Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/222340 
Year of Publication: 
2020
Series/Report no.: 
ECONtribute Discussion Paper No. 014
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
This paper proposes a method for empirically mapping psychological personality traits to economic preferences. Careful modelling of random components of decision making is crucial to establishing the long supposed but empirically elusive link between economic and psychological systems for understanding differences in individuals’ behavior. I use factor analysis to extract information on individuals’ cognitive ability and personality and embed it within a Random Preference Model to estimate distributions of risk and time preferences, of their individual-level stability, and of people’s propensity to make mistakes. I explain up to 50% of the variation in both average risk and time preferences and in individuals’ capacity to make consistent rational choices using four factors related to cognitive ability and three of the Big Five personality traits. True differences in desired outcomes are related to differences in personality whereas actual mistakes in decisions are related to cognitive skill.
Subjects: 
economic preferences
personality traits
decision error
measurement error
stochastic discrete choice
JEL: 
D91
D80
D01
Document Type: 
Working Paper

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