How do College Students Respond to Public Information about Earnings?
New York University (NYU); Statistics Norway; New York University (NYU) - Institute for Education and Social Policy
Federal Reserve Bank of New York
September 1, 2011
FRB of New York Staff Report No. 516
This paper investigates how college students update their future earnings beliefs using a unique 'information' experiment: We provide college students true information about the population distribution of earnings, and observe how this information causes them to update their future earnings beliefs. We show that college students are substantially misinformed about population earnings, logically revise their self earnings beliefs, and have larger revisions when the information is more specific and is 'good' news. We classify the updating behaviors observed and find that the majority of students are non-Bayesian updaters. While the average welfare gains from our information provision are positive, we show that counterfactually imposing Bayesian processing of information vastly overestimates the gains from the intervention. Finally, we present evidence that our intervention has long-lasting effects on students' earnings beliefs.
Number of Pages in PDF File: 61
Keywords: belief updating, college majors, information, uncertainty, subjective expectations, Bayesian updating
JEL Classification: D81, D83, D84, I21, I23, J10working papers series
Date posted: September 27, 2011 ; Last revised: February 3, 2013
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