Economic Decision-Making Skill Predicts Income in Two Countries

Abstract

Jobs increasingly require good decision-making. Workers are valued not only for how much they can do, but also for their ability to decide what to do. In this paper we measure the ability to make good decisions about resource allocation, which we call economic decision-making skill. Our assessment requires an intuitive understanding of comparative advantage and is motivated by a model where decision-makers strategically acquire information about factor productivity under time and effort constraints. Economic decision-making skill strongly predicts labor earnings in representative samples of full-time workers in the U.S. and Denmark, conditional on education, IQ, numeracy, and other covariates. Economic decision-making skill is more valuable in management and other decision-intensive occupations.

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