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Subjective Beliefs and Schooling Decisions

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  • Christian Belzil

    ()
    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

Abstract

This paper considers the estimation of sequential schooling decisions made by agents who are endowed with subjective beliefs about their own ability. I use unique Italian panel data which provide information on i) the curvature of the per-period utility function, ii) schooling decisions, iii) post-schooling earnings, in order to estimate the future component of the differences in intertemporal utilities of school and work independently from the present component, (as in Geweke and Keane, 1995, 2001), and evaluate the importance of “present bias”. Under certain conditions, which include imposing equality between the modal belief and true ability, I recover individual specific subjective probability distributions. I estimate both the degree of confidence (a measure of spread) and the incidence of over (and under) estimation. I find that the future component of intertemporal utilities dominates schooling decisions. I find a strong incidence of under-estimation among the more able and a much smaller incidence of over-estimation among the low ability group. At the medium ability spectrum, there is evidence of some over-estimation. The degree of confidence is high and imply that agents have a substantial amount of inside information (36% of the population act on a degenerate subjective distribution). Overall, the variance of the objective ability heterogeneity distribution is 4 times as large the variance of the distribution characterizing subjective beliefs.

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Paper provided by HAL in its series Post-Print with number halshs-00174524.

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Date of creation: Jul 2007
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Handle: RePEc:hal:journl:halshs-00174524

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Related research

Keywords: dynamic programming; éducation; over-confidence; present bias; rational expectation; subjective distributions;

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  1. Zvi Eckstein & Kenneth I. Wolpin, 1999. "Why Youths Drop Out of High School: The Impact of Preferences, Opportunities, and Abilities," Econometrica, Econometric Society, Econometric Society, vol. 67(6), pages 1295-1340, November.
  2. Flavio Cunha & James J. Heckman, 2006. "A New Framework for the Analysis of Inequality," NBER Working Papers 12505, National Bureau of Economic Research, Inc.
  3. Charles Bellemare & Sabine Kroger & Arthur van Soest, 2005. "Actions and beliefs: Estimating distribution-based preferences using a large scale experiment with probability questions on expectations," Artefactual Field Experiments, The Field Experiments Website 00007, The Field Experiments Website.
  4. Christian Belzil & Marco Leonardi, 2007. "Risk Aversion and Schooling Decisions," Working Papers, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure 0716, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  5. Belzil, Christian & Hansen, Jörgen, 2002. "A Structural Analysis of the Correlated Random Coefficient Wage Regression Model," IZA Discussion Papers 512, Institute for the Study of Labor (IZA).
  6. Guiso, Luigi & Paiella, Monica, 2004. "The Role of Risk Aversion in Predicting Individual Behaviours," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4591, C.E.P.R. Discussion Papers.
  7. Flavio Cunha & James J. Heckman & Salvador Navarro, 2005. "Separating Uncertainty from Heterogeneity in Life Cycle Earnings," NBER Working Papers 11024, National Bureau of Economic Research, Inc.
  8. Christian Belzil, 2006. "The Return to Schooling in Structural Dynamic Models: A Survey," Working Papers, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure 0609, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
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Cited by:
  1. Belzil, Christian, 2006. "The Return to Schooling in Structural Dynamic Models: A Survey," IZA Discussion Papers 2370, Institute for the Study of Labor (IZA).
  2. Christian Belzil & Marco Leonardi, 2006. "Can Risk Aversion Explain Schooling Attainments? Evidence From Italy," Post-Print, HAL halshs-00142551, HAL.
  3. Christian Belzil & Marco Leonardi, 2009. "Risk aversion and schooling decisions," Working Papers hal-00411099, HAL.
  4. Filippin, Antonio & Paccagnella, Marco, 2011. "Family Background, Self-Confidence and Economic Outcomes," IZA Discussion Papers 6117, Institute for the Study of Labor (IZA).
  5. Wölfel, Oliver & Heineck, Guido, 2012. "Parental risk attitudes and children's secondary school track choice," Economics of Education Review, Elsevier, Elsevier, vol. 31(5), pages 727-743.

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