Does Haze Cloud Decision Making? A Natural Laboratory Experiment

39 Pages Posted: 23 Jan 2018 Last revised: 6 Aug 2019

See all articles by Soo Hong Chew

Soo Hong Chew

National University of Singapore; National University of Singapore; HKUST

Wei Huang

CUHK Business School, The Chinese University of Hong Kong

Xun Li

Wuhan University - Department of Infectious Diseases

Date Written: July 20, 2019

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 involving more than 600 subjects enables a first attempt at investigating the causal effect of haze, proxied by particulate matter of up to 2.5 microns in diameter (PM2.5) on decision making. This study was conducted in Beijing in October 2012 over five days with highly varying levels of PM2.5, which only became commonly known in China in 2013. We observed several effects associated with an increase in the level PM2.5. In terms of individual decision making, we found increases in risk aversion to gains, risk tolerance over losses, ambiguity aversion over gains, and greater impatience in temporal discounting. In terms of other-regarding behavior, subjects became less prosocial, contributing less in a public goods game, reciprocating less in a sequential prisoners’ dilemma, and demanding more as responders in an ultimatum game. Our results underpin several reported findings in the literature linking short-term variations in air quality to real-world economic variables, including stock market performance, worker productivity, movie attendance and revenue, criminal activities, and subjective wellbeing.

Keywords: PM2.5, Decision Making, Cognition, Experiment

JEL Classification: C91, C92, D91, Q53

Suggested Citation

Chew, Soo Hong and Huang, Wei and Li, Xun, Does Haze Cloud Decision Making? A Natural Laboratory Experiment (July 20, 2019). Available at SSRN: https://ssrn.com/abstract= or http://dx.doi.org/10.2139/ssrn.3102263

Soo Hong Chew

National University of Singapore ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

National University of Singapore ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HKUST ( email )

Clear Water Bay
Kowloon, Hong Kong
China

Wei Huang (Contact Author)

CUHK Business School, The Chinese University of Hong Kong ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

Xun Li

Wuhan University - Department of Infectious Diseases ( email )

Wuhan
China

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