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Can Money Change Who We Are? Estimating the Effects of Unearned Income on Measures of Incentive-Enhancing Personality Traits

Author Info

  • Powdthavee, Nattavudh

    ()

    (London School of Economics)

  • Boyce, Christopher J.

    ()

    (University of Manchester)

  • Wood, Alex M.

    ()

    (University of Manchester)

Abstract

The importance of noncognitive childhood skills in predicting higher wages is well documented in economics. This paper studies the reverse. Using surveys of lottery winners, we analyze the effects of unearned income on the Big Five personality traits. After correcting for potential endogeneity problems from prize sizes, we find that unearned income improves traits that predict pro-social and cooperative behaviors, preferences for social contact, empathy, and gregariousness, and reduces individuals' tendency toward negative emotional states: known in economics literature as incentive-enhancing personality traits. Our results support the possibility of scope for later interventions to improve the personality traits of adults.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6131.

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Length: 38 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:iza:izadps:dp6131
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Keywords: noncognitive skills; personality traits; lottery winners; instrumental variables; unearned income;

Find related papers by JEL classification:

  • D3 - Microeconomics - - Distribution
  • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

This paper has been announced in the following NEP Reports:

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  1. Nattavudh Powdthavee, 2010. "How much does money really matter? Estimating the causal effects of income on happiness," Empirical Economics, Springer, vol. 39(1), pages 77-92, August.
  2. Guido W. Imbens & Donald B. Rubin & Bruce I. Sacerdote, 2001. "Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players," American Economic Review, American Economic Association, vol. 91(4), pages 778-794, September.
  3. James Heckman & Pedro Carneiro & Flavio Cunha, 2004. "The Technology of Skill Formation," 2004 Meeting Papers 681, Society for Economic Dynamics.
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  7. Christopher J. Boyce & Alex M. Wood, 2011. "Personality and the marginal utility of income: Personality interacts with increases in household income to determine life satisfaction," Post-Print halshs-00754542, HAL.
  8. Mikael Lindahl, 2005. "Estimating the Effect of Income on Health and Mortality Using Lottery Prizes as an Exogenous Source of Variation in Income," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
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  11. Borghans, Lex & Duckworth, Angela Lee & Heckman, James J. & Weel, Bas ter, 2008. "The Economics and Psychology of Personality Traits," MERIT Working Papers 010, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  12. Jule Specht & Boris Egloff & Stefan C. Schmukle, 2011. "Stability and Change of Personality across the Life Course: The Impact of Age and Major Life Events on Mean-Level and Rank-Order Stability of the Big Five," SOEPpapers on Multidisciplinary Panel Data Research 377, DIW Berlin, The German Socio-Economic Panel (SOEP).
  13. Herbert Gintis & Samuel Bowles & Melissa Osborne, 2001. "Incentive-Enhancing Preferences: Personality, Behavior, and Earnings," American Economic Review, American Economic Association, vol. 91(2), pages 155-158, May.
  14. Brunello, Giorgio & Schlotter, Martin, 2011. "Non Cognitive Skills and Personality Traits: Labour Market Relevance and their Development in Education & Training Systems," IZA Discussion Papers 5743, Institute for the Study of Labor (IZA).
  15. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 963-1002.
  16. Andrew E. Clark & Fabrice Etilé & Fabien Postel-Vinay & Claudia Senik & Karine Van Der Straeten, 2005. "Heterogeneity in reported wel-being: Evidence from twelve European countries," Post-Print halshs-00754095, HAL.
  17. Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, vol. 114(497), pages 641-659, 07.
  18. Boyce, Christopher J. & Wood, Alex M., 2011. "Personality and the marginal utility of income: Personality interacts with increases in household income to determine life satisfaction," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1), pages 183-191.
  19. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
  20. James Heckman & Pedro Carneiro, 2003. "Human Capital Policy," NBER Working Papers 9495, National Bureau of Economic Research, Inc.
  21. Sendhil Mullainathan & Marianne Bertrand, 2001. "Do People Mean What They Say? Implications for Subjective Survey Data," American Economic Review, American Economic Association, vol. 91(2), pages 67-72, May.
  22. Nyhus, Ellen K. & Pons, Empar, 2005. "The effects of personality on earnings," Journal of Economic Psychology, Elsevier, vol. 26(3), pages 363-384, June.
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  24. Semykina, Anastasia & Linz, Susan J., 2007. "Gender differences in personality and earnings: Evidence from Russia," Journal of Economic Psychology, Elsevier, vol. 28(3), pages 387-410, June.
  25. Guido Heineck, 2011. "Does it Pay to Be Nice? Personality and Earnings in the United Kingdom," ILR Review, Cornell University, ILR School, vol. 64(5), pages 1020-1038, October.
  26. Paul Frijters & John P. Haisken-DeNew & Michael A. Shields, 2004. "Money Does Matter! Evidence from Increasing Real Income and Life Satisfaction in East Germany Following Reunification," American Economic Review, American Economic Association, vol. 94(3), pages 730-740, June.
  27. Andrew Clark & Fabrice Etilé & Fabien Postel-Vinay & Claudia Senik & Karine Van Der Straeten, 2004. "Heterogeneity in reported well-being:Evidence from twelve European countries," Working Papers hal-00242916, HAL.
  28. Bénédicte H. Apouey & Andrew E. Clark, 2014. "Winning big but feeling no better? The effect of lottery prizes on physical and mental health," Working Papers halshs-00566789, HAL.
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