The Causal Effect of Cognitive Abilities on Economic Behavior: Evidence from a Forecasting Task with Varying Cognitive Load
Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute); Max Planck Institute of Economics
April 1, 2012
CERGE-EI Working Paper Series No. 457
We identify the causal effect of cognitive abilities on economic behavior in an experimental setting. Using a forecasting task with varying cognitive load, we identify the causal effect of working memory on subjects' forecasting performance, while also accounting for the effect of other cognitive, personality and demographic characteristics. Addressing the causality is important for understanding the nature of various decision-making errors, as well as for providing reliable policy implications in contexts such as student placement, personnel assignment, and public policy programs designed to augment abilities of the disadvantaged. We further argue that establishing the causality of cognitive abilities is a prerequisite for studying their interaction with financial incentives, with implications for the design of efficient incentive schemes.
Number of Pages in PDF File: 62
Keywords: Cognitive ability, Causality, Experiment, Financial incentives, Performance, Working memory
JEL Classification: C81, C91, D80, D83, J24
Date posted: April 27, 2012
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