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Do preferences and biases predict life outcomes? Evidence from education and labor market entry decisions

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  • Backes-Gellner, Uschi
  • Herz, Holger
  • Kosfeld, Michael
  • Oswald, Yvonne

Abstract

Evidence suggests that acquiring human capital is related to better life outcomes, yet young peoples’ decisions to invest in or stop acquiring human capital are still poorly understood. We investigate the role of time and reference-dependent preferences in such decisions. Using a data set that is unique in its combination of real-world observations on student outcomes and experimental data on economic preferences, we find that a low degree of long-run patience is a significant predictor of dropping out of upper-secondary education. Further, for students who finish education we show that one month before termination of their program, present-biased students are less likely to have concrete continuation plans. Our findings provide fresh evidence on students’ decision-making about human capital acquisition and labor market transition with important implications for education and labor market policy.

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  • Backes-Gellner, Uschi & Herz, Holger & Kosfeld, Michael & Oswald, Yvonne, 2021. "Do preferences and biases predict life outcomes? Evidence from education and labor market entry decisions," European Economic Review, Elsevier, vol. 134(C).
  • Handle: RePEc:eee:eecrev:v:134:y:2021:i:c:s0014292121000623
    DOI: 10.1016/j.euroecorev.2021.103709
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    Cited by:

    1. Thomas Epper & Ernst Fehr & Helga Fehr-Duda & Claus Thustrup Kreiner & David Dreyer Lassen & Søren Leth-Petersen & Gregers Nytoft Rasmussen, 2020. "Time Discounting and Wealth Inequality," American Economic Review, American Economic Association, vol. 110(4), pages 1177-1205, April.
    2. Guido Friebel & Michael Kosfeld & Gerd Thielmann, 2019. "Trust the Police? Self-Selection of Motivated Agents into the German Police Force," American Economic Journal: Microeconomics, American Economic Association, vol. 11(4), pages 59-78, November.
    3. Eva Berger, 2020. "Self-productivity and Cross-productivity in the Process of Skill Formation," Working Papers 2027, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.

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    More about this item

    Keywords

    Economic preferences; Education; Dropout; Human capital; Job search;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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