Cognitive Skills Explain Economic Preferences, Strategic Behavior, and Job Attachment

Cognitive Skills Explain Economic Preferences, Strategic Behavior, and Job Attachment

Date:
2008-07
By:
Burks, Stephen V. (University of Minnesota, Morris) Carpenter, Jeffrey P. (Middlebury College) Goette, Lorenz (Federal Reserve Bank of Boston) Rustichini, Aldo (University of Minnesota)

URL:
http://d.repec.org/n?u=RePEc:iza:izadps:dp3609&r=cbe
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
Keywords:

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 C93 L92 J63