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Preferences and biases in educational choices and labor market expectations: shrinking the black box of gender

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  • Ernesto Reuben
  • Matthew Wiswall
  • Basit Zafar

Abstract

Standard observed characteristics explain only part of the differences between men and women in education choices and labor market trajectories. Using an experiment to derive students' levels of overconfidence, and preferences for competitiveness and risk, this paper investigates whether these behavioral biases and preferences explain gender differences in college major choices and expected future earnings. In a sample of high-ability undergraduates, we find that competitiveness and overconfidence, but not risk aversion, are systematically related with expectations about future earnings: Individuals who are overconfident and overly competitive have significantly higher earnings expectations. Moreover, gender differences in overconfidence and competitiveness explain about 18 percent of the gender gap in earnings expectations. These experimental measures explain as much of the gender gap in earnings expectations as a rich set of control variables, including test scores and family background, and they are poorly proxied by these same control variables, underscoring that they represent independent variation. While expected earnings are related to college major choices, the experimental measures are not related with college major choice.

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  • Ernesto Reuben & Matthew Wiswall & Basit Zafar, 2013. "Preferences and biases in educational choices and labor market expectations: shrinking the black box of gender," Staff Reports 627, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:627
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    Keywords

    risk aversion; earnings; competitiveness; overconfidence; college majors; gender differences; subjective expectations;
    All these keywords.

    JEL classification:

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

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