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Human Capital and the Lifetime Costs of Impatience
Abstract
In this paper, we examine the role of impatience in the formation of human capital - arguably the most important investment decision individuals make during their lifetimes. We pay particular attention to a set of investment behaviors that cannot be explained solely by variation in exponential discount rates. Using data from the NLSY and a straightforward measure of impatience, we find that impatient people systematically acquire lower levels of multiple measures of human capital and that a substantial fraction of these differences arise from dynamically inconsistent behavior, such as starting an educational program but failing to complete it. the cumulative investment differences result in the impatient earning 18 percent less and expressing significantly more regret as this cohort reaches middle age.
... Several studies have found that survey respondents rated as "impatient" based on this brief interaction with their interviewer behave in ways consistent with a difficulty with delaying gratification (e.g. [1], [8]). The roughly 10-15% of individuals coded this way are more likely to smoke, less likely to have a bank account, more likely to drink to the point of a hangover, and more likely to leave military service prior to the end of their initial commitments [1]. ...
... [1], [8]). The roughly 10-15% of individuals coded this way are more likely to smoke, less likely to have a bank account, more likely to drink to the point of a hangover, and more likely to leave military service prior to the end of their initial commitments [1]. While these behaviors could reflect either time-consistent or time-inconsistent impatience, additional evidence from schooling choices and job search behavior supports a time-inconsistent interpretation. ...
... Together, these results suggest that many dropouts leave school due to a time-inconsistent form of impatience. Another study uses the interviewer rating method discussed above to provide additional evidence that time-inconsistent impatience affects the high school dropout decision [1]. ...
... A growing strand of literature has been focusing on the implications of the personality and demographic characteristics of the individuals in shaping economic decisions and labour market outcomes (Falk et al. 2018;DellaVigna 2009;Cadena and Keys 2015;O'Donoghue and Rabin 2015). Risk preferences, as well as preference structure overall, are undeniably relevant to understanding economic behaviour, at both firm and consumer levels. ...
... On the other hand, there are studies that show that entrepreneurs are not more likely to have a higher tolerance for risk than non-entrepreneurs i.e., that it is not risk preferences per se but preferences for competition that drive entrepreneurial choice(Holm et al. 2013). See alsoCadena and Keys (2015). ...
This paper analyses the impact of entrepreneurs’ preferences (time impatience and risk attitudes) on firms’ propensity to make general investments and also specific investments in digital technologies. To fulfil this aim, we use the responses to the questions intended to measure risk attitude and patience included in the Rilevazione su Imprese e Lavoro (Inapp-RIL) survey conducted by Inapp on a representative sample of Italian firms. The regression estimates show that time impatience has at most a weak effect on firms’ ‘general’ investments, while it reduces the propensity to undertake investments in digital technologies. Risk attitude is positively correlated with digital investment, even though the estimates are weaker in magnitude and statistical significance than those found for impatience. These results are robust to simultaneity and endogeneity issues.
... Scenario 3 is also most likely when human capital is impatient, as in Cadena and Keys (2015). Impatient human capital is more likely to have a capital structure not 7 Such an effect is also the case when immigrants, whether educated or not, provide services at lower cost. ...
... This situation necessitates investigating other motives for human capital besides it raising the individual's marginal productivity, whether the motive is state or individual based. Alchian (2006) points to various possibilities, including cultural education, and subsidies by the state for various promulgated reasons (such as to increase the supply of physicians), while others have pointed to other reasons such as human capital's impatience [Cadena and Keys (2015)], lack of ability [Stinebrickner and Stinebrickner (2012)] and high discount rates regarding investments in the future [Mincer (1958), Becker (1964) and Golsteyn, Grönqvist and Lindahl (2014)]. ...
I generalize Modigliani-Miller's (1958, 1963) capital structure theory, showing within it a theory for human capital's capital structure that is also more nuanced than for physical capital. This paper integrates Becker's (1962) view of education and Alchian's (2006) on its financing, to considers various scenarios on the tax deductibility of the debt financing of human capital in the implied Modigliani-Miller paradigm. It considers that the cost of human capital (wages and salaries) is deductible to the firm unlike the cost of equity for physical capital, and that the interest cost of debt on human capital in the U.S. is also deductible to the firm, but not necessarily to the individual. This paper proposes based on its analysis public policy implications on the financing of education 3
... The time preference composition of migration flows is also relevant from a purely scientific point of view. Given the positive role of patience in human capital formation (see, for instance, Golsteyn et al. 2014;Cadena and Keys 2015), a positive effect of patience on migration would help to explain the college "migration premium" (Malamud and Wozniak 2012). ...
... The inclusion of RRR hardly reduces the college migration premium. Cadena and Keys (2015) provide compelling evidence that impatient individuals tend to exhibit preference reversals in educational investment. To investigate the role of time-inconsistent preferences in the decision whether to migrate, additional variables such as willingness to migrate and the level of regret for inappropriately deciding in the past would be needed. ...
The very few studies on the empirical link between time preference and migration involve small samples or do not control for cognitive skills. This study uses data from a large, nationally representative survey with information on time preferences and cognitive skills to investigate whether cross-region migrants in Spain are less impatient than individuals who choose to remain in their birth region. The empirical model incorporates predicted probabilities of misclassifying lifetime migrant status. The results suggest that the effect of impatience on the likelihood of migrating internally is negative but decreasing, and that it is smaller than the effect on the likelihood of migrating abroad.
... Health behavior : There is evidence suggesting that experimental measures of individuals' patience negatively correlate with alcohol consumption, smoking behavior, and body mass index (Borghans and Golsteyn, 2006;Chabris et al., 2008;Sutter et al., 2013). Education: There is evidence that suggests that subjects with a high level of patience, i.e. lower TD, have better education outcomes (Golsteyn et al., 2014;Kirby et al., 2005;Duckworth and Seligman, 2005;Non and Tempelaar, 2016;Paola and Gioia, 2014), and are less likely to receive disciplinary referrals in school (Castillo et al., 2011) and to drop out from high school and college (Cadena and Keys, 2015). Finance: Patience is correlated with income, savings, credit card borrowing (negatively) and is a good predictor of the real-life wealth distribution (Tanaka et al., 2010;Giné et al., 2017;Ashraf et al., 2006;Sprenger, 2010, 2013;Epper et al., 2020). ...
... Although for experimental economists the use of monetary incentives is a must, some of the most acclaimed papers on TD -for instance Kirby et al. (2005); Ashraf et al. (2006); Golsteyn et al. (2014); Cadena and Keys (2015); Dohmen et al. (2018) just to name a few -do not pay participants real monetary incentives, that is, decisions are hypothetical. But, are choices over hypothetical rewards equally informative as incentivized time preferences? ...
The use of hypothetical instead of real decision-making incentives remains under debate after decades of economic experiments. Standard incentivized experiments involve substantial monetary costs due to participants' earnings and often logistic costs as well. In time preferences experiments, which involve future payments, real payments are particularly problematic. Since immediate rewards frequently have lower transaction costs than delayed rewards in experimental tasks, among other issues, (quasi)hyperbolic functional forms cannot be accurately estimated. What if hypothetical payments provide accurate data which, moreover, avoid transaction cost problems? In this paper, we test whether the use of hypothetical - versus real - payments affects the elicitation of short-term and long-term discounting in a standard multiple price list task. One-out-of-ten participants probabilistic payment schemes are also considered. We analyze data from three studies: a lab experiment in Spain, a well-powered field experiment in Nigeria, and an online extension focused on probabilistic payments. Our results indicate that paid and hypothetical time preferences are mostly the same and, therefore, that hypothetical rewards are a good alternative to real rewards. However, our data suggest that probabilistic payments are not.
... In a hypothetical dataset with zero measurement error, any differences found between gamblers and nongamblers should be even more pronounced. 6 changes to gambling costs in our sample are most likely due to endogenous reasons. Thus, the statistical correlations between gambling and nongambling expenditures that we are presenting below do not necessarily speak to any causal relationship between the expenditures. ...
... Similarly, Ameriks, Caplin, and Leahy (2003) find that "planners," who spend more time on developing financial plans, are more likely to have higher wealth. More recently, Cadena and Keys (2011) infer time discounting factors of young adults using information about whether they were patient while participating in a survey. ...
Gambling behavior can serve as an informative indicator of important household heterogeneity that is difficult to observe directly in data. We present, to the best of our knowledge, the first comprehensive study of the consumption and personal finance of gamblers using a nationwide representative household survey. We find that consumers are more likely to gamble when income is higher than its normal level predicted by observable characteristics, and that nongambling expenditures tend to increase with gambling activities. In addition, gamblers are more likely to concurrently have various types of debt and assets, assuming a more active position on household balance sheets. However, gamblers do not necessarily have a higher net worth than comparable nongamblers. Gamblers also tend to engage in health-wise risky behaviors, such as smoking and heavy drinking, while paying out-of-pocket on life and health insurance. We present extensive evidence that such behavior differences observed in the data are not primarily due to different degrees of careless reporting to the survey. Rather, we argue that our findings are consistent with the notion that certain consumers, namely, the active participants in personal finance markets, take on gambling as a form of entertainment.
... Although those children could join the labor market at the age of 16 before attaining the first stage of secondary education, by increasing the number of them attaining primary education, the law made it possible for some of them to complete secondary (or even higher) education. Cadena and Keys (2015) and Del Rey et al. (2018) rationalize this behavior based on impatience and time-inconsistent preferences. The reform also meant that for children born at the end of the year they no longer had the legal possibility of leaving school to work before completing the first stage of secondary education. ...
We exploit a country-wide child labor regulation that eliminated the difference in school/work alternatives for children born at the beginning and the end of the year to identify the causal effect of education on migration at low levels of schooling. By not relying on changes to the school system, we are more confident that our results are not driven by unobserved changes in school quality evolving differentially across regions. The results of a difference-in-differences methodology combined with an exploration of maternal characteristics and a regression discontinuity design suggest that internal migration hardly changed after the reform. A consideration of the external validity of this finding is also provided.
... First, we contribute to the research on human capital accumulation, which reports a negative association between adverse childhood conditions (e.g., illness, inutero alcohol exposure, poor nutrition) and health and economic outcomes in later life [15,16]. Although self-control is generally not considered a form of human capital, it has been considered a valuable psychological resource that enables people to follow through on their commitment to human capital investments and achieve desirable life outcomes [17,18]. ...
The behavioral economics literature suggests that exposure to traumatic events shifts preference features including risk aversion and time preference. In this study, we examined the association between traumatic life events and self-control in old age. Data were obtained from the Health and Retirement Study, which offers retrospective data on trauma exposure and early life characteristics. The results showed that experiences of serious physical attacks or assaults is associated with a 3.1% reduction in self-control, adjusted for demographic and childhood socioeconomic characteristics. The attacks or assaults were experienced approximately 30 years prior to the survey, indicating that traumatic life events exert a lasting influence on self-control. Further analyses found no difference in the association between the experience of serious physical attacks or assaults and self-control according to the timing of occurrence. Our findings are consistent with the evidence that experiences of natural disasters or armed conflicts increase impatience among survivors.
... The literature on commitment devices provides indicative evidence for such behavioral sophistication. Augenblick et al., 2015;Kauer 2012, Cadena 2015 suggest that individuals can be aware of their time-inconsistent preferences when facing laborious work tasks or long-term health decisions, i.e., individuals can sometimes anticipate that their future-self will place more weight on effort costs than they do presently. 1 Individuals also can be willing to selfimpose commitment devices to conquer their present bias (Bryan et al 2010). ...
Nudging interventions typically presume some asymmetry of sophistication and power between the choice architect and the nudged. But the nudged need not be relegated to a passive role. We present evidence that individuals have a capacity to counter their biases, and even to use them to their advantage. This capacity for behavioral self‐management (“BSM”) can allow them to act as the choice architects of their future‐self. In our study, we provide participants with the autonomy to choose among a variety of loss‐ and gain‐framed contracts that govern the terms under which they perform a real effort task. The results show that subjects strategically harness their own loss aversion to counter their present bias and significantly improve their performance. The loss‐framed contracts give individuals a tool they can use to self‐nudge. This possibility of self‐nudging should widen our perspective on biases. Biases can cause cognitive error and dampen motivation, but they can also be a valuable tool for individual decision making. And giving subjects the autonomy to choose their favored contract adds to the effectiveness of their BSM strategy. We show that subjects' experience self‐determination utility separate from performance benefits driven by a better adjustment of work tasks to subjects' production functions. To demonstrate the policy relevance of our results, we expand on an application of BSM strategies to retirement savings plans, which we suggest may lift participation and savings rates at no additional cost.
... Similarly, except for the reduction on preferences for public universities, we do not find effect of treating students additionally with information on returns to and enrolment rates in accredited universities, which were presented to treatment 1 only. A possible justification referred by Golsteyn, Grönqvist, and Lindhal (2014), and Cadena and Keys (2015), among others studies, is that a high discount factor makes youth pay more attention to immediate restrictions. In other words, students might have perceived future earnings as irrelevant to the immediate choice decision. ...
... Based on these experiments, numerous studies have found that those with higher ability to delay instant pleasure were found better performers in international PISA and SAT tests (e.g., see OECD 2020; Hanushek et al. 2020), have less probability to drink alcohol or smoke (Khwaja et al. 2007), are less emotional and less likely to drop out from school (Sutter et al. 2013;Backes-Gellner et al. 2021), are dedicated and properly plan their activities and goals, are more likely to choose science stream after compulsory schooling (Bembenutty et al. 1998;Mischel et al. 1989). However, those with less ability to delay instant reward were found poor in their educational and labor-market outcomes (Sutter et al. 2013;Cadena and Keys 2015;Kosse and Pfeiffer 2012). While, the direct research on the influence of students ADG on student's educational transition choice is not available. ...
Objective: A considerable amount of research identified socio-economic status and cognitive ability as robust predictors, the influence of student’s ability to delay gratification (ADG) on their educational transition choice doesn’t received researcher’s attention. To address this gap, the present study examined the incremental power of students ADG in predicting the dichotomous choice i.e. the choice of general or vocational education after successful completion of compulsory schooling.
Methods: Amid Covid-19 pandemic, cross sectional survey via an online mode was found
feasible for the data collection process in our study. An online link of survey questionnaire was created in the Google forms and administered to (N = 1024) grade 8 students in the Union Territory of Jammu & Kashmir, India. Multiple binary logistic regressions were conducted to predict the students’ choice, and odds ratios and average marginal effects were reported for better interpretation of results.
Results: Our results showed that students tracking choice differed significantly with respect to their gender and locale (smaller effect), ADG (medium effect), and cognitive ability and socio-economic status (larger effect). The probability of choosing the track of vocational education (with general education track as a baseline category) increases as students ADG decreases, and vice versa. This association of student’s ADG with the choice of vocational education track held same over and above the covariates – socio-economic status, cognitive ability, gender and locale.
Key words: Ability to Delay Gratification, Educational Transition, Tracking choice, Vocational education, General education, Cognitive Ability & Socio-economic Status
... Human capital is also viewed as a set of characteristics and skills that effectively enhance the degree of productivity (Brian & Keys, 2015). Another important definition is that of Jonathan and Walden (2013) that see human capital as a stock or collection of multiple elements including production and performance skills, competencies, abilities, talent, health, and expertise of the organizational workforce. ...
Human capital is nowadays considered as a key element that can be utilized to achieve organizational objectives. Firms always try to effectively manage their workforce through human capital development in order to achieve not only business objective but also business survival and sustainability. Using the World Bank Panel Business Enterprise Survey data for Nigeria, this study seeks to tests the contributions of stocks of and investments in human capital to firms’ labor productivity. The study used techniques of fixed effect and one-step generalized method of moments (GMM) to estimate the specified models. The overall findings are that stocks of and investments in human capital contribute significantly to the
firms’ productivity. In particular, average years of educational attainment of skilled workers (professional competencies), GM level of education (complex functions), and workers with high school education (basic skills) are the stocks of human capital that bring about gains in labor productivity, while absenteeism due to HIV/malaria causes productivity losses to the firms. R&D and bonus system are the significant investments in human capital that
also lead to labor productivity gains. Predictably, service firms appear to benefit more from productivity contributions of both stocks of and investments in human capital as R&D is even only significant in determining service firms’ productivity. Other findings of the study
include firms’ age, scale of operation, legal status, and ownership structure. These results have important policy implications for targeting the significant variables to increase firms’ productivity and competitiveness.
... While classic economic models assume that preferences are stable over time and unaffected by life-time experiences [Stigler and Becker, 1977], recent experimental studies suggest that individuals' risk aversion and time preferences can indeed be affected by extreme events linked to violence [Voors et al., 2012, Callen et al., 2014, Jakiela and Ozier, 2019, Brown et al., 2019, natural disasters [Eckel et al., 2009, Page et al., 2014, Callen, 2015, Cameron and Shah, 2015, Cassar et al., 2017, Hanaoka et al., 2018, Beine et al., 2020, health shocks [Decker and Schmitz, 2016], and financial and macroeconomic shocks [Guiso et al., 2018, Jetter et al., 2020, Malmendier and Nagel, 2011, Kettlewell, 2019. The time preferences have in turn been found to affect decisions regarding borrowing [Meier and Sprenger, 2010], savings [Thaler and Benartzi, 2004] and financial literacy [Meier and Sprenger, 2013] among adults, and investment and human capital acquisition among the younger [Sutter et al., 2013, Cadena and Keys, 2015, Kemptner and Tolan, 2018. ...
This thesis comprises four empirical essays that examine different issues in the economics of migration. The common theme to all four essays is the idea that migration is a phenomenon with economic implications for the country of origin, migrants themselves and the destination country. To reap the benefits of migration, it is necessary to understand the challenges and barriers at the various stages of the migratory journey that could reduce welfare and that may require policy interventions - or changes in policy - to overcome them. The research carried out within this PhD project aims to make a contribution to our understanding of the economic aspects of these challenges. The first essay examines a stage of the humanitarian migration process from developing to developed countries that has thus far been underexplored in economics: The journey itself. Asylum seekers migrating from developing countries to Europe frequently experience victimisation events during their journey. The essay links these potentially traumatic events to economic integration outcomes in Germany, one of the main recipient countries of asylum seekers during the 2015 migration crisis. The study shows that physical victimisation during the journey to Germany is strongly associated with significantly lower mental well-being upon arrival in the destination. The effect on the victimised also leads to a "loss of future directedness", which distorts one of the major decisions newly-arrived migrants have to make: Compared to non-victimised migrants, physically victimised refugees are more likely to engage in part-time and marginal employment instead of pursuing host-country education in the first years after arrival. The second essay follows up on these findings. The essay analyses the long-term value of formal host-country education for refugees vis-à-vis those the same level of education attained in the country of origin. The study deploys 22 years of Austrian microcensus data and analyses the labour market position of forcibly displaced young Bosnians who arrived in Austria during the 1992-1995 Bosnian war. Exploiting the age at the time of forced migration as an instrument for the probability of receiving host-country instead of origin country education, the results show that attaining a formal degree in the hostcountry significantly reduces the probability of working in low-quality jobs even after more than two decades of stay in the hosting country. The third essay shifts the focus to the early stage of the migration process: It studies 5 the role of household income in developing countries in the decision to send a household member as a labor migrant. The essay analyses the effect of exogenous global crop price changes on migration from agricultural households and finds that migration rates from very poor households indeed increase when the world market price of locally-grown crop rises. The finding suggests that for these households, additional income can relax their liquidity constraint and facilitate migration. The fourth and final essay then turns the attention back to the destination country. The study analyses the impact of the large, unexpected and spatially heterogenous migration wave from Central and Eastern European countries following their EU accession in 2004 on local level redistributive spending in England. While the arrival of migrants indeed affected public spending and locally generated revenue, the study finds no evidence that these changes in local service provision are driven by a decrease in the local willingness to redistribute following the arrival of outsiders. Rather, the results suggest that the demographic characteristics of Central and Eastern European migrants, in particular their young age, reduced demand for locally supplied social care services.
... Columns (3) and (4) model impatience measured through interviewers respondent classification as being restless between 1980 and 1985 (see Cadena & Keys, 2015). Each column uses controls for demographics, parental socio-economic status and yearly sibling FEs. ...
This paper provides novel evidence that child health affects adult financial behavior, that is, risky asset market participation. We do so by using a longitudinal dataset with a rich set of covariates and exploit sibling fixed‐effects (FE) to control for invariant unobserved heterogeneity. We begin by proposing a new mechanism working via skill formation and portfolio choice. To be precise, we test two hypotheses. First, we expect a negative correlation between poor child health and risky asset market participation. Second, this correlation should be mostly explained by differences in skills. To test these hypotheses, we use data from the National Longitudinal Study of Youth 1979 (NLSY79). Our results show that poor child health is associated with an 11 pp decrease in adult risky market participation conditional on demographics and family background. Moreover, our results suggest that disruption in pre‐labor market skill formation is a main mediator of this relationship. These results are robust to a wide range of robustness checks. Our findings have implications for the design of health policies and policies intended to increase financial literacy and asset market participation.
... 14 Notice that, when interacting the presence of a subsidy with impatience we find that impatient farmers are less likely to invest in inputs (consistent with evidence from the labor market (Cadena and Keys, 2015)) and that the subsidy might benefit more impatient farmers than patient ones consistent with evidence from Ngoma et al. (2018). We thank an anonymous referee for having suggested this further exploration. ...
The livelihoods of poor people in developing countries are increasingly dependent on weather shocks whose effects are exacerbated by the lack of access to adequate insurance markets allowing risk hedging. Index-based insurance underwrites a weather risk as a proxy for economic loss: when the index falls below a certain level, farmers automatically get a payment. The aim of this paper is to study the impact of an Index-based insurance on investment decisions in profitable but risky inputs in presence of weather shocks by means of an incentivized lab-in-the-field experiment conducted in Cambodia. The protocol is designed so as to study the extent to which investment decisions change under risk or ambiguity, for different levels of initial wealth, under contract nonperformance (i.e., when claims are not repaid by the insurer) and when the insurance is fully subsidized. The findings indicate that, while the mere presence of a market for insurance increases investment, the strength of the effect crucially depends upon the level of initial wealth and upon the subjects' ability to correctly assess the probability of a shock.
... The research of young students investment in human capital through academic mobility on the basis of international scholarship programs selection should be mentioned [20]. C.C. Brian and J.B. Keys consider the causes of under-investment in human capital by the students and believe that it depends on the features of their character, so impatient people can stop their studies in college with the rest of the year or less which leads to lower wages in the future [4]. ...
The article analyzed the strategy of investing in innovative human capital of Kazan student youth. The author's model of Kazan student youth clustering by type of relationship to invest in an innovative human capital is proposed. Two-dimensional model of investment in human capital is a continuum with maximum and minimum values of the motivation indicators and efficiency of investment in a human capital.
... The experimental set-up is different to the childhood self-regulation test and the (im-)patience measured cannot be directly compared to typical waiting times, but their results nevertheless indicate that impatience relates to more disruptive behavior in school. Cadena and Keys (2015) use data from multiple waves of the National Longitudinal Study of Adolescent Health (NSLY) and follow another and quite different approach for measuring impatience. The data do not provide a typical experiment-like setup but interviewers' assessment on whether the respondent was classified as 'impatient or restless'. ...
We investigate the relationship between preschoolers' self-regulation and their mathematical competence and its development over the first two years of primary school using data from the German National Educational Panel Study (NEPS). Our results imply a positive association between self-regulation and mathematical competence levels, even when holding basic cognitive abilities constant. Self-regulation is, however, generally not related to competence development over the first two years of primary school. Children with low initial mathematical competence and, to some extent, children with migration background benefit from self-regulation at the transition to primary school but not between grades 1 and 2.
... Sutter, Kocher, Glätzle-Rützler, and Trautmann (2013) found evidence that FTP among children aged 10 to 18 correlated with their Body Mass Index, savings behavior, and spending on alcohol and tobacco. Studies have also discovered a link between FTP and educational attainment, employment in young adulthood, performance in secondary school, unemployment, welfare participation, early death, obesity, and teenage childbearing (Golsteyn, Grönqvist, & Lindahl, 2014;Cadena & Keys, 2015). ...
The purpose of this study is to examine the influence of future time perspective
(FTP) on college student employment. The research data were collected using an online
survey that was distributed to randomly selected participants at a university in the
southeastern United States. A total of 219 undergraduate students participated in the
study. Logistic regression analysis revealed that FTP exerts a significant influence on
whether a student works while in college. Students higher in FTP were more likely to be
employed. In addition, gender was found to moderate the relationship between FTP and
college student employment, with the relationship being stronger for males than for
females. The present research not only contributes to our understanding of college
student employment, but it also has important implications for leaders in higher
education. Faculty and administrators should recognize and appreciate that working
college students are not only earning income to meet short term financial needs, but
they also perceive employment as a means of improving their long-term future earnings.
Internship and work-study coordinators could identify and target future-oriented
students when recruiting quality candidates. To the extent that FTP is malleable,
colleges and universities might consider prompting a greater orientation toward the
future in those students who are not so inclined in order to spark greater interest in
work-related programs
... Their results indicate that high discount rates (that is, less patience) are related to worse school performance and educational attainment. [8,[19][20][21][22] report similar findings in different countries and settings. [6] find that this result is valid when considering representative data from 76 countries. ...
We collect data on time preferences of a representative sample of the Hungarian adult population in a non-incentivized way and investigate how patience and present bias associate with important life outcomes in five domains: i) educational attainment, ii) unemployment, iii) income and wealth, iv) financial decisions and difficulties, and v) health. Based on the literature, we formulate the broad hypotheses that patience relates positively, while present bias associates negatively with positive outcomes in the domains under study. With the exception of unemployment, we document a consistent and often significant positive relationship between patience and the corresponding domain, with the strongest associations in educational attainment, wealth and financial decisions. We find that present bias associates significantly with saving decisions and financial difficulties.
... Additionally, impatience during adolescence is adversely correlated with later-in-life health and lifetime income [Golsteyn et al., 2014]. Impatient adolescents are more likely to make suboptimal education decisions, such as dropping out of college with one year left to completion [Cadena and Keys, 2015]. When looking at specific individual behavior, indicators for lacking organization can predict the probability of failure in university education [Novarese and Di Giovinazzo, 2013;Berens et al., 2018] and massive open online courses [Banerjee and Duflo, 2014]. ...
This dissertation presents three essays that use experimental or empirical methods to investigate the the impact of incentives and the decision-structure on behavior. Each essay is a self-contained study that contributes to the understanding of human behavior. The first essay (chapter 1) identifies the impact that tracking technology and individual incentives have on human behavior. The second essay (chapter 2) focuses on interventions to induce short-term action for long-term benefits. The third essay (chapter 3) investigates the tendency by decision-makers to compensate potential previous mistakes. In chapter 1, my coauthors and I investigate the impact of tracking technology and individual incentives in a controlled experimental setup. We identify the impact that the team interaction tracking and the individual incentive scheme have on behavior by fixing the experimental conditions and balancing teams across different treatments. Deviating from a standard laboratory experimental setup allows us to credibly manipulate the tracking environment. Since participants in this experiment are allocated to the different teams and treatments by the experimenters, the selection into incentive schemes does not affect the reaction to the incentives. The study not only evaluates the productivity effects of tracking technology and individual incentives, but also identifies effects on stress levels, which can lead to long-term health effects. First, we do not find evidence that team members produce higher output due to individual incentives. However, the results show that the work effort is less specialized as a result of moving from team to individual incentives. We then show that the introduction of tracking technology causes higher stress levels. The results demonstrate that tracking technology can be implemented to monitor teams and set incentives in teamwork. However, the productivity effects of such technology will be limited if incentives are not set optimally. Furthermore, since stress levels increase, the introduction of tracking technology may not pass a cost-benefit analysis if the stress increase leads to large long-term health costs. Chapter 2 reports results from a framed field experiment that identifies the impact nudges have on voluntary actions with a long-term benefit. This experiment is set in the context of a university course. This context allows for the observation of behavior over a full semester, including the final exam. By randomizing students into different groups and sending each group different information emails for exam preparation, the impacts of different nudges on behavior and on exam outcomes is identified. Investigating behavior over the entire semester allows for the differentiation between the short-term reactions to the nudge and the long-term benefits. The results show that reminder nudges can increase exam preparation and lead to considerable improvements in grades. Subgroup analyses suggest that such grade improvements occur for students who achieved better-than-average grades on previous exams, but also for students who did not take a previous test. The results imply that the tracking of student behavior and more targeted interventions to tackle low preparation among some student types may be more effective than general nudges applied to all students. In chapter 3 my coauthors and I analyze decisions by supposedly impartial decision-makers for compensation behavior in response to mistakes. By using data on referee mistakes in the Bundesliga, the highest elite football division in Germany, we evaluate whether referees try to alternate who they favor in close situations. Furthermore, we evaluate whether discretionary decisions such as yellow cards are influenced by previous mistakes. The results indicate that referees compensate a home team for a mistake against it by awarding additional yellow cards to the away team. This represents a form of home bias since no such behavior can be observed following mistakes against the away team. Additional analysis shows that the effects are more pronounced in games that are important to the home team, when the stadium is fully occupied, and when the referee is less experienced. These additional results are consistent with social pressure as an important factor in whether the referee compensates for a previous mistake. In summary, all three chapters provide evidence that humans react to incentives in their every-day environments. These reactions are rational and strategic but can also be influenced by the social context. The methods employed in the different chapters account for the different contexts investigated. The experiment in chapter 1 favors internal validity over generalizability due to the restricted actions investigated. The experiment in chapter 2, in contrast, provides data from a more natural context and allows for the analysis of short and long term effects of the considered intervention. Finally, the data in chapter 3 is collected without an experimental intervention and is thus unaffected by any influences due to the identification method. These methods all have comparative strengths and weaknesses. By combining multiple methods, the chapters in this dissertation demonstrate the wide range of tools available to produce insights into human decision-making processes.
... The latter are assumed intuitive and rule-based, while education choices are subject to careful deliberation. Studies confirming these stylized facts include Cadena and Keys (2015) and Dohmen et al. (2016). ...
Over the last decades, conceptual frameworks formulated to address the dynamics of economic growth have hypothesized, discussed and tested a large number of different assumptions concerning the role of capital accumulation, labor productivity, learning-by-doing, formal education, innovation, and diffusion of ideas. Underlying all these theoretical contributions is, on the demand side, a pervasive and apparently unshakable structure of analysis: economic agents invariably set an optimal intertemporal consumption plan which allows then to maximize utility over an infinite horizon. Such behavior, however, suggests a planning ability that agents often lack. In fact, household decisions are frequently designed on the basis of heuristics or rules-of-thumb that, although not optimal, are reachable under the cognitive constraints typically faced by human beings. This paper revisits some of the most prominent models of the mainstream growth theory, taking a specific heuristic to account for consumption-savings decisions. The heuristic, which allows for the consideration of distinct profiles of saving behavior across individual agents, is a static rule, which might suggest a return to a Solow-like growth analysis. Notwithstanding, the adopted rule-of-thumb encloses a series of novel and relevant implications for growth theory. Such implications are duly highlighted and discussed in this study.
... 31 négligeable sur l'employabilité des individus ou même sur leur niveau de salaire (Heckman et al., 2006 ;Khun et Weinberger, 2005 En outre, à partir de la théorie de l'économie du comportement, certains auteurs essaient de comprendre les raisons qui poussent les individus à abandonner les études. Cadena et Keys (2015), montrent que les adolescents considérés comme impatients sont plus enclins à ce type de comportement. Cette caractéristique peut se rapprocher de la notion de préférence pour le 25. ...
La formation tout au long de la vie apparaît comme un enjeu important de nos sociétés. Après une première sortie du système éducatif, elle peut se caractériser par des retours en études ou par l’accès à la formation continue. Les parcours d’études semblent de moins en moins linéaires en France, les jeunes étant encouragés à profiter de ces interruptions pour diversifier leurs expériences. Ils sont ensuite, tout au long de leur carrière, incités à se former pour avoir "la liberté de choisir leur avenir professionnel" comme le propose une récente loi. Face à ces constats, l’objet de cette thèse est d’identifier les déterminants de ces retours en formation, et d’étudier leur valorisation sur le marché du travail. La thèse est constituée d’un chapitre préliminaire puis de trois chapitres portant chacun sur des données différentes.Le chapitre préliminaire, à partir d’une revue de la littérature, s’interroge sur les ressorts de la reprise d’études ou de l’accès à la formation, ainsi que sur les conditions théoriques de leur valorisation sur le marché du travail. Les analyses du premier chapitre empirique s’appuient sur l’enquête Génération 98 du Céreq qui interroge des sortants de formation initiale suivis pendant 10 ans. La connaissance longitudinale de leur parcours scolaire et professionnel permet d’évaluer l’effet des parcours d’études non linéaires sur le salaire de jeunes diplômés, à partir de la méthode des variables instrumentales. Ces derniers, bien qu’ayant un profil scolaire et social plus élevé que la moyenne et parfois mieux dotés en compétences sociales, perçoivent un salaire inférieur aux autres, toutes choses égales par ailleurs. Ce qui paraît cohérent avec l’hypothèse d’un signal négatif envoyé aux employeurs.Ces résultats nous ont conduit dans un deuxième chapitre à approfondir la question de la valorisation des parcours d’études atypiques sur le marché du travail. À partir de la méthode des vignettes, nous avons interrogé des recruteurs afin de mieux connaître leur perception sur ces parcours. Plus de mille CV fictifs ont été évalués par des recruteurs (en fonction de la probabilité qu’ils proposent un entretien d’embauche). Il ressort de nos analyses économétriques que le fait de ne pas préciser l’expérience vécue lors des interruptions temporaires d’études semble pénalisant, ceteris paribus. Face à un manque d’information, les recruteurs ne prendraient probablement pas le risque d’embaucher un candidat ayant connu une période d’inactivité ou de chômage. Mais ce fort effet de signal ne s’observe pas lorsque les candidats précisent qu’ils ont interrompu leurs études pour voyager à l’étranger ou pour effectuer un service civique.Le troisième chapitre cherche à mieux comprendre les déterminants d’un réinvestissement en formation, mais cette fois-ci de la part de salariés en emploi. Nous utilisons les données de l’enquête Defis du Céreq qui sont issues d’une double interrogation (salariés et entreprises). Nos résultats montrent que très peu de variables contextuelles semblent affecter la probabilité que le salarié déclare souhaiter se former. De même, l’accès à la formation non imposée, bien que davantage influencée par les caractéristiques de l’entreprise semble surtout dépendre de variables individuelles et de caractéristiques de l’emploi et accroît sensiblement les inégalités dans l’accès à la formation. L’utilisation d’une méthode d’estimateur de doubles différences avec appariement, montre que ces formations ne semblent pas valorisées sous forme de salaire.
... More recent studies indicate that impatience relates to more disruptive behavior in school (Castillo et al., 2011), decreases the probability of graduating from high school (Castillo et al., forthcoming), or increases drop-out from college (Cadena and Keys, 2015). Benjamin et al. (2013) further report that patient children achieve higher Scholastic Aptitude Test (SAT) scores. ...
The dissertation is located intersection between the economics of education and health economics. After an introduction in chapter 1, it is structured in two parts. The first part (chapters 2 and 3) focuses on an educational production function with non-cognitive skills and institutional factors as inputs and competence measurements as output factors, whereas the second part (chapters 4 and 5) analyzes the relationship between institutional factors as input into health as a dimension of human capital. Chapter 2 studies, together with Anika Bela and Guido Heineck, the relationship between preschoolers' self-regulation and their mathematical competences. In chapter 3 Stefanie P. Herber, Guido Heineck and I assess whether the shift into daylight saving time (which affects sleep and the relative timing of school start) affects European elementary students' performance in international student assessments. Chapters 4 and 5 assess the health effects of the German reforms shortening school duration in the academic track. In chapter 4, I assess the effects of the reform on mental health and well-being in a natural experiment. Chapter 5 is joint work with Simon Reif. We use regional variation in the timing of the reforms as well as data on students while they are still in school and after graduation to further deconstruct the health effects of the reforms.
... On the other hand, lack of information or present-biased preferences could have made individuals overstate the expected duration of the boom, and when myopic agents realized that the boom ended, age-related costs may have prevented them from resuming their education (Sutter et al., 2013;Castillo et al., 2011;Cadena and Keys, 2015). In this case, we would observe a long-term reduction of educational attainment, and potentially a decrease in lifetime wealth, creating a "lost generation". ...
Is natural resource abundance a blessing or a curse for a country? An important concern is the possibility that resource booms reduce human capital accumulation. These booms favor low-skill jobs, which increases the opportunity cost of education making it optimal for some cohorts to interrupt their education. If these individuals do not resume their education, they may lose pecuniary and non-pecuniary benefits of education in their lifetime. For a country, lower human capital may constrain its long-term growth. I use proprietary individual-level data to study the long-term effects of exposure to the 1970s oil boom on human capital accumulation in the context of a developing country. I exploit variation in the timing of the shock and geographic differences in the cost of college attendance and find that exposure to the boom decreased college completion and increased low-skill occupation among affected individuals. I show evidence consistent with the hypothesis that individuals shift into highly remunerative low skilled employment and away from college because the boom decreased the returns of a college education. In line with this, despite the reduction in educational attainment, I find no effects on wealth accumulation. JEL codes: O12, O13, J24, H30, H75
... High risk tolerance can, for example, determine educational achievement (Belzil & Leonardi, 2007), but may also directly affect health behavior and health status (Dohmen et al., 2011). Similarly, time preference is a relevant determinant of educational choices (Cadena & Keys, 2015;Golsteyn, Grönqvist, & Lindahl, 2014) that also independently influences later life outcomes (Fouarge, Kriechel, & Dohmen, 2014). ...
One of the key themes covered in the National Educational Panel Study (NEPS) are returns to education. Within this wide-ranging field, NEPS focuses on the four following returns dimensions on which education is supposed to have an effect: labor market outcomes, civic
engagement, health, and subjective well-being. The transformation of education into these outcomes occurs through a multitude of different sub-processes. Therefore adequate, relevant instruments necessary for analyses of, ideally, the causal relationship between and mediators of educational attainment and the outcomes from which an individual benefits in his or her working and private life are included in the NEPS survey program. In the present paper, we outline the theoretical framework underlying the design of the returns-related NEPS questionnaire program, which relies on human capital theory and theories that consider the role of social capital, and we briefly present the implemented measurement concepts for each of the outcome domains.
I provide evidence of social spillovers of personality by showing that being in class with motivated peers affects educational success. I first document that academic motivation, a key aspect of personality in the context of education, predicts own achievement, classroom behaviour, the high school grade point average and college-test taking among elementary school students. Exploiting random assignment of students to classes, I then show that exposure to motivated classmates causally affects achievement, an effect that operates over and above spillovers of classmates’ past achievement and socio-demographic composition. However, peer motivation in elementary school does not affect own motivation and long-term educational success.
A tanulmány célja azon tanulói önszabályozáshoz kapcsolódó tényező azonosítása, amelyek együtt járnak a felsőoktatási sikerességgel. Magyarország egyik vezető tudományegyetemén felvett, önkéntes kitöltéseken alapuló keresztmetszeti mintán vetjük össze a hallgatók lelkiismeretességét, időgazdálkodását, halogatását, türelmét és jelen-torzítását jellemző faktorokat egyetemi sikerességüket jellemző tanulmányi átlagukkal, kontrollálva különböző demográfiai és tanulmányi változókra. Az eredmények alapján az időgazdálkodás és a lelkiismeretesség robusztus és szignifikáns módon együtt jár a felsőoktatási sikeresség mutatóival. A halogatás a felsőoktatási sikeresség tekintetében nem bizonyult meghatározó faktornak, ha a többi önszabályozási tényező hatását is integráljuk a modellbe. A főleg közgazdászok által használt időpreferencia-mutatók a legtöbb becslésben nem mutattak szignifikáns összefüggést a sikerességgel. Az összefüggésekben tapasztalt különbséget részben azzal magyarázzuk, hogy az időgazdálkodást és hatékonyságot mérő tesztek kidolgozásának célja a tanulást segítő jellemzők feltérképezése volt, míg a preferenciákra vonatkozó kérdések sokkal általánosabb, az egyéni viselkedést általában befolyásoló egyéni jellemzőket monitorozták.
The use of real decision-making incentives remains under debate after decades of economic experiments. In time preferences experiments involving future payments, real incentives are particularly problematic due to between-options differences in transaction costs, among other issues. What if hypothetical payments provide accurate data which, moreover, avoid transaction cost problems? In this paper, we test whether the use of hypothetical or one-out-of-ten-participants probabilistic—versus real—payments affects the elicitation of short-term and long-term discounting in a standard multiple price list task. We analyze data from a lab experiment in Spain and well-powered field and online experiments in Nigeria and the UK, respectively (N = 2,038). Our results indicate that the preferences elicited using the three payment methods are mostly the same: we can reject that either hypothetical or one-out-of-ten payments change any of the four preference measures considered by more than 0.18 SD with respect to real payments.
This paper investigates the power of time preference to predict illness and premature mortality in adulthood. Using a unique Swedish cohort of 12,956 individuals born in 1953, interviewed in 1966, and followed with register data up to 2018, the paper reports that more patient adolescents are 17–21% less likely to die before the age of 65 years. More patient adolescents have fewer hospitalizations and diagnoses in their adult life and are less likely to be diagnosed with conditions associated with lifestyle risk factors. The investigated channels for the relationship between time preference and future health include lifestyle, education attainment, and future income. Controlling for education and income reduces the coefficient for time preference on premature mortality by one-fourth.
This paper investigates the effects of college tuition on student debt and human capital accumulation. We exploit data from a random sample of undergraduate students in the United States and implement a research design that instruments for realized tuition with relatively large changes to the advertised tuition of students who enrolled at the same school in different cohorts. We find that 1,480. Higher tuition also leads to a decline in mortgage balances and an increase in credit card delinquencies.
Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
Nearly half of students who enter college do not graduate. The majority of efforts to increase college completion have focused on supporting students before or soon after they enter college, yet many students drop out after making significant progress towards their degree. In this paper, we report results from a multi‐year, large‐scale experimental intervention conducted across five states and 20 broad‐access public colleges and universities to support students who are late in their college career but still at risk of not graduating. The intervention provided these “near‐completer” students with personalized text messages that encouraged them to connect with campus‐based academic and financial resources, reminded them of upcoming and important deadlines, and invited them to engage (via text) with campus‐based advisors. We find little evidence that the message campaign affected academic performance or attainment in either the full sample or within individual higher education systems or student subgroups. The findings suggest low‐cost nudge interventions may be insufficient for addressing barriers to completion among students who have made considerable academic progress.
Robotics and artificial intelligence are transforming jobs and career paths, and equipping workers with the ability to gain new skills has become a strategic policy imperative. Previous studies showed that investment in human capital depends on locus of control, risk preferences and impatience. Yet in a changing world of work, the perceived risk of being replaced by a machine or an algorithm might also affect workers’ decisions to gain new professional skills. Using novel survey data from representative samples of working individuals in 16 countries, this paper shows that fear of automation is positively associated with workers’ intentions to invest in training activities outside their workplace. This effect is robust to controlling for other known behavioural traits. We also show that fear of automation reinforces the effect that internal locus of control exerts on retraining intentions.
Resource booms may reduce human capital accumulation. They can increase the opportunity costs of education by favoring low-skilled jobs, thus making it optimal for individuals to interrupt their education. This study uses proprietary individual-level data to study the long-term effects of an oil boom on human capital in a developing country. Exploiting variation in the timing of the shock and geographic differences in the effect of exposure to the boom, I find that exposure to the boom decreased college completion, increased low-skill employment, and had limited long-term effects on wealth accumulation.
We analyze the impact on high-stakes assessments of incentivizing students’ effort in a field experiment with over 10,000 high school students. We contribute to the literature by using our rich data and machine learning techniques to explore treatment heterogeneity; by comparing financial and non-financial rewards in rewarding effort rather than grades; and by using high-stakes outcomes. We find little average impact of incentives in the overall population, but we identify a “right tail” of highly responsive students: in the upper half of the responsiveness distribution, test scores improve by 0.1-0.2 SD, about half the attainment gap between poor and non-poor students.
Governments across the world are grappling with the question about the funding of subsidized higher education (HE). Critics of free or subsidized HE have argued that higher rate of return of graduates serves as enough extrinsic motivation, adding, to the argument that the free or subsidized HE results in lack of intrinsic motivation. Further, critics support their assertion by citing lagging academic performance in countries where HE is free or heavily subsidized. Proponents of the state funding have cited the role of externalities and equal opportunities as the reason for subsidized HE. This study has used sunk cost theory to understand whether making students pay for their own education would impact on their performance and retention by enhancing intrinsic motivation in addition to analyzing the role of parents and the culture. Results indicate that students are impacted by sunk cost fallacy, as opposed to the earlier findings by Ketel et al. (2016), and that making them shoulder part of the tuition fees in form of contribution or student loans would result in “selection effects” where some sort of positive fee (after scholarships and grants) is paid by the students.
In recent years public and political debate suggested that individuals with children value the future more. We attempt to substantiate the debate and using a representative survey we investigate if the number of children (or simply having children) indeed is associated with a higher valuation of the future that we proxy with an aspect of time preferences, patience. We find that in general there is no correlation between having children and patience, though for young women with below-median income we find some weak evidence in line with the conjecture. We also show some evidence that for this subpopulation it is not having children that matters, but marital status. More precisely, young single women are less patient than other young non-single women. JEL classifications: D91, J13.
Job mobility is inherently risky as workers have limited ex ante information about the quality of outside jobs. Using a large longitudinal Dutch dataset, which includes data on risk preferences elicited through an (incentivized) lottery-choice experiment, we examine the relation between risk aversion and job mobility. The evidence shows that risk averse workers are less likely to move to other jobs. The results are stronger for male workers and for workers who hold a permanent contract. Our empirical findings indicate that the negative relation between risk aversion and job mobility is driven by the job acceptance rather than the search effort decision.
Many economists and policymakers believe that education creates positive externalities. Indeed, average schooling in U.S. states is highly correlated with state wage levels, even after controlling for the direct effect of schooling on individual wages. We use variation in child labor laws and compulsory attendance laws over time and across states to investigate whether this relationship is causal. Our results show external returns to education around 1% and not significantly different from zero.
How does impatience affect job search? More impatient workers search less intensively and set a lower reservation wage. The effect on the exit rate from unemployment is unclear. In this paper we show that, if agents have exponential time preferences, the reservation wage effect dominates for sufficiently patient individuals, so increases in impatience lead to higher exit rates. The opposite is true for agents with hyperbolic time preferences: more impatient workers search less and exit unemployment later. Using two large longitudinal data sets, we find that various measures of impatience are negatively correlated with search effort and the exit rate from unemployment, and are orthogonal to reservation wages. Overall, impatience has a large effect on job search outcomes in the direction predicted by the hyperbolic discounting model. (JEL A12, C41, C73, D90, J64). We also thank conference participants at the RSF Behavioral Conference in Berkeley, the EEA 2000 in Bozen (Italy), the ASSA 2001 in New Orleans, and seminar participants in for comments. The two authors gratefully acknowledge financial support from the Bank of Italy and from Bocconi University (DellaVigna); from an Eliot Dissertation Completion Fellowship and the Maurice Falk Institute for Economic Research in Israel (Paserman). The usual disclaimer applies.
We study risk attitudes, ambiguity attitudes, and time preferences of 661 children and adolescents, aged ten to eighteen years, in an incentivized experiment. We relate experimental choices to field behavior. Experimental measures of impatience are found to be significant predictors of health related field behavior and saving decisions. In particular, more impatient children and adolescents are more likely to spend money on alcohol and cigarettes, have a higher body mass index (BMI) and are less likely to save money. Experimental measures for risk and ambiguity attitudes are only weak predictors of field behavior.
This paper investigates whether there is a link between cognitive ability, risk aversion, and impatience, using a representative sample of roughly 1,000 German adults. Subjects participate in choice experiments with monetary incentives measuring risk aversion, and impatience over an annual horizon, and conduct two different, widely used, tests of cognitive ability. We find that lower cognitive ability is associated with greater risk aversion, and more pronounced impatience. These relationships are significant, and robust to controlling for personal characteristics, education, income, and measures of credit constraints. We perform a series of additional robustness checks, which help rule out other possible confounds.
We estimate discount rates of 555 subjects using a laboratory task and find that these individual discount rates predict inter-individual variation in field behaviors (e.g., exercise, BMI, smoking). The correlation between the discount rate and each field behavior is small: none exceeds 0.28 and many are near 0. However, the discount rate has at least as much predictive power as any variable in our dataset (e.g., sex, age, education). The correlation between the discount rate and field behavior rises when field behaviors are aggregated: these correlations range from 0.09-0.38. We present a model that explains why specific intertemporal choice behaviors are only weakly correlated with discount rates, even though discount rates robustly predict aggregates of intertemporal decisions.
Hyperbolic discount functions induce dynamically inconsistent preferences, implying a motive for consumers to constrain their
own future choices. This paper analyzes the decisions of a hyperbolic consumer who has access to an imperfect commitment technology:
an illiquid asset whose sale must be initiated one period before the sale proceeds are received. The model predicts that consumption
tracks income, and the model explains why consumers have asset-specific marginal propensities to consume. The model suggests
that financial innovation may have caused the ongoing decline in U. S. savings rates, since financial innovation increases
liquidity, eliminating commitment opportunities. Finally, the model implies that financial market innovation may reduce welfare
by providing “too much” liquidity.
We establish that season of birth is related to educational attainment because of school start age policy and compulsory school
attendance laws. Individuals born in the beginning of the year start school at an older age, and can therefore drop out after
completing less schooling than individuals born near the end of the year. Roughly 25 percent of potential dropouts remain
in school because of compulsory schooling laws. We estimate the impact of compulsory schooling on earnings by using quarter
of birth as an instrument for education. The instrumental variables estimate of the return to education is close to the ordinary
least squares estimate, suggesting that there is little bias in conventional estimates.
To function effectively, individuals must voluntarily postpone immediate gratification and persist in goal-directed behavior for the sake of later outcomes. The present research program analyzed the nature of this type of future-oriented self-control and the psychological processes that underlie it. Enduring individual differences in self-control were found as early as the preschool years. Those 4-year-old children who delayed gratification longer in certain laboratory situations developed into more cognitively and socially competent adolescents, achieving higher scholastic performance and coping better with frustration and stress. Experiments in the same research program also identified specific cognitive and attentional processes that allow effective self-regulation early in the course of development. The experimental results, in turn, specified the particular types of preschool delay situations diagnostic for predicting aspects of cognitive and social competence later in life.
We designed a commitment savings product for a Philippine bank and implemented it using a randomized control methodology.
The savings product was intended for individuals who want to commit now to restrict access to their savings, and who were
sophisticated enough to engage in such a mechanism. We conducted a baseline survey on 1777 existing or former clients of a
bank. One month later, we offered the commitment product to a randomly chosen subset of 710 clients; 202 (28.4 percent) accepted
the offer and opened the account. In the baseline survey, we asked hypothetical time discounting questions. Women who exhibited
a lower discount rate for future relative to current trade-offs, and hence potentially have a preference for commitment, were
indeed significantly more likely to open the commitment savings account. Mter twelve months, average savings balances increased
by 81 percentage points for those clients assigned to the treatment group relative to those assigned to the control group.
We conclude that the savings response represents a lasting change in savings, and not merely a short-term response to a new
product.
We propose that a simple ?dual-self? model gives a unified explanation for several empirical regularities, including the apparent time inconsistency that has motivated models of quasi-hyperbolic discounting and Rabin?s paradox of risk aversion in the large and small. The model also implies that self-control costs imply excess delay, as in the O?Donoghue and Rabin models of quasi-hyperbolic utility, and it explains experimental evidence that increased cognitive load makes temptations harder to resist. The base version of our model is consistent with the Gul-Pesendorfer axioms, but we argue that these axioms must be relaxed to account for the effect of cognitive load. (JEL D11, D81)
How do consumers choose from a menu of contracts? We analyze a novel dataset from three U.S. health clubs with information on both the contractual choice and the day-to-day attendance decisions of 7,752 members over three years. The observed consumer behavior is difficult to reconcile with standard preferences and beliefs. First, members who choose a contract with a flat monthly fee of over 17, even though they could pay 600 during their membership. Second, consumers who choose a monthly contract are 17 percent more likely to stay enrolled beyond one year than users committing for a year. This is surprising because monthly members pay higher fees for the option to cancel each month. We also document cancellation delays and attendance expectations, among other findings. Leading explanations for our findings are overconfidence about future self-control or about future efficiency. Overconfident agents overestimate attendance as well as the cancellation probability of automatically renewed contracts. Our results suggest that making inferences from observed contract choice under the rational expectation hypothesis can lead to biases in the estimation of consumer preferences. (JEL D00, D12, D91)
This paper provides evidence that scores on simple, low-stakes tests are associated with future economic success because the scores also reflect test takers' personality traits associated with their level of intrinsic motivation. To establish this, I use the coding speed test that was administered without incentives to participants in the National Longitudinal Survey of Youth (NLSY). I show that, controlling for cognitive ability, the coding speed scores are correlated with future earnings of male NLSY participants. I provide evidence that the coding speed scores relate to intrinsic motivation. I show that the scores of the highly motivated, though less educated, group (potential recruits to the U.S. military), are higher than the NLSY participants' scores. I use controlled experiments to show directly that intrinsic motivation is an important component of the unincentivized coding speed scores and that it relates to test takers' personality traits.
This paper was accepted by Teck Ho, behavioral economics.
Research examining the educational attainment of low-income students has often focused on financial factors such as credit constraints. We use unique longitudinal data to provide direct evidence about a prominent alternative explanation—that departures from school arise as students learn about their academic ability or grade performance. Examining college dropout, we find that this explanation plays a very prominent role; our simulations indicate that dropout between the first and second years would be reduced by 40% if no learning occurred about grade performance/academic ability. The article also contributes directly to the understanding of gender differences in educational attainment.
The purpose of this paper is to help empirical economists think through when and how to weight the data used in estimation. We start by distinguishing two purposes of estimation: to estimate population descriptive statistics and to estimate causal effects. In the former type of research, weighting is called for when it is needed to make the analysis sample representative of the target population. In the latter type, the weighting issue is more nuanced. We discuss three distinct potential motives for weighting when estimating causal effects: (1) to achieve precise estimates by correcting for heteroskedasticity, (2) to achieve consistent estimates by correcting for endogenous sampling, and (3) to identify average partial effects in the presence of unmodeled heterogeneity of effects. In each case, we find that the motive sometimes does not apply in situations where practitioners often assume it does. We recommend diagnostics for assessing the advisability of weighting, and we suggest methods for appropriate inference.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Many attempts to measure the wage effects of current US labor market discrimination against minorities include controls for worker productivity that could themselves be affected by market discrimination and are very imprecise measures of worker skill. The authors' approach is a parsimoniously specified wage equation that controls for skill with the score of a test administered as teenagers prepared to leave high school and embark on work careers or postsecondary education. They find that this one test score explains all of the black-white wage gap for young women and much of the gap for young men. For today's young adults, the black-white wage gap primarily reflects a skill gap, which in turn can be traced, at least in part, to observable differences in the family backgrounds and school environments of black and white children.
Numerous studies regress log earnings on schooling and report estimated coefficients as “Mincer rates of return”. A more recent literature uses instrumental variables. This chapter considers the economic interpretation of these analyses and how the availability of repeated cross section and panel data improves the ability of analysts to estimate the rate of return. We consider under what conditions the Mincer model estimates an ex post rate of return. We test and reject the model on six cross sections of U.S. Census data. We present a general nonparametric approach for estimating marginal internal rates of return that takes into account tuition, income taxes and forms of uncertainty. We also contrast estimates based on a single cross-section of data, using the synthetic cohort approach, with estimates based on repeated cross-sections following actual cohorts. Cohort-based models fitted on repeated cross section data provide more reliable estimates of ex post returns.
Although both economists and psychologists seek to identify determinants of heterogeneity in behavior, they use different concepts to capture them. In this review, we first analyze the extent to which economic preferences and psychological concepts of personality, such as the Big Five and locus of control, are related. We analyze data from incentivized laboratory experiments and representative samples and find only low degrees of association between economic preferences and personality. We then regress life outcomes (such as labor market success, health status, and life satisfaction) simultaneously on preference and personality measures. The analysis reveals that the two concepts are rather complementary when it comes to explaining heterogeneity in important life outcomes and behavior.
We use this opportunity to respond to the issues raised by Inman (2007), and Roese, Summerville, and Fessel (2007) by addressing four broad topics that embrace the most important comments on our regret regulation theory. These topics are the feeling-is-for-doing approach on which regret regulation theory rests, the importance of emotion specificity, factors that modulate the intensity of regret, and the focus on action, inaction and choice in the elicitation of regret. Together this results in a first update, version 1.1.
This chapter seeks to set out what Economists have learned about the effects of early childhood influences on later life outcomes, and about ameliorating the effects of negative influences. We begin with a brief overview of the theory which illustrates that evidence of a causal relationship between a shock in early childhood and a future outcome says little about whether the relationship in question biological or immutable. We then survey recent work which shows that events before five years old can have large long term impacts on adult outcomes. Child and family characteristics measured at school entry do as much to explain future outcomes as factors that labor economists have more traditionally focused on, such as years of education. Yet while children can be permanently damaged at this age, an important message is that the damage can often be remediated. We provide a brief overview of evidence regarding the effectiveness of different types of policies to provide remediation. We conclude with a list of some of (the many) outstanding questions for future research. Hard-copy subscribers may access the tables for this paper here.
How much can late schooling investments close racial and ethnic skill gaps? We investigate this question by exploiting the large differences in completed schooling that arise among teenagers with birthdays near school-entry cutoff dates. We estimate that an additional year of high school raises the Armed Forces Qualifying Test (AFQT) scores of minorities in the NLSY 79 by 0.31 to 0.32 standard deviations. These estimates imply that closing existing racial and ethnic gaps in schooling could close skill gaps by between 25 and 50 percent. Our approach also uncovers a significant direct effect of season of birth on test scores, suggesting that previous estimates using season of birth as an instrument for schooling are biased. I. Introduction
This article describes a series of school-based field experiments in over 200 urban schools across three cities designed to
better understand the impact of financial incentives on student achievement. In Dallas, students were paid to read books.
In New York, students were rewarded for performance on interim assessments. In Chicago, students were paid for classroom grades.
I estimate that the impact of financial incentives on student achievement is statistically 0, in each city. Due to a lack
of power, however, I cannot rule out the possibility of effect sizes that would have positive returns on investment. The only
statistically significant effect is on English-speaking students in Dallas. The article concludes with a speculative discussion
of what might account for intercity differences in estimated treatment effects.
Part II: Social Preferences and Nonstandard Beliefs The second part of a larger work devoted to the modern behavioral economics considers nonstandard preferences that are manifest in altruistic behavior and charitable giving. The author also deals with nonstandard beliefs and shows how overconfidence, incorrect estimation of probabilities and extrapolation of previous experience produce biases in the rational decision-making, including the behavior on financial markets.
All data sources indicate that black–white skill gaps diminished over most of the 20th century, but black–white skill gaps as measured by test scores among youth and educational attainment among young adults have remained constant or increased in absolute value since the late 1980s. I examine the potential importance of discrimination against skilled black workers, changes in black family structures, changes in black household incomes, black–white differences in parenting norms, and education policy as factors that may contribute to the recent stability of black–white skill gaps. Absent changes in public policy or the economy that facilitate investment in black children, best case scenarios suggest that even approximate black–white skill parity is not possible before 2050, and equally plausible scenarios imply that the black–white skill gap will remain quite significant throughout the 21st century.
This paper estimates the rate of return to the HighScope Perry Preschool Program, an early intervention program targeted toward disadvantaged African-American youth. Estimates of the rate of return to the Perry program are widely cited to support the claim of substantial economic benefits from preschool education programs. Previous studies of the rate of return to this program ignore the compromises that occurred in the randomization protocol. They do not report standard errors. The rates of return estimated in this paper account for these factors. We conduct an extensive analysis of sensitivity to alternative plausible assumptions. Estimated annual social rates of return generally fall between 7 and 10%, with most estimates substantially lower than those previously reported in the literature. However, returns are generally statistically significantly different from zero for both males and females and are above the historical return on equity. Estimated benefit-to-cost ratios support this conclusion.
This paper develops two methods for estimating the effect of schooling on achievement test scores that control for the endogeneity of schooling by postulating that both schooling and test scores are generated by a common unobserved latent ability. These methods are applied to data on schooling and test scores. Estimates from the two methods are in close agreement. We find that the effects of schooling on test scores are roughly linear across schooling levels. The effects of schooling on measured test scores are slightly larger for lower latent ability levels. We find that schooling increases the AFQT score on average between 2 and 4 percentage points, roughly twice as large as the effect claimed by Herrnstein and Murray (1994) but in agreement with estimates produced by Neal and Johnson (1996) and Winship and Korenman (1997). We extend the previous literature by estimating the impact of schooling on measured test scores at various quantiles of the latent ability distribution.
This paper uses compulsory schooling laws to evaluate high school dropout decisions. The main empirical result is that lifetime wealth increases by about 15% with an extra year of compulsory schooling. Students compelled to stay in school are also less likely to report being in poor health, unemployed, and unhappy. The main conclusion is that high school aversion alone is unlikely to explain why dropouts forgo substantial gains to lifetime wealth. The results are more consistent with the possibility that adolescents ignore or heavily discount future consequences when deciding to drop out of school. If teenagers are myopic, making school compulsory or offering incentives to stay in school may help improve lifetime outcomes.
The General Educational Development (GED) credential is issued on the basis of an eight hour subject-based test. The test claims to establish equivalence between dropouts and traditional high school graduates, opening the door to college and positions in the labor market. In 2008 alone, almost 500,000 dropouts passed the test, amounting to 12% of all high school credentials issued in that year. This chapter reviews the academic literature on the GED, which finds minimal value of the certificate in terms of labor market outcomes and that only a few individuals successfully use it as a path to obtain post-secondary credentials. Although the GED establishes cognitive equivalence on one measure of scholastic aptitude, recipients still face limited opportunity due to deficits in noncognitive skills such as persistence, motivation and reliability. The literature finds that the GED testing program distorts social statistics on high school completion rates, minority graduation gaps, and sources of wage growth. Recent work demonstrates that, through its availability and low cost, the GED also induces some students to drop out of school. The GED program is unique to the United States and Canada, but provides policy insight relevant to any nation's educational context.
We study the joint processes of job mobility and wage growth among young men drawn from the Longitudinal Employee-Employer Data. Following individuals at three month intervals from their entry into the labor market, we track career patterns of job changing and the evolution of wages for up to 15 years. Following an initial period of weak attachment to both the labor force and particular employers, careers tend to stabilize in the sense of strong labor force attachment and increasing durability of jobs. During the first 10 years in the labor market, a typical young worker will work for seven employers, which accounts for about two-thirds of the total number of jobs he will hold in his career. The evolution of wages plays a key role in this transition to stable employment: we estimate that wage gains at job changes account for at least a third of early-career wage growth, and that the wage is the key determinant of job changing decisions among young workers. We conclude that the process of job changing for young workers, while apparently haphazard, is a critical component of workers' move toward the stable employment relations that characterize mature careers.
Workers who are more impatient search less intensively and set lower reservation wages. The effect of impatience on exit rates from unemployment is therefore unclear. If agents have exponential time preferences, the reservation wage effect dominates for sufficiently patient individuals, so increases in impatience lead to higher exit rates. The opposite is true for agents with hyperbolic time preferences. Using two large longitudinal data sets, we find that impatience measures are negatively correlated with search effort and the unemployment exit rate and are orthogonal to reservation wages. Impatience substantially affects outcomes in the direction predicted by the hyperbolic model.
One in five U.S. youngsters has a mental disorder, but we know little about the effects of these disorders on child outcomes. We examine U.S. and Canadian children with symptoms of Attention Deficit Hyperactivity Disorder (ADHD), the most common child mental health problem. Our innovations include the use of nationally representative samples of children, the use of questions administered to all children rather than focusing only on diagnosed cases, and the use of sibling fixed effects to control for omitted variables. We find large negative effects on test scores and schooling attainment suggesting that mental health conditions are a more important determinant of average outcomes than physical health conditions.
Time and value are related concepts that influence human behaviour. Although classical topics in human thinking throughout the ages, few environmental economic non-market valuation studies have attempted to link the two concepts. Economists have estimated non-market environmental values in monetary terms for over 30 years. This history of valuation provides an opportunity to compare value estimates and how valuation techniques have changed over time. This research aims to compare value estimates of benefits of a protected natural area. In 1978, Nadgee Nature Reserve on the far south coast of New South Wales was the focus of the first application of the contingent valuation method in Australia. This research aims to replicate that study using both the original 1978 contingent valuation method questionnaire and sampling technique, as well as state of the art non-market valuation tools. This replication will provide insights into the extent and direction of changes in environmental values over time. It will also highlight the impact on value estimates of methodological evolution. These insights will help make allocating resources more efficient.
This paper evaluates a pilot program run by a company called OPOWER, previously known as Positive Energy, to mail home energy reports to residential utility consumers. The reports compare a household’s energy use to that of its neighbors and provide energy conservation tips. Using data from randomized natural field experiment at 80,000 treatment and control households in Minnesota, I estimate that the monthly program reduces energy consumption by 1.9 to 2.0 percent relative to baseline. In a treatment arm receiving reports each quarter, the effects decay in the months between letters and again increase upon receipt of the next letter. This suggests either that the energy conservation information is not useful across seasons or, perhaps more interestingly, that consumers’ motivation or attention is malleable and non-durable. I show that “profiling,” or using a statistical decision rule to target the program at households whose observable characteristics suggest larger treatment effects, could substantially improve cost effectiveness in future programs. The effects of this program provide additional evidence that non-price “nudges” can substantially affect consumer behavior.
This paper considers the sources of skill formation in a modern economy and emphasizes the importance of both cognitive and non-cognitive skills in producing economic and social success, and the importance of both formal academic institutions and families and firms as sources of learning. Skill formation is a dynamic process with strong synergistic components. Skill begets skill. Early investment promotes later investment. Non-cognitive skills and motivation are important determinants of success and these can be improved more successfully and at later ages than basic cognitive skills. Methods currently used to evaluate educational interventions ignore these non-cognitive skills and therefore substantially understate the benefits of early intervention programmes and mentoring and teenage motivation programmes. At current levels of investment, American society under-invests in the very young and over-invests in mature adults with low skills.
This paper estimates the risk preferences of cotton farmers in Southern Peru, using the results from a multiple-price-list lottery game. Assuming that preferences conform to two of the leading models of decision under risk--Expected Utility Theory (EUT) and Cumulative Prospect Theory (CPT)--we find strong evidence of moderate risk aversion. Once we include individual characteristics in the estimation of risk parameters, we observe that farmers use subjective nonlinear probability weighting, a behavior consistent with CPT. Interestingly, when we allow for preference heterogeneity via the estimation of mixture models--where the proportion of subjects who behave according to EUT or to CPT is endogenously determined--we find that the majority of farmers' choices are best explained by CPT. We further hypothesize that the multiple switching behavior observed in our sample can be explained by nonlinear probability weighting made in a context of large random calculation mistakes; the evidence found on this regard is mixed. Finally, we find that attaining higher education is the single most important individual characteristic correlated with risk preferences, a result that suggests a connection between cognitive abilities and behavior towards risk.
The authors examine self-control problems--modeled as time-inconsistent, present-biased preferences--in a model where a person must do an activity exactly once. They emphasize two distinctions: do activities involve immediate costs or immediate rewards, and are people sophisticated or naive about future self-control problems? Naive people procrastinate immediate-cost activities and preproperate--do too soon--immediate-reward activities. Sophistication mitigates procrastination but exacerbates preproperation. Moreover, with immediate costs, a small present bias can severely harm only naive people, whereas with immediate rewards it can severely harm only sophisticated people. Lessons for savings, addiction, and elsewhere are discussed.
This article estimates the degree of hyperbolic discounting in a job search model quantitatively, using data on unemployment spells and accepted wages from the NLSY. The results point to a substantial degree of hyperbolic discounting for low and medium wage workers. The structural estimates are then used to evaluate alternative policy interventions aimed at reducing unemployment. The estimated effects of a given policy can vary by up to 40%, depending on the assumed type of time discounting. Some interventions may raise the long-run utility of hyperbolic workers, and at the same time reduce unemployment duration and lower government expenditures. Copyright (C) The Author(s). Journal compilation (C) Royal Economic Society 2008.
This paper examines the family income—college enrolment relationship and the evidence on credit constraints in post--secondary schooling. We distinguish short run liquidity constraints from the long term factors that promote cognitive and noncognitive ability. Long run factors crystallised in ability are the major determinants of the family income — schooling relationship, although there is some evidence that up to 8% of the total US population is credit constrained in a short run sense. Evidence that IV estimates of the returns to schooling exceed OLS estimates is sometimes claimed to support the existence of substantial credit constraints. This argument is critically examined. Copyright Royal Economic Society 2002
In this paper, we ask whether variation in preference anomalies is related to variation in cognitive ability. Evidence from a new laboratory study of Chilean high school students shows that small-stakes risk aversion and short-run discounting are less common among those with higher standardized test scores, although anomalies persist even among the highest-scoring individuals. The relationship with test scores does not appear to result from differences in parental education or wealth. A laboratory experiment shows that reducing cognitive resources using a cognitive load manipulation tends to exacerbate small-stakes risk aversion, with similar but statistically weaker effects on short-run impatience. Explicit reasoning about choice seems to reduce the prevalence of these anomalies, especially among the less skilled. Survey evidence suggests that the role of cognitive ability may extend to adult behaviors that are related to small-stakes risk preference and short-run time preference.
Paying Elementary School Students to Perform: Coshocton Incentive Program
- Eric P Bettinger
Bettinger, Eric P., "Paying Elementary School Students to Perform: Coshocton Incentive
Program," Ongoing Research.
- John Eric Humphries
- Nicholas S Mader
, John Eric Humphries, and Nicholas S. Mader, " The GED, " NBER Working
Paper 16064, 2010.