Cognitive Skills Explain Economic Preferences, Strategic Behavior, and Job Attachment

65 Pages Posted: 4 Aug 2008

See all articles by Stephen V. Burks

Stephen V. Burks

University of Minnesota, Morris - Division of Social Science; Institute for the Study of Labor (IZA); Center for Decision Research and Experimental Economics (CeDEx); Center for Transportation Studies, University of Minnesota

Jeffrey P. Carpenter

Middlebury College - Department of Economics; IZA Institute of Labor Economics

Lorenz Goette

University of Lausanne; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Aldo Rustichini

University of Minnesota - Twin Cities - Department of Economics

Abstract

Economic analysis has said little about how an individual's cognitive skills (CS's) are related to the individual's preferences in different choice domains, such as risk-taking or saving, and how preferences in different domains are related to each other. Using a sample of 1,000 trainee truckers we report three findings. First, we show a strong and significant relationship between an individual's cognitive skills and preferences, and between the preferences in different choice domains. The latter relationship may be counterintuitive: a patient individual, more inclined to save, is also more willing to take calculated risks. A second finding is that measures of cognitive skill predict social awareness and choices in a sequential Prisoner's Dilemma game. Subjects with higher CS's more accurately forecast others' behavior, and differentiate their behavior depending on the first mover's choice, returning higher amount for a higher transfer, and lower for a lower one. After controlling for investment motives, subjects with higher CS's also cooperate more as first movers. A third finding concerns on-the-job choices. Our subjects incur a significant financial debt for their training that is forgiven only after twelve months of service. Yet over half leave within the first year, and cognitive skills are also strong predictors of who exits too early, stronger than any other social, economic and personality measure in our data. These results suggest that cognitive skills affect the economic lives of individuals, by systematically changing preferences and choices in a way that favors the economic success of individuals with higher cognitive skills.

Keywords: field experiment, risk aversion, ambiguity aversion, loss aversion, time preference, Prisoners Dilemma, social dilemma, IQ, MPQ, numeracy, U.S. trucking industry, for-hire carriage, truckload (TL), driver turnover, employment duration, survival model

JEL Classification: C81, C93, L92, J63

Suggested Citation

Burks, Stephen V. and Carpenter, Jeffrey P. and Goette, Lorenz F. and Rustichini, Aldo, Cognitive Skills Explain Economic Preferences, Strategic Behavior, and Job Attachment. IZA Discussion Paper No. 3609. Available at SSRN: https://ssrn.com/abstract=1184016 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Stephen V. Burks (Contact Author)

University of Minnesota, Morris - Division of Social Science ( email )

600 East 4th St.
Morris, MN 56267
United States
320-589-6191 (Phone)
320-589-6117 (Fax)

HOME PAGE: http://www.morris.umn.edu/academics/truckingproject/

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/en/webcontent/personnel/photos/index_html?key=1883

Center for Decision Research and Experimental Economics (CeDEx) ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

HOME PAGE: http://www.nottingham.ac.uk/cedex/people/external/index.aspx

Center for Transportation Studies, University of Minnesota ( email )

200 Transportation & Safety Bldg.
511 Washington Ave. SE
Minneapolis, MN
United States
612-626-1077 (Phone)
612-625-6381 (Fax)

HOME PAGE: http://www.cts.umn.edu/

Jeffrey P. Carpenter

Middlebury College - Department of Economics ( email )

Munroe Hall
Middlebury, VT 05753
United States
802-443-3241 (Phone)
802-443-2084 (Fax)

HOME PAGE: http://community.middlebury.edu/~jcarpent/index.ht

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Lorenz F. Goette

University of Lausanne ( email )

Department of Economics
Batiment Internef
Lausanne, 1015
Switzerland
(021) 692'3496 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org

Aldo Rustichini

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

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