Does Haze Cloud Decision Making? A Natural Laboratory Experiment
39 Pages Posted: 23 Jan 2018 Last revised: 6 Aug 2019
Date Written: July 20, 2019
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: Suggested Citation