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Title:Cognitive skills explain economic preferences, strategic behavior, and job attachment PDF Logo
Authors:Burks, Stephen V.
Carpenter, Jeffrey P.
Götte, Lorenz
Rustichini, Aldo
Issue Date:2008
Series/Report no.:IZA Discussion Papers 3609
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.
Subjects: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:C81
Persistent Identifier of the first edition:urn:nbn:de:101:1-2008072947
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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