The Causal Effect of Cognitive Abilities on Economic Behavior: Evidence from a Forecasting Task with Varying Cognitive Load

CERGE-EI Working Paper Series No. 457

62 Pages Posted: 27 Apr 2012  

Ondrej Rydval

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute); Max Planck Institute of Economics

Date Written: April 1, 2012

Abstract

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.

Keywords: Cognitive ability, Causality, Experiment, Financial incentives, Performance, Working memory

JEL Classification: C81, C91, D80, D83, J24

Suggested Citation

Rydval, Ondrej, The Causal Effect of Cognitive Abilities on Economic Behavior: Evidence from a Forecasting Task with Varying Cognitive Load (April 1, 2012). CERGE-EI Working Paper Series No. 457. Available at SSRN: https://ssrn.com/abstract=2046942 or http://dx.doi.org/10.2139/ssrn.2046942

Ondrej Rydval (Contact Author)

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

Politickych veznu 7
111 21 Prague
Czech Republic
+420 224 005 290 (Phone)

HOME PAGE: http://www.cerge-ei.cz

Max Planck Institute of Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

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