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The role of heterogeneous risk preferences, discount rates, and earnings expectations in college major choice

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  • Patnaik, Arpita
  • Venator, Joanna
  • Wiswall, Matthew
  • Zafar, Basit

Abstract

We estimate a rich model of college major choice using a panel of experimentally-derived data. Our estimation strategy combines two types of data: data on self-reported beliefs about future earnings from potential human capital decisions and survey-based measures of risk and time preferences. We show how to use these data to identify a general life-cycle model, allowing for rich patterns of heterogeneous beliefs and preferences. Our data allow us to separate perceptions about the degree of risk or about the current versus future payoffs for a choice from the individual’s preference for risk and patience. Comparing our estimates of the general model to estimates of models which ignore heterogeneity in risk and time preferences, we find that these restricted models overstate the importance of earnings to major choice. Additionally, we show that while men are less risk averse and patient than women, gender differences in expectations about own-earnings, risk aversion, and patience cannot explain gender gaps in major choice.

Suggested Citation

  • Patnaik, Arpita & Venator, Joanna & Wiswall, Matthew & Zafar, Basit, 2022. "The role of heterogeneous risk preferences, discount rates, and earnings expectations in college major choice," Journal of Econometrics, Elsevier, vol. 231(1), pages 98-122.
  • Handle: RePEc:eee:econom:v:231:y:2022:i:1:p:98-122
    DOI: 10.1016/j.jeconom.2020.04.050
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    2. Stephane Bonhomme & Angela Denis, 2023. "Estimating Individual Responses when Tomorrow Matters," Papers 2310.09105, arXiv.org, revised Dec 2023.
    3. Pamela Giustinelli, 2022. "Expectations in Education: Framework, Elicitation, and Evidence," Working Papers 2022-026, Human Capital and Economic Opportunity Working Group.
    4. Koşar, Gizem & van der Klaauw, Wilbert, 2023. "Workers' Perceptions of Earnings Growth and Employment Risk," IZA Discussion Papers 16013, Institute of Labor Economics (IZA).
    5. Alexis Orellana & Kegon Teng Kok Tan, 2023. "Skills, Aspirations, and Occupations," Working Papers 2023-027, Human Capital and Economic Opportunity Working Group.
    6. Zhang, Hanzhe & Zou, Ben, 2023. "A marriage-market perspective on risk-taking and career choices," European Economic Review, Elsevier, vol. 152(C).
    7. Leighton, Margaret & Speer, Jamin D., 2023. "Rich Grad, Poor Grad: Family Background and College Major Choice," IZA Discussion Papers 16099, Institute of Labor Economics (IZA).
    8. Ersoy, Fulya Y., 2020. "The effects of the great recession on college majors," Economics of Education Review, Elsevier, vol. 77(C).
    9. Arpita Patnaik & Matthew J. Wiswall & Basit Zafar, 2020. "College Majors," NBER Working Papers 27645, National Bureau of Economic Research, Inc.
    10. Zhou, Yonghong, 2023. "Influence of political movement on fields of study: Evidence from Hong Kong," European Journal of Political Economy, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    College majors; Risk preferences; Time preferences; Subjective expectations; Uncertainty;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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