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Human Capital and the Lifetime Costs of Impatience

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  • Brian C. Cadena
  • Benjamin J. Keys

Abstract

In this paper, we examine the role of impatience in human capital formation—arguably the most important investment decision individuals make during their lifetimes. We focus on a set of investment behaviors that cannot be explained solely by variation in exponential discounting. Using data from the NL SY and a straightforward measure of impatience, we find that impatient people more frequently invest in dynamically inconsistent ways, such as dropping out of college with one year or less remaining. The cumulative investment differences result in the impatient earning 13 percent less and expressing more regret as this cohort reaches middle age. (JEL D91, I26, J24, J31)

Suggested Citation

  • Brian C. Cadena & Benjamin J. Keys, 2015. "Human Capital and the Lifetime Costs of Impatience," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 126-153, August.
  • Handle: RePEc:aea:aejpol:v:7:y:2015:i:3:p:126-53
    Note: DOI: 10.1257/pol.20130081
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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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