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.

Keywords: impatience, human capital, educational attainment, time discounting

JEL Classification: D03, D91, I21, J24