The adverse impact of haze on health and its association with a range of economic outcomes, including worker productivity and performance of the housing and stock markets, has received increasing attention in the literature. This paper is a first attempt at investigating the causal effect of haze proxied by Particulate Matters 2.5 (PM2.5) directly on decision making in a natural laboratory experiment. This study was conducted in Beijing over five days in October 2012 with highly varying levels of PM2.5, before this measure became commonly used in China the next year. An increase in the level of haze yields an increase in risk aversion and ambiguity aversion over gains and in risk affinity over losses. In temporal decision making, subjects are more impatient when discounting over a remote comparison, but not for trade-off’s in the near term. For other-regarding behavior, subjects become less prosocial with increased haze: more selfish in altruistic giving, contribute less in a public goods game, less positively reciprocal in a sequential prisoner’s dilemma, and exhibit greater fairness expectation in the ultimatum game. In strategic thinking, increased haze exacerbates the deviation from optimal bidding behavior in the second-price sealed bid auction as well as departure from equilibrium behavior in the p-beauty game. Taken together, these findings provide a preferential foundation to the results in recent papers linking short term variations in the level of haze to a number of real-world economic variables.
Past Faculty Workshop•May 23, 2017
Chew Soo Hong, National University of Singapore
Haze and Decision Making: A Natural Laboratory Experiment