:

Behavioral economic research has tended to ignore the role of cultural differences in economic decision-making. The authors suggest that a systematic bias affects existing behavioral economic theory - cognitive biases are often assumed to be universal. To examine how cultural background informs economic decision-making, and to test framing effects, morality effects, and out-group effects in a cross-cultural study, the authors conducted an experiment in the United States and China. The experiment was designed to test cultural and cognitive effects on a fundamental economic phenomenon - how people estimate the financial values of objects over time.

Results of the experiment demonstrated dramatic cultural differences in financial value estimations, as well as on the influence of variables such as framing effects. Chinese participants made higher object value estimates than Americans did, even when adjusting for differing national inflation rates. In addition, the results showed that contextual information, such as framing, morality information, and group membership affected judgments of financial values in complex ways, particularly for Chinese participants. The results underscore the importance of understanding the influence of cultural background on economic decision-making. The authors discuss the results in the context of behavioral law and economics, and propose that importing cultural competence into behavioral models can lead to cognitive debiasing, both temporary and permanent.

Thirdly, Sam Crane points to a comparison between Singapore and China, which includes the stunning and thought provoking line In comparison [to Singapore], China is a paradise of academic freedom. Add another to Hemlock's pathetic Singapore list. The rest of the article is a look inside Tsinghua University, one of the country's elite places of learning, and how one academic finds teaching a potentailly fraught topic: politics.

There, you just learnt three new things today. No need to thank me.

(MR link to LA Times and to the research paper).

posted by Simon on 05.10.06 at 12:35 PM in the China category.


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I looked at that paper on culture and behavioural economics/finance and found it to be one of those papers where the isolation of variables was poor and the conclusions didn't match the data.

Interesting topic, but I was concerned when the authors suggested that Kahnemann & Tversky were advocating their positions as universal regardless of culture. I've never heard Kahnemann or Thaler or Shleifer or Prelec suggest anything of the sort.

As for the data provided in the paper, the isolation of the valuation changes for various "commodities" only in relation to inflation? Give me a break. Beyond the questionable data on inflation from China over the last 10 years, there are also serious questions as to whether the valuation change of a gold coin or antique chair or government-issued bond would differ in a 1:1 relation to inflation in either the US or China.

And even with some of the data presented showing gradations of difference, which aren't properly isolated, the generalised conclusions provided by Kahnemann & Tversky still held 100%.

posted by: Tom - Daai Tou Laam on 05.11.06 at 09:46 AM [permalink]

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