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Preferences and Biases in Educational Choices and Labor Market Expectations: Shrinking the Black Box of Gender

39 Pages Posted: 5 Sep 2013  

Ernesto Reuben

New York University (NYU) - New York University Abu Dhabi; IZA Institute of Labor Economics

Matthew Wiswall

Arizona State University (ASU)

Basit Zafar

Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: August 2013

Abstract

Standard observed characteristics explain only part of the differences between men and women in education choices and labor market trajectories. Using an experiment to derive students' levels of overconfidence, and preferences for competitiveness and risk, this paper investigates whether these behavioral biases and preferences explain gender differences in college major choices and expected future earnings. In a sample of high-ability undergraduates, we find that competitiveness and overconfidence, but not risk aversion, are systematically related with expectations about future earnings: Individuals who are overconfident and overly competitive have significantly higher earnings expectations. Moreover, gender differences in overconfidence and competitiveness explain about 18 percent of the gender gap in earnings expectations. These experimental measures explain as much of the gender gap in earnings expectations as a rich set of control variables, including test scores and family background, and they are poorly proxied by these same control variables, underscoring that they represent independent variation. While expected earnings are related to college major choices, the experimental measures are not related with college major choice.

Keywords: college majors, earnings, gender differences, subjective expectations, risk aversion, overconfidence, competitiveness

JEL Classification: D81, D84, I21, J10

Suggested Citation

Reuben, Ernesto and Wiswall, Matthew and Zafar, Basit, Preferences and Biases in Educational Choices and Labor Market Expectations: Shrinking the Black Box of Gender (August 2013). FRB of New York Staff Report No. 627. Available at SSRN: https://ssrn.com/abstract=2321222 or http://dx.doi.org/10.2139/ssrn.2321222

Ernesto Reuben

New York University (NYU) - New York University Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

IZA Institute of Labor Economics

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

Matthew Wiswall

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

Basit Zafar (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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